<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1997
REGISTRATION NO. 333-11789
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
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.)
</TABLE>
9800 SOUTH SEPULVEDA BLVD., SUITE 720
LOS ANGELES, CALIFORNIA 90045
(310) 642-5643
(ADDRESS AND TELEPHONE NUMBER
OF PRINCIPAL EXECUTIVE OFFICES)
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. RICHARD F. DAHLSON, ESQ.
HECHT & STECKMAN, P.C. JACKSON & WALKER, L.L.P.
60 EAST 42ND STREET, SUITE 5101 901 MAIN STREET, SUITE 6000
NEW YORK, NEW YORK 10165-5101 DALLAS, TEXAS 75202-3797
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
CALCULATION OF AMENDED REGISTRATION FEE
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<TABLE>
<CAPTION>
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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
<S> <C> <C> <C> <C>
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Common Stock, no par value(3)............................. 1,725,000 $ 6.00 $ 10,350,000 $ 3,568.97
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Class A Warrants to purchase Common Stock(4).............. 1,725,000 $ 0.15 $ 258,750 $ 89.22
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Common Stock, no par value, underlying Class A Warrants... 1,725,000 $ 6.00 $ 10,350,000 $ 3,568.97
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Common Stock, no par value, offered by Selling
Securityholders......................................... 728,229 $ 6.00 $ 4,369,374 $ 1,506.68
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Common Stock, no par value, underlying Class E Warrants
offered by Selling Securityholders...................... 892,000 $ 6.00 $ 5,352,000 $ 1,715.17
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Common Stock, no par value, underlying Class B Warrants
offered by Selling Securityholders...................... 70,000 $ 6.00 $ 420,000 $ 144.83
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Common Stock, no par value, in Representative's Purchase
Option.................................................. 150,000 $ 7.20 $ 1,080,000 $ 372.41
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Representative's Warrants in Representative's Purchase
Option.................................................. 150,000 $ 0.18 $ 27,000 $ 9.31
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Common Stock, no par value, underlying Warrants in
Representative's Purchase Option........................ 150,000 $ 7.20 $ 1,080,000 $ 372.41
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Total...................................................................................... $ 33,260,129 $ 11,347.91
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Amount previously paid...................................................................................... $ 17,252.48
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Amount due.................................................................................................. $ 0.00
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</TABLE>
(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 Purchase Option and the Class A Warrant, Class B Warrant
and Class E 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) Includes 225,000 shares of Common Stock issuable pursuant to the
Representative's over-allotment option.
(4) Includes 225,000 Class A Warrants issuable pursuant to the Representative's
over-allotment option.
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> 2
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"
6 Dilution................................... "Dilution"
7 Selling Security Holders................... Alternate Pages
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....................... "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 Available for
Future Sale; -- Dividend Policy";
"Description of Securities -- Dividends"
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> 3
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) 1,500,000 shares
of Common Stock and 1,500,000 Class A Warrants ("Class A Warrants") to be
offered by the Company, plus 225,000 shares of Common Stock and 225,000 Class A
Warrants available from the Company pursuant to the Underwriters' over-allotment
option (the "Offering"); (ii) 1,500,000 shares of Common Stock, plus 225,000
shares of Common Stock pursuant to the Underwriters' over-allotment option,
issuable upon exercise of the Class A Warrants ("Class A Warrant Shares"); (iii)
892,000 shares of Common Stock issuable upon exercise of the Class E Warrants
issued by the Company originally in October 1995 as amended December 1996
("Class E Warrant Shares"); (v) 728,229 shares of Common Stock previously issued
by the Company ("Issued Shares"); (vi) 70,000 shares of Common Stock issuable
upon exercise of Class B Warrants issued by the Company in April 1996 and
December 1996 ("Class B Warrant Shares").
The Issued Shares (the "Selling Shareholders"), the Class E Warrant Shares
(the "Class E Warrantholders"), the Class B Warrant 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 "Underwriting." Following the Prospectus included in this
Registration Statement are certain pages of the Prospectus relating to the
Issued Shares, the Class E Warrant Shares, the Class B Warrant Shares, including
alternate front and back cover pages, an alternate "The Offering" section of the
"Prospectus Summary," and sections entitled "Concurrent Sales by Company" and
"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 Class E Warrant Shares and Class B Warrant Shares. All
references in this Prospectus to the "Offering" or "this Offering" will be
changed to the "Company Offering" in the Prospectus relating to the Issued
Shares, the Class E Warrant Shares, and the Class B Warrant Shares. In addition,
cross-references in this Prospectus shall be adjusted to refer to the
appropriate alternate Prospectus pages.
<PAGE> 4
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 JANUARY 13, 1997
1,500,000 SHARES OF COMMON STOCK
1,500,000 CLASS A WARRANTS
BEVERAGE WORKS, INC.
Beverage Works, Inc., a California corporation ("Company"), is offering
("Offering") 1,500,000 shares ("Shares") of its common stock, no par value
("Common Stock") and 1,500,000 Class A Warrants. See "Description of
Securities." The Shares and Class A Warrants are purchased separately and will
be transferable immediately following completion of this Offering. Each Class A
Warrant entitles the holder to purchase one share of the Company's Common Stock
at an exercise price of $6.00, 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 $0.05 per Class A Warrant,
provided the closing bid price of the Common Stock (or the average of the last
reported sales price if the Common Stock is traded on a national securities
exchange) exceeds $12.00 per share (200% of the Shares' offering price) for ten
consecutive trading days ending within five 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 First London
Securities Corporation, 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.
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<TABLE>
<CAPTION>
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ESTIMATED UNDERWRITING
MAXIMUM DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(2) COMPANY(3)
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<S> <C> <C> <C>
Per Share................................. $6.00 $0.60 $5.40
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Per Warrant............................... $0.15 $0.015 $0.135
- ------------------------------------------------------------------------------------------------
Total(1).................................. $9,225,000 $922,500 $8,302,500
</TABLE>
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(1) The Company has granted to the Representative a 30-day option to purchase up
to 225,000 additional Shares and 225,000 additional Class A Warrants solely
to cover over-allotments, if any. If the Representative exercises its option
in full, the Price to Public will total $10,608,750, Underwriting Discounts
and Commissions will be $1,060,875 and Proceeds to Company will be
$9,547,875 (before deduction of expenses -- see Note (3) below). 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 has also sold to the Representative an option to purchase
150,000 shares of Common Stock at $7.20 per share and 150,000 warrants to
purchase Common Stock at $7.20 per share exercisable for a period of four
years commencing one year from the date of this Prospectus
("Representative's Purchase Option"). The Company 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 $756,002.
The Shares and Class A Warrants 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 Shares and Class A Warrants will
be made against payment therefor on or about , 1997.
------------------------
FIRST LONDON SECURITIES CORPORATION
The date of this Prospectus is , 1997
<PAGE> 5
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> 6
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 225,000 shares of Common Stock and 225,000 Class A Warrants, no exercise of
any warrants or options previously issued by the Company or the Class A Warrants
made in this Offering, no exercise of the Representative's Purchase Option to
purchase up to 150,000 shares of Common Stock and 150,000 warrants and no
exercise of stock options by employees and others to purchase up to 2,433,500
shares of Common Stock. See "Business," "Management -- Executive Compensation,"
"Description of Securities," "Management -- Incentive Stock Option Plan,"
"Management -- Nonqualified Stock Option Plan," "Management -- Director
Compensation" and "Underwriting."
THE COMPANY
Beverage Works, Inc. ("the Company") was formed on August 2, 1995 as a
California corporation, for the purpose of creating a multi-brand,
multi-regional specialty beer company that is capable of assuming a leadership
role in the increasingly consolidating, competitive craft brewing industry.
Craft breweries are mostly small to medium sized independent brewing companies
that generally use only traditional brewing processes and ingredients. These
include regional specialty brewers, microbrewers and brewpub restaurants. The
Company's growth strategy is distinctly different from most other companies in
the craft brewing industry that have recently raised capital through initial
public offerings. Rather than allocating resources and capital towards the
development or improvement of a single local or regional brand and brewing
facility, the Company's growth strategy focuses on acquiring a variety of
existing regional brands with growth potential and existing production capacity,
and/or entering strategic alliances with key industry players. The Company plans
to allocate resources towards creating operating efficiencies by consolidating
production capacity, sales and marketing operations, distribution channels, and
effective multi-brand management. Thus the Company expects to achieve
competitive strength and operating efficiencies in line with leaders in the
craft brew industry, and use its capital to spur revenue growth by effectively
marketing its portfolio of existing and new products and services in targeted
local and regional markets nationwide. Where appropriate to its strategy, the
Company will acquire and operate other specialty beverage companies and brewpub
restaurants. See "Business -- Plan of Operation/Business Strategy."
The Company has acquired one Southern California-based craft brewery and,
as soon as practicable after the date of this Prospectus, the Company will have
consummated the acquisition of an additional Southern California-based craft
brewery and entered into a partnership with one Northern California-based
brewery (the "Breweries"). The Company will market a total of 26 beer brands, a
number of which have won awards, utilizing a combined brewing capacity among the
Breweries of approximately 82,000 barrels per year. In addition, the Company
will operate as a contract brewery for a number of brands owned by other
brewers. See "Business -- Products" and "-- Breweries."
The Company has acquired, in a stock for stock transaction, approximately
95% of the outstanding capital stock of Heritage Brewing Company ("Heritage" or
"HBC") of Lake Elsinore, California, for 142,276 of the Company's Common Stock.
See "Business -- Breweries -- Heritage Brewing Company."
The Company has also entered into an agreement to acquire all of the
outstanding capital stock of Orange Empire Brewing Company ("OEBC"), the parent
of Riverside Brewing Company ("Riverside" or "RBC") of Riverside, California,
effective upon the close of this Offering. RBC operates both a brewpub
restaurant with a 5,000 barrel per year capacity, and a separate 35,000 barrel
per year brewery. Under the terms of the Share Purchase Agreement, the Company
will issue to the shareholders of OEBC 141,063 shares of Common Stock and, if
certain operating criteria are obtained, an additional 155,000 shares of Common
Stock. The Company has also entered into a Debt Exchange Agreement with certain
debtholders of OEBC which provides that such debtholders agree to cancel
approximately $644,000 of debt owned to them by OEBC in return for $301,000
cash, 24,125 shares of the Company's Common Stock and 50,000 warrants. The
Company will issue, concurrently with the closing of the OEBC acquisition,
27,618 shares of Common Stock to two
3
<PAGE> 7
former shareholders of OEBC for assuming $220,940 of the principal amount of a
loan to OEBC by Riverside National Bank. The Company and OEBC will assume the
balance of the loan in the approximate amount of $313,000. See
"Business -- Breweries -- Riverside Brewing Company."
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")
forming BWI-Prost Partners (the "Partnership"), to own and operate St. Stan's
Brewing Company ("St. Stan's") of Modesto, California. BWISS will own 51% of the
capital and profits interest in the Partnership and will effectively control the
business of the Partnership. As its capital contribution, BWISS will assume
approximately $1,128,000 of the debt of Prost and contribute approximately
$1,167,000 cash over the next 36 months. This cash contribution will be
distributed to Prost. Prost will contribute all of its assets, including all of
the operating assets of St. Stan's. The Company anticipates advancing $100,000
to $250,000 over the next twelve months to the Partnership for working capital
and marketing. See "Use of Proceeds." Over the next three years, BWISS has the
option to acquire Prost's interest in the Partnership by paying $2,205,000 plus
any unpaid required capital contributions. See "Risk Factors -- St. Stan's
Brewing Company Partnership" and "Business -- Breweries -- St. Stan's Brewing
Company."
Initially, the Company's profitability will be adversely affected as the
result of its acquisition and financing strategies. The Company has incurred,
and will continue to incur, substantial expense pursuant to its acquisition
strategy. Until the consummation of the acquisition and partnership agreements
concurrent with this Offering, the Company has limited influence on the
operations of these companies, and is restricted in achieving certain operating
efficiencies and income growth. Furthermore, until such time that a certain
number of craft breweries have been acquired or joint ventured and functioning
according to the Company's operating performance standards and consolidation and
marketing strategies, the Company's profitability will be adversely affected.
4
<PAGE> 8
THE OFFERING
Securities Offered............... 1,500,000 shares of Common Stock, no par
value (the "Shares") and 1,500,000 Class A
Warrants to purchase Common Stock at an
exercise price of $6.00 subject to
adjustment. See "Description of
Securities."
Price per Share.................. $6.00
Price per Class A Warrant........ $0.15
Common Stock Outstanding Prior to
the Offering(1)................ 1,670,453 Shares
Class A Warrants Outstanding
Prior to the Offering.......... None
Common Stock to be Outstanding
upon Completion of the
Offering(1)(2)................... 3,170,453 Shares
Class A Warrants to be
Outstanding
Upon Completion of the
Offering......................... 1,500,000 Class A Warrants
Use of Proceeds.................. Acquisition of Riverside 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; Costs of consolidation of
operations; Working capital. See "Use of
Proceeds."
Proposed Nasdaq Common Stock
Symbol.........................
Proposed Nasdaq Class A
Warrant Symbol.................
- ---------------
(1) Includes 141,063 shares of Common Stock to be issued as soon as practical
after this Offering to shareholders of OEBC pursuant to the Share Purchase
Agreement, 10,000 shares of Common Stock to be issued under the Brewpub
Management Agreement, 24,125 shares of Common Stock to be issued pursuant to
the Debt Exchange Agreement, 60,000 shares of Common Stock to be issued to
Brewery Leasing Company pursuant to the equipment lease agreement amendment
and brewing equipment consulting agreement, and 27,618 shares of Common
Stock to be issued to certain former OEBC shareholders to assume a portion
of the Riverside National Bank Loan. Excludes up to 155,000 shares of Common
Stock to be issued to shareholders of OEBC under the earnout provisions of
the Share Purchase Agreement See "Business -- Breweries -- Riverside Brewing
Company." Includes 30,000 shares of Common Stock to be issued pursuant to
the tentative settlement agreement with Tamkin Capital Partners. See
"Business -- Legal Proceedings."
(2) Excludes 225,000 shares and 225,000 Class A Warrants issuable pursuant to
the Underwriter's over-allotment option. See "Underwriting."
5
<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
AUGUST 2, 1995 TO -----------------------------------
DECEMBER 31, NINE YEAR ENDED
1995 MONTHS ENDED DECEMBER 31,
----------------- SEPTEMBER 30, 1996 1995
------------------ ------------
NINE (UNAUDITED) (UNAUDITED)
MONTHS ENDED
SEPTEMBER 30, 1996
------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $ 195,552 $ 44,810 $ 3,903,084 $ 4,975,962
========== ========== ========== ==========
Net loss.................... $ (2,273,654) $ (548,761) $ (3,835,098) $ (2,496,317)
========== ========== ========== ==========
Net loss per share.......... $ (0.85) $ (0.23) $ (1.13) $ (0.82)
========== ========== ========== ==========
Common shares and
equivalents outstanding... 2,687,359 2,362,806 3,384,390 3,059,837
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------- PRO FORMA
DECEMBER 31, ------------------
1995 SEPTEMBER 30, 1996
------------ ------------------
SEPTEMBER 30, 1996 (UNAUDITED)
------------------
(UNAUDITED)
<S> <C> <C> <C>
Working capital (deficiency)............... $ (1,573,444) $ 814,541 $ 3,637,337
Total assets............................... 2,473,429 2,665,591 14,124,210
Total liabilities.......................... 2,699,011 1,086,850 5,915,414
Stockholders' equity (capital deficiency) (225,582) 1,578,741 8,208,796
</TABLE>
6
<PAGE> 10
RISK FACTORS
INVESTMENT IN THE COMPANY IS HIGHLY SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. PRIOR TO THE PURCHASE OF ANY OF THE SECURITIES OFFERED HEREBY, 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. The Company has acquired one of the Breweries, and, simultaneously
with the completion of the Offering, the Company will consummate and finalize
the transactions with the other two 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 the nine-months ended September 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 or future brewery
joint ventures or acquisitions on a profitable basis.
Determination of Offering Price. The public offering prices of the Shares
and Class A Warrants have 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, brewery and brewpub
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
7
<PAGE> 11
and more established craft and microbrewers, have greater financial, production,
distribution and marketing resources than the Company.
Acquisitions; Need for Capital; Construction of New Regional
Breweries. The Company's expansion strategy involves acquisitions, strategic
alliances 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 -- Plan of Operation/Business Strategy." 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
to form the partnership BWI-Prost Partners ("Partnership"). In addition to the
initial capital contribution to the Partnership, which includes assumption of
approximately $1,128,000 of Prost's debt, BWISS is required to contribute to the
Partnership approximately $1,167,000 over the next 36 months. In the event BWISS
fails to make such payments, Prost may acquire BWISS' interest in the
Partnership based on (i) the fair market value of the Partnership's tangible
assets plus (ii) the Partnership's modified net income for the preceding twelve
months multiplied by three less (iii) accrued and contingent liabilities. This
amount would likely be 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 $1,167,000 required additional
capital contribution not made at the date of the buy-out ("Option"). 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 fair market value of
the Partnership's net assets. 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 partner, 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
liquidated, which BWISS may or may not desire, or be in the financial position,
to purchase, 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 the Partnership's sales. Prost has
limited financial resources to provide the Partnership with meaningful working
capital. 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 Management anticipates will be between $100,000 and $250,000
over the next twelve months, is subject to the Partnership's assets exceeding
its other liabilities. See "Business -- Breweries -- St. Stan's Brewing
Company."
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
8
<PAGE> 12
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.
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." The Company intends to obtain 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, and there
is no assurance that, such coverage, if available, would be 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 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
9
<PAGE> 13
Company. The Company has distribution agreements with several distributors,
including significant relationships with Southern Wine and Spirits of America,
Inc. and Wine Warehouse. The loss of either or both as distributors would have a
material adverse effect on the Company's ability to bring its products to market
in California and therefore adversely effect its sales and results of
operations. 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, may be influenced by such producers
to restrict distribution of the Company's products.
Shares Eligible For Future Sale. The 1,500,000 Shares and 1,500,000 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 in the public market following this Offering. Of the Company's
3,170,453 shares of Common Stock that will be outstanding upon completion of
this Offering, 942,224 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 942,224 restricted shares, officers and directors hold an
aggregate of 365,213 shares. Of the remaining restricted securities, 135,000
shares have demand registration rights which grant the holders the right to
demand the Company to register these shares (thereby making such shares eligible
for sale) within days of the date of this Prospectus, and 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 or subsequently registered
under the Securities Act 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 1,091,000,
respectively, of such shares are granted as of the date of this Prospectus. See
"Management -- Nonqualified Stock Option Plan" and " -- Incentive Stock Option
Plan." The Company has further reserved 892,000 shares of Common Stock issuable
upon exercise of the Class E Warrants, 70,000 shares of Common Stock issuable
upon exercise of the Class B Warrants, 300,000 shares of Common Stock issuable
upon exercise of the Representative's Purchase Option and Warrant, 80,583 shares
of Common Stock issuable upon exercise of other outstanding options and
warrants, and 155,000 shares for issuance to certain former stockholders of
OEBC, subject to Riverside Brewing Company's achievement of certain financial
goals. Other than the Company's Class A Warrants, and Class E Warrants and Class
H Warrants, substantially all of these options and warrants have an exercise
price that is substantially less than the offering price of the shares 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. The 892,000
shares of Common Stock issuable upon exercise of the Class E Warrants and 70,000
shares of Common Stock issuable upon exercise of the Class B Warrants which are
registered along with the Offering may not be sold or otherwise disposed of for
180 days after the effective date of the registration statement without the
prior written consent of the Representative. Upon expiration of this period or
if consent is given, such shares shall be freely transferable. See "Description
of Securities" and "Underwriting."
Holders of 728,229 shares of Common Stock (approximately 23% of the shares
of Common Stock to be outstanding immediately following completion of this
Offering or 21% if the over-allotment option is exercised in full) which are
registered along with this Offering have agreed with the Company and the
Representative
10
<PAGE> 14
not to sell or otherwise dispose of any such shares of Common Stock for a period
ranging from sixty days to thirteen months after the date of this Prospectus
without the prior written consent of the Representative. Upon expiration of this
period or if consent is given, such shares shall be freely transferable and may
be sold. See "Description of Securities -- Registration Rights." The Company
expects that it will issue shares of Common Stock and warrants to purchase
Common Stock in connection with future acquisitions. Such shares of Common
Stock, including shares issuable upon exercise of warrants, will become eligible
for sale in the public market from time to time in the future. See
"Business-Plan of Operation/Business Strategy -- Acquisitions."
Dividend Policy. The Company has never paid dividends and does not
anticipate paying dividends in the foreseeable future. See "Description of
Securities -- Dividends."
Preferred Stock Authorized. The Company's Articles of Incorporation
authorizes the issuance of 5,000,000 shares of 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 stock, the Company may issue and sell preferred stock 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 Class A Warrants May Result In Loss of Value In Class
A Warrants. The Company must have an effective registration statement on file
with the Commission before any Class A 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 Class A Warrants to be effective. It is
also possible that the Class A Warrants could be acquired by persons residing in
states where the Company is unable to qualify the Common Stock underlying the
Class A Warrants for sale. In either event the Class A Warrants may expire
unexercised, which would result in the holders losing all of the value of the
Class A Warrants. See "Description of Securities -- Class A Warrants."
Immediate and Substantial Dilution Will Be Suffered By Investors In This
Offering. Purchasers of Shares will suffer an immediate, substantial dilution
of approximately 77% in the net tangible book value of their shares of Common
Stock since the purchase price of the Shares 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
11
<PAGE> 15
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.
Limited Protection For Intangible Assets; Realization of Goodwill. The
Company and the Breweries have trademarks and tradenames registered with the
Federal Patent and Trademark Office and/or California Secretary of State,
including "Beverage Works" and "St. Stan's" tradenames and several of the
Breweries' beers' tradenames. Although the Company is unaware of claims or
potential claims by third parties as to the use of such names, there is no
assurance that such claims may not be made in the future or that such claims
will not be successful. The Company has limited protection for its other
intangible assets. Thus, the Company is relying upon common law protection for
those assets. 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.
Potential "Dram Shop" Liability. Some states have enacted "dram shop" laws
and legislation which impose criminal and civil liability on licensed alcoholic
beverage servers for injuries or damages caused by their negligent service of
alcoholic beverages to a visibly intoxicated person or to a minor, if such
service is the proximate cause of the injury or damage and such injury or damage
is reasonably foreseeable. California has enacted legislation granting broad
immunity to servers of alcoholic beverages from civil liability, except for the
sale of alcoholic beverages to minors, but does not extend such immunity to
criminal liability. While the Company maintains liquor liability insurance as
part of its comprehensive general liability insurance which management believes
is adequate to protect against such liability, there can be no assurance that
the Company will not be subject to a judgment or fine in excess of such
insurance coverage or that it will be able to continue to maintain such
insurance coverage at reasonable costs or at all. The imposition of a judgment
or fine substantially in excess of the Company's insurance coverage would have a
material adverse effect on the Company. Similarly, the failure of the Company to
obtain and maintain insurance coverage could also materially and adversely
affect the Company. See "Business -- Regulation."
12
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 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 $6.00 per Share of Common Stock and $0.15
per Class A Warrant), (B) the issuance of 141,063 shares of Common Stock to
acquire OEBC (which includes the assumption of certain indebtedness) valued at
$719,421, and the related payment of $301,000 in cash and the issuance of 51,743
shares of Common Stock in satisfaction of $795,133 of OEBC indebtedness, the
issuance of 20,000 shares pursuant to an OEBC related management and an OEBC
related consulting agreement, and the issuance of 50,000 shares of Common Stock
to reduce $500,000 in principal on an OEBC capital lease due a related party,
(C) the assumption of $668,927 and the related partial repayment of $168,927 of
certain notes payable, the assumption and full repayment of notes payable to
related parties totaling $459,120, and to establish minority interest of
$304,116 and a distribution payable of $1,166,953 in connection with the
consummation of BWI-Prost Partners Partnership Agreement, (D) the establishment
of $750,000 and repayment of $1,250,000 of bridge notes used for working capital
purposes, (E) the establishment and repayment of $175,000 of a note payable to a
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, (G) the issuance of 60,000 shares of Common Stock under a
consulting agreement, (H) the issuance of 30,000 shares relating to a legal
settlement, (I) the retirement of 1,160,216 shares of Common Stock, and (J) the
issuance of 20,000 shares of Common Stock related to a bridge note extension.
The information set forth in the following table should be read in conjunction
with the historical and pro forma 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>
SEPTEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Short-term debt...................................................... $ 640,133 $ 628,837
========= ==========
Long-term obligations................................................ $ 363,089 $ 2,567,704
---------- -----------
Minority interest.................................................... -- 304,116
---------- -----------
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;
2,457,863 shares issued and outstanding
(and 3,170,453 shares as adjusted)(1)........................... 2,596,833 12,110,640
Accumulated deficit................................................ (2,822,415) (3,901,844)
---------- -----------
Net stockholders' equity................................... (225,582) 8,208,796
---------- -----------
Total capitalization....................................... $ 137,507 $11,080,616
========= ==========
</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 155,000 shares of
Common Stock reserved for future issuance under the earnout provisions and
50,000 shares of Common Stock reserved for issuance under exercise of
warrants in the debt repayment provisions in the acquisition of Orange
Empire Brewing Company. See "Business -- Breweries -- Riverside Brewing
Company." Excludes 892,000
13
<PAGE> 17
shares of Common Stock reserved for issuance under the Class E Warrant
Agreement, 15,583 shares of Common Stock reserved for issuance under the
Class C Warrant Agreement, 70,000 shares of Common Stock reserved for
issuance under the Class B Warrant Agreement, 15,000 shares of Common Stock
reserve for issuance under the Class H Warrant Agreement, 100,000 shares of
Common Stock reserved for issuance under the Directors' Compensation Plan,
and 1,500,000 shares of Common Stock reserved for issuance under the Class A
Warrants included in this Offering. See "Description of Securities" and
"Management -- Director Compensation." Also excludes up to 225,000 shares
and 225,000 shares reserved for issuance under the warrants under the
Underwriter overallotment and 300,000 shares for issuance under the
Representative's Purchase Option. Excludes retirement of 1,160,216 shares of
Common Stock on November 22, 1996. See "Underwriting."
14
<PAGE> 18
DILUTION
The unaudited net tangible book deficiency of the Company on a historical
cost basis as of September 30, 1996 was approximately $(903,547), or $(0.37) 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 1,500,000 shares of Common Stock offered by the Company herein
(after deduction of underwriting discounts and commissions, and estimated
offering expenses payable by the Company), (B) the issuance of 141,063 shares of
Common Stock to acquire OEBC, the issuance of 51,743 shares of Common Stock in
satisfaction of $494,133 of OEBC indebtedness and the issuance of 20,000 shares
pursuant to an OEBC related management and an OEBC related consulting agreement,
(C) the issuance of 60,000 shares of Common Stock pursuant to a consulting
agreement, (D) the issuance of 50,000 shares of Common Stock in connection with
the $500,000 reduction to a capital lease obligation due to a related party (E)
the issuance of 30,000 shares of Common Stock in connection with a legal
settlement, (F) the issuance of 20,000 shares of Common Stock in connection with
the extension of a bridge note, and (G) the retirement of 1,160,216 shares of
Common Stock. The Company's pro forma tangible book value at September 30, 1996
would have been $4,349,167 (which consists of pro forma stockholders' equity of
$8,208,796 less goodwill and other intangible assets of $3,859,629), or $1.37
per share of Common Stock. This represents an immediate increase in net tangible
book value of $1.74 per share to existing stockholders and an immediate dilution
of $4.63 per share (or 77%) to the new public investors. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share.................................... $ 6.00
Net tangible book value per share before offering........................ $ (0.37)
Increase in net tangible book value per share attributable to new
investors............................................................. 1.74
-----
Pro forma net tangible book value per share after offering................. 1.37
-----
Dilution per share to new public investors................................. $ 4.63
=====
</TABLE>
The following table summarizes, on a pro forma basis as of September 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 CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ 2,457,863 77.5% $ 2,771,520 20.2% $1.13
New public investors......................... 1,500,000 47.3 9,000,000 65.6 6.00
Stockholders as a result of acquisition and
debt reduction............................. 192,806 6.1 983,311 7.1 5.10
Other........................................ 180,000 5.7 972,000 7.1 5.40
Retirement of Common Stock................... (1,160,216) (36.6) -- -- --
--------- ----- ----------- -----
Total...................................... 3,170,453 100.0% $13,726,831 100.0%
========= ===== =========== =====
</TABLE>
The foregoing computations exclude the proceeds expected to be received
from the sale of the 1,500,000 Class A Warrants and assume no exercise of stock
options or warrants after September 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 155,000 shares of Common Stock reserved for future
issuance under the earnout provisions, and 50,000 shares of Common Stock
reserved for the exercise of the Class D Warrants under the debt repayment
provisions under the acquisition of Orange Empire Brewing Company. See
"Business -- Breweries." Excludes 892,000 shares of Common Stock reserved for
issuance upon exercise of the Class E Warrants, 15,583 shares of Common Stock
reserved for issuance upon exercise of
15
<PAGE> 19
the Class C Warrants, 70,000 shares of Common Stock reserved for issuance upon
exercise of the Class B Warrants, 300,000 shares reserved for issuance upon
exercise of the Representative's Purchase Option, 15,000 shares of Common Stock
reserved for issuance upon exercise of the Class H Warrants, 100,000 shares of
Common Stock reserved for issuance under the Directors' Compensation Plan, and
1,500,000 shares of common stock reserved for issuance upon exercise of the
Class A Warrants included in this Offering. See "Description of Securities" and
"Management -- Director Compensation." Also excludes up to 225,000 shares and
225,000 shares of Common Stock reserved for issuance upon exercise of the Class
A Warrants reserved for issuance under the Representative's overallotment. See
"Underwriting."
Assuming the exercise of all options and warrants to purchase an aggregate
of 1,863,500 shares of Common Stock, granted and/or issued to directors,
officers, promoters and affiliates which have an average exercise price of
$5.15, the Company's pro forma tangible book value at September 30, 1996 would
have been $13,946,017, or $2.77 per share. This would represent an immediate
increase in the net tangible book value of $1.40 per share to the new public
investors. The dilution per share to new public investors, before assuming the
issuance of such options and warrants, and after assuming such issuance, is
$4.63 and $3.23, respectively.
16
<PAGE> 20
USE OF PROCEEDS
The net proceeds of this offering, after deduction of underwriting
commissions and offering expenses, will be approximately $7,546,498. 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)........................... $ 628,000 8%
Riverside Acquisition(2).................................... 451,000 6
Sales and Marketing(3)...................................... 1,500,000 20
Notes Payable(4)............................................ 1,250,000 17
Short-Term Line of Credit(5)................................ 175,000 2
Property and Equipment(6)................................... 250,000 3
Acquisitions and New Products(7)............................ 1,000,000 13
Accounts Payable(8)......................................... 500,000 7
Consolidation of Operations(9).............................. 30,000 --
Working Capital............................................. 1,762,498 24
---------- ----
Total............................................. $7,546,498 100%
========== ====
</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
$169,000 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 $459,000 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 repaid 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.
(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) The Company is obligated under a secured bridge 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 April
15, 1997. The Company is also obligated to pay $250,000 from the issuance of
a note at 12% interest per annum in December 1996. The proceeds from these
notes were used for working capital purposes. Up to an additional $500,000
in bridge loans are expected to be provided through January 1997, accruing
interest at 12% to 18% and to be repaid from proceeds of the IPO. The
primary use of these additional funds is $300,000 for working capital
purposes and $200,000 to pay half of the legal settlement on the Tamkin
Capital Partners law suit.
(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 are to be 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 purchases in the next
18 months are expected to be applied towards the expansion and improvement
of the Company's brewing capacity.
17
<PAGE> 21
(7) The Company plans for the expansion of the Company's product lines and
activities 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."
(8) This includes approximately $500,000 to pay-off existing current and past
due accounts payable.
(9) The Company intends to move the Heritage Brewing Company operations to the
Riverside Brewing Company location during the first six months of 1997. The
Heritage Brewing Company facility lease expires in April of 1997, and the
lease for additional storage is on a month to month lease. It is anticipated
that the Company will incur minimal costs relating to the removal,
transportation and installation of the equipment.
18
<PAGE> 22
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 and its subsidiary HBC, OEBC and its subsidiary RBC, which operates a
brewery and a brewpub, and St. Stan's, 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 nine
months ended September 30, 1996, and the historical balance sheet data as of
September 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 nine months ended
September 30, 1996 are not necessarily indicative of results to be expected for
any future periods.
The unaudited pro forma statements of operations data for the year ended
December 31, 1995 and the nine months ended September 30, 1996, and the pro
forma balance sheet data as of September 30, 1996 is presented, giving effect to
the following:
(1) The consummation of the Beverage Works, Inc. proposed 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 September 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 Beverage Works, Inc. and Orange Empire Brewing Company Share
Purchase Agreement and related agreements, and the consummation of the BWI-Prost
Partners Contribution and Partnership Agreements and related 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.
19
<PAGE> 23
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------ PRO FORMA
AUGUST 2, 1995 TO -------------------------------
DECEMBER 31, NINE MONTHS
1995(1) ENDED
----------------- SEPTEMBER 30,
1996
NINE MONTHS --------------
ENDED (UNAUDITED)
SEPTEMBER 30,
1996
-------------- YEAR ENDED
DECEMBER 31,
(UNAUDITED) 1995
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 195,552 $ 44,810 $ 3,903,084 $ 4,975,962
Cost of sales...................... 421,158 81,627 3,063,902 3,814,479
---------- ---------- ---------- ----------
Gross profit..................... (225,606) (36,817) 839,182 1,161,483
Selling, general and administrative
expenses......................... 1,443,607 491,330 3,781,913 3,543,436
Provision for legal settlements.... 571,000 -- 737,000 --
---------- ---------- ---------- ----------
Operating loss................... (2,240,213) (528,147) (3,679,730) (2,381,953)
Interest and other expenses, net... 76,960 28,320 409,139 402,661
Minority interest in loss of
consolidated partnership......... -- -- (116,940) (104,552)
---------- ---------- ---------- ----------
Loss before income tax benefit..... (2,317,173) (556,467) (3,970,929) (2,680,062)
Income tax benefit................. 43,519 7,706 135,830 183,745
---------- ---------- ---------- ----------
Net loss........................... $ (2,273,654) $ (548,761) $ (3,835,098) $ (2,496,317)
========== ========== ========== ==========
Net loss per common share.......... $ (0.85) $ (0.23) $ (1.13) $ (0.82)
========== ========== ========== ==========
Common shares and equivalents
outstanding...................... 2,687,359 2,362,806 3,384,390 3,059,837
========== ========== ========== ==========
OPERATING DATA (IN BARRELS):
Barrels shipped(2)................. 1,715 392 10,127 12,684
========== ========== ========== ==========
Production capacity, end of
period(3)........................ 12,000 6,500 82,000 76,500
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
------------------------------- PRO FORMA
DECEMBER 31, --------------
1995 SEPTEMBER 30,
------------ 1996
--------------
SEPTEMBER 30, (UNAUDITED)
1996
--------------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Current assets......................... $ 424,726 $1,121,377 $ 5,221,042
Working capital (deficiency)........... (1,573,444) 814,541 3,637,337
Property and equipment................. 1,335,939 1,296,434 4,996,282
Total assets........................... 2,473,429 2,665,591 14,124,210
Current liabilities.................... 1,998,170 306,836 1,583,705
Total liabilities...................... 2,699,011 1,086,850 5,915,414
Stockholders' equity (capital
deficiency).......................... (225,582) 1,578,741 8,208,796
</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, or 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
20
<PAGE> 24
levels for any period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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. St. Stan's
and RBC operate breweries that can potentially support an output of
approximately 30,000 and 35,000 barrels per year, respectively, but their
fermentation capacity varies. RBC's brewpub operates at approximately 5,000
barrels per year. Some capital improvements will be made to expand
fermentation upon the close of the Offering. See "Use of Proceeds."
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."
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was founded for the purpose of creating a multi-brand,
multi-regional specialty beer company, capable of assuming a leadership role in
the craft brewing industry. The Company's growth strategy is distinctly
different from most other companies in the craft brewing industry, as it does
not allocate resources and capital towards the development or improvement of a
single local or regional brand and brewing facility, but focuses on acquiring a
variety of existing regional brands with growth potential and existing
production capacity, and/or entering strategic alliances with key industry
players.
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. This requires increased
marketing and selling skills, operating efficiencies, and integrated production
as well as appropriate distribution capabilities and access to capital to enable
the craft brewers to effectively compete with the dominant companies in this
industry.
Management of the Company intends to acquire and/or joint venture with
craft brewers with promising brands and strategically located craft breweries
and brewpub restaurants. This should enable the Company to obtain operating
efficiencies and competitive strength by consolidating production capacity,
sales and marketing operations, distribution channels, and effective multi-brand
management.
The Company has been funded, to date, with a private placement of
$1,654,984 at $4.00 per common share, an 18% bridge loan of $500,000 to be
repaid from proceeds of the proposed Offering, a $150,000 private placement of
equity units at $5.00 per equivalent share, a 12% $250,000 bridge loan to be
repaid from proceeds of the proposed offering, a variable rate (not to exceed
11% per annum) $175,000 line of credit with a related party, and up to $500,000
in additional bridge loans which are expected to close in January 1997, to be
repaid from proceeds of the proposed offering. 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 this Offering.
Initially, the Company's profitability will be adversely affected by its
growth and financing strategies. The Company has incurred, and will continue to
incur, substantial expenses pursuant to its growth strategy. Until the
consummation of the acquisition and partnership agreements which are expected to
occur concurrent with this Offering, the Company has limited influence on the
operations of these companies, and is restricted in achieving certain operating
efficiencies and reducing losses from operations. Furthermore, until such time
that a certain number of craft breweries have been acquired or joint ventured
and are functioning according to the Company's operating performance standards,
consolidation and marketing strategies, the Company's operations will be
adversely affected.
The Company's initial proposed acquisition, partnership and operating
agreements are primarily with smaller breweries that have not been operating
profitably and in all likelihood could not operate profitably without operating
efficiencies, financial, distribution and marketing assistance. The Company will
need to spend substantial funds on sales and marketing in order to increase
sales volume and enhance the distribution channels. It will also need to invest
in brewing facilities, equipment and improvements in order to consolidate and
increase production capacity, reduce operating costs and improve operating
efficiencies. Management of the Company currently has sales and marketing
skills, as well as substantial distribution contacts. Upon the completion of the
proposed Offering, management believes they will have the capital necessary to
offer financial assistance for marketing and advertising, expanding of
distribution channels, and for capital improvements to enable the combined
companies to achieve lower operating costs and to improve operating
efficiencies.
22
<PAGE> 26
Pro forma financial information is presented for the year ended December
31, 1995 and the nine months ended September 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 nine months ended September 30, 1996, as the
Company was only established in August, 1995. The financial data and analysis
pertaining to its proposed acquisition of OEBC and partnership with St. Stan's
Brewery and Brewpub operations are presented, comparing December 31, 1994 with
December 31, 1995, and the nine months ending September 30, 1995 with the same
period ended September 30, 1996.
The proposed acquisition of OEBC and the proposed partnership with St.
Stan's will be accounted for upon the consummation of the transactions.
Accordingly, the operating results of the companies will be consolidated and
reported on a prospective basis from the date of closing. The discussions of the
proforma financial information are for analytical purposes only, and do not
purport to represent the actual financial reporting of the combined companies
upon the closing of the proposed transactions.
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, its subsidiary
HBC, OEBC and its subsidiary RBC, and St. Stan's as if the acquisition, the
partnership and Offering were consummated during the beginning of the respective
periods. Such information is not 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
NINE MONTHS ENDED SEPTEMBER 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............................ 215.4 70.3 72.9 78.5
Gross Profit............................. (115.4) 29.7 27.1 21.5
Selling, General and Administrative...... 738.2 46.3 29.9 96.9
Provision for Settlements................ 292.0 7.0 -- 18.9
Interest and Other (Income) Expense...... 39.4 9.6 5.9 10.5
Minority Interest in loss of consolidated
Partnership............................ -- -- -- (3.0)
Tax Benefit.............................. (22.3) -- -- (3.5)
------- ----- ----- -----
Net Loss................................. (1,162.7)% (33.2)% (8.7)% (98.3)%
======= ===== ===== =====
</TABLE>
- ---------------
(1) Refer to Unaudited Proforma Condensed Consolidated Statement of Operations.
23
<PAGE> 27
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 76.7
Gross Profit............................. (82.2) 28.6 31.2 23.3
Selling, General and Administrative...... 1,096.4 38.8 28.8 71.2
Interest................................. 63.2 6.4 4.8 8.1
Other (Income) Expense................... -- -- -- --
Minority Interest in Loss of Consolidated
Partnership............................ -- -- -- (2.1)
Tax Benefit.............................. (17.2) .1 -- (3.7)
-------- ----- ----- -----
Net Loss................................. (1,224.6)% (16.7)% (2.4)% (50.2)%
======== ===== ===== =====
</TABLE>
- ---------------
(1) Refer to Unaudited Proforma Condensed Consolidated Statement of Operations.
Sales: The unaudited pro forma sales for the first nine months of 1996
totaled $3,903,084, which is a slight increase over the comparable period for
1995; however, there are no assurances that the companies will actually have
higher sales in 1996 than in 1995 as management does not believe that the
companies have sufficient working capital to sustain operations without
financial assistance from the Company's proposed Offering or other sources.
Cost of Sales: The unaudited pro forma cost of sales of 76.7% and 78.5% of
net sales for the year ending December 31, 1995 and the nine months ended
September 30, 1996, respectively, were above industry levels for breweries of
this size. The Company estimates that it must lower cost of sales to
approximately 67% of net sales in order to be competitive. 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 already initiated this
process by combining certain operations of HBC. The Company will also lower cost
of sales as a percentage of net sales by increasing sales through expansion of
existing and new brands, contract brewing agreements and acquisitions. 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: Unaudited pro forma selling,
general and administrative expenses for the year ended December 31, 1995 were
71.2% of net sales and for the nine months ended September 30, 1996 was 96.9% of
net sales which is high in comparison to the industry leaders that range from
16% to 45%. Selling, general and administrative expenses include $723,019 of
costs, detailed below, indirectly associated with the acquisitions and public
offering process. Adjusting for these costs would lower selling, general and
administrative expense to 78.4% of net sales before factoring in savings that
will be gained from consolidation of duplicate functions. These indirect
acquisition and public offering process related costs for the Company include
$268,444 in professional fees, $32,000 for a loss on an investment in Seaborn
Beverages Corporation, $50,000 in bonuses related to obtaining the Hussong's
license, $377,500 of costs incurred through the issuance of 70,000 shares of
common stock in connection with a one year consulting agreement providing
financial advisory services and a one year consulting agreement providing
assistance for the acquisition and disposition of brewing equipment and $262,392
of compensation through the issuance of 65,598 shares of common stock to
Heritage officers and former shareholders. Additionally, the Company's selling,
general and administrative expenses for the nine months ended September 30, 1996
included substantial costs associated with the administration of these companies
on a decentralized basis.
24
<PAGE> 28
Selling, general and administrative expenses are also adversely affected as
the result of additional noncash charges of $264,256 for goodwill amortization
expense on the OEBC acquisition and $16,500 in amortization expense for St.
Stan's formation costs. The Company expects an increase in selling, general and
administrative expense, primarily marketing and advertising, in terms of actual
dollars over time but a decrease in such expenses as a percent of net sales.
Certain incentive compensation will be paid when the Company achieves
profitability and, accordingly, management compensation is expected to decrease
in total dollars, as well as a percentage of sales in the next twelve months.
Provision for Settlements: Unaudited pro forma provision for settlements
consists of a provision of $571,000 for settlement of the Tamkin lawsuit as
discussed under "Legal Proceedings," and $166,000, of which $136,000 relates to
a shareholder dispute, for settlement of claims against OEBC. In total, these
charges were 18.9% of net sales.
Interest and Other Expenses (Income): Unaudited pro forma interest and
other expenses are 10.5% of net sales primarily as a result of interest paid on
bridge notes on common stock and warrants issued in connection with a bridge
note.
Net Loss: The unaudited pro forma net loss of $2,496,317 and $3,835,098 or
50.2% of net sales for the year ending December 31, 1995 and 98.3% for the nine
months ended September 30, 1996, respectively, is attributable to a number of
important factors as described above. Almost 50% of the nine-month pro forma net
loss can be attributed to legal settlements, consulting fees, legal and
accounting fees, which were incurred in preparation of becoming a public company
and establishing an infrastructure necessary for expansion of operations;
however, the Company still incurred a substantial pro forma net loss from
operations for the nine months ended September 30, 1996 of approximately
$2,066,000 after adjusting for depreciation and amortization of approximately
$645,000 and other noncash expenses aggregating approximately $1,124,000.
HISTORICAL 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
TO
DECEMBER 31, 1995
NINE MONTHS ENDED -----------------
SEPTEMBER 30,
1996
-----------------
(UNAUDITED)
<S> <C> <C>
Net Sales.......................................... 100.0% 100.0%
Cost of Sales...................................... 215.4 182.2
------ --------
Gross Profit....................................... (115.4) (82.2)
Selling, General and Administrative................ 738.2 1,096.4
Provision for Settlement........................... 292.0 --
Interest........................................... 39.4 63.2
Benefit for Income Taxes........................... (22.3) (17.2)
------ --------
Net Loss........................................... (1,162.7)% (1,224.6)%
====== ========
</TABLE>
Sales: Net sales of $44,810 for the period August 2, 1995 to December 31,
1995 only reflect sales for HBC beginning from the November 8, 1995 acquisition
date; BWI had no sales. Net sales of $195,552 for the nine-month period ending
September 30, 1996 were adversely affected as a result of construction
interruptions associated with improving and expanding the brewery and certain
quality control problems resulting from these activities. As a result of these
quality control problems, HBC had to temporarily discontinue the production "Red
Pig" for its largest contract brewing customer resulting in a $30,000 write down
of accounts receivable due to spoilage. Sales of the Mulligan and Red Fox brands
decreased as HBC did not have
25
<PAGE> 29
sufficient funds to participate in the distributor and retail sales and
promotional programs at acceptable levels. The Company made a decision in early
1995 to stop actively marketing these brands until they could be repackaged and
properly marketed which is planned for early 1997. In September 1996, the
Company reported its first sales of the Hussong's products, which although
insignificant through such date, are expected to increase significantly over the
next twelve (12) months.
Cost of Sales: Cost of sales were $421,158 or 215.4% of net sales for the
nine month period ending September 30, 1996. Cost of sales was adversely
affected as a result of production inefficiencies caused by construction at HBC
and reduced sales volume. Accordingly, the Company was unable to absorb the
fixed costs of HBC's production facility. Depreciation expense for nine months
ended September 30, 1996 included in cost of sales amounted to approximately
$168,000.
The Company has decided to consolidate HBC operations into the OEBC
operations in order to improve operating efficiencies and lower production
costs. The consolidation process will commence once the acquisition of OEBC is
completed at an estimated cost of $30,000. The HBC facility lease expires in
April 1997 and the lease for offsite storage is on a month-to-month arrangement.
The positive effect of consolidating the operations can be evidenced by the
following costs that are expected to be eliminated. The actual costs for the
nine-month period, where appropriate, were annualized for the purposes of this
analysis. Workman's Compensation Insurance -- $500, liability
insurance -- $4,508, rent -- $45,260, property taxes -- $1,743, temporary
help -- $2,833, payroll and related taxes -- $29,700 for a total savings of
$84,544 annually. The savings does not account for potential savings in
purchasing and other economies of scale gained through a more efficient brewery.
There are no assurances that such costs can be eliminated by management or that
the Company will achieve savings through purchasing and other economies of
scale.
Selling, General and Administrative Expense: Selling, general and
administrative expenses were $1,443,607 or 738.2% of net sales for the nine
month period ending September 30, 1996. However, a substantial amount of the
expenses were nonrecurring expenses associated with the acquisitions and public
offering process. Specifically, included in selling, general and administrative
were $513,909 in professional fees primarily for legal, accounting and director
fees pertaining to the acquisition and public offering process; $201,000 for
losses on two investments, $50,000 in bonuses related to the Hussong's license;
and approximately $30,000 in travel, telephone and miscellaneous office cost.
Based on this analysis the recurring Operating Expenses for the nine month
period ending September 30, 1996 are $607,698.
Provision for Settlement: Provision for settlement represents a provision
of $571,000 for settlement of the Tamkin lawsuit as discussed under "Legal
Proceedings."
PERIOD TO PERIOD COMPARISON OF RESULTS -- ORANGE EMPIRE BREWING COMPANY
(RIVERSIDE BREWING COMPANY)
The following table sets forth certain items included in OEBC's statements
of operations as a percentage of net sales:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 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......................................... 63.2 70.3 74.4 71.4
----- ----- ----- -----
Gross profit.......................................... 36.8 29.7 25.6 28.6
Selling, general and administrative................... 42.4 53.3 45.2 38.8
Interest.............................................. 7.0 9.0 6.9 6.8
Other (income) expense................................ (0.3) 0.6 .3 (.4)
Income Taxes provision................................ .1 0 .1 .1
----- ----- ----- -----
Net Loss.............................................. (12.4)% (33.2)% (26.9)% (16.7)%
===== ===== ===== =====
</TABLE>
26
<PAGE> 30
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND NINE MONTHS ENDED SEPTEMBER 30,
1996 -- ORANGE EMPIRE BREWING COMPANY (RIVERSIDE BREWING COMPANY)
Sales: Sales, net of excise taxes, increased 30.6% from $1,816,276 for the
nine months ended September 30, 1995 to $2,372,629 for the nine months ended
September 30, 1996. Excise taxes for the nine months ended September 30, 1995
were $72,252 compared to $45,837 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. The brewery went through a major expansion that was completed in the
fourth quarter of 1995, which increased brewery capacity and enabled OEBC to
pursue additional business. Sales increased substantially during the first seven
months of 1996, as a result of OEBC obtaining several new large accounts in
California and expanding shipment to a number of other states. OEBC had a number
of quality control problems, distribution and customer relations problems and
lacked adequate working capital to support the marketing and sales programs
required by the new accounts. As a result, OEBC lost a substantial portion of
this new business and will need additional working capital and new personnel,
both of which the acquisition is intended to provide.
Gross Profit: Gross profit increased by $37,413 from $667,890 for the
nine-month period ending September 30, 1995 to $705,303 for the nine-month
period ending April 30, 1996. However, as a percentage of sales gross profit
decreased 7.1% from 36.8% for the nine-month period ending September 30, 1995 to
29.7% for the nine-month period ending September 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. With the
decline in business and the fixed cost associated with running the expanded
brewery, OEBC actually had a negative gross profit in August and September.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased in actual dollars, and as a percentage of net
sales for the comparable periods. Selling, general and administrative expenses
increased by $495,179 from $769,884 for the nine-month period ending September
30, 1995 to $1,265,063 for the nine-month period ending September 30, 1996.
Selling, general and administrative expenses increased 10.9% as a percentage of
sales from 42.4% for the nine-month period ending September 30, 1995 to 53.3%
for the nine-month period ending September 30, 1996. Selling, general and
administrative expenses increased primarily as a result of supporting the 30.6%
increase in sales. Selling, general and administrative expenses increased as the
result of non-recurring accounting and legal cost associated with the
acquisition and as the result of increased lease expense, rent expense and
interest expense. As part of the acquisition terms, the lease and interest
expenses are being reduced.
Interest: Interest expense increased by 65.6% from $127,784 for the
nine-month period ending September 30, 1995 to $211,671 for the nine-month
period ending September 30, 1996. Interest expense increased primarily as the
result of interest charges associated with increased equipment leases and notes
payable to related parties.
Net Loss: The net loss increased in actual dollars, and as a percentage of
net sales for the comparable periods. The net loss increased $562,462 from
$(224,832) for the nine-month period ending September 30, 1995 to $(787,294) for
the nine-month period ending September 30, 1996. The net loss increased as a
percentage of sales by 20.8% from 12.4% for the nine-month period ending
September 30, 1995 to 33.2% for the nine-month period ending September 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 $2,553,977 (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.
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<PAGE> 31
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 3.0% 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, in actual dollars, but decreased as a
percentage of sales for the comparable periods. Selling, general and
administrative expenses increased 58.7% from $624,209 in 1994 to $990,701 in
1995. However, as a percentage of sales decreased 6.4% from 45.3% 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: OEBC has a $1,600 provision for income taxes in both
1994 and 1995 related to California minimum state taxes. OEBC has substantial
net operating loss carryforwards, the use of which will be limited in future
periods pursuant to the provisions of the Tax Reform Act of 1986. does not
expect to pay regular income 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.
PERIOD TO PERIOD COMPARISON OF RESULTS -- ST. STAN'S BREWERY AND BREWPUB
OPERATIONS
The following table sets forth certain items included in the St. Stan's
Brewery and Brewpub statements of operations as a percentage of net sales:
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 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......................................... 66.8 72.9 72.7 68.8
----- ----- ----- -----
Gross profit.......................................... 33.2 27.1 27.3 31.2
Selling, general and administrative................... 27.1 29.9 27.4 28.8
----- ----- ----- -----
Income (loss) from operations......................... 6.1 (2.8) (.1) 2.4
Interest.............................................. 5.0 5.9 5.5 4.8
----- ----- ----- -----
Net income (loss)..................................... 1.1% (8.7)% (5.6)% (2.4)%
===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND NINE MONTHS ENDED SEPTEMBER 30,
1996 -- ST. STAN'S BREWERY AND BREWPUB OPERATIONS
Sales: Net sales decreased by 8.4% from $1,529,253 for the nine month
period ending September 30, 1995 to $1,401,453 for the nine month period ending
September 30, 1996. Sales declined as the result of the loss of certain key
distributors and the inefficiencies created by transferring business to
replacement distributors, competitive pressures and insufficient working capital
to fund marketing and selling programs. Insufficient working capital prevented
St. Stan's from initiating the marketing, sales and promotional activities
required by their distributors and chain accounts, resulting in these
distributors paying more attention to better financed brands and causing the
discontinuation of St. Stan's products at a number of retail accounts.
Between June and September of 1996, six of St. Stan's key distributors, all
Budweiser Distributors, decided to discontinue distributing any craft brews
other than the products from Red Hook Brewery, a
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<PAGE> 32
company in which Anheuser Busch (Budweiser) has a 25% ownership interest. This
caused St. Stan's and other craft brewers to seek replacement distributors. This
process and the inefficiencies resulting from such a significant transfer,
resulted in loss of accounts and sales volume, in spite of identified demand for
St. Stan's products at account and consumer level. To date, St. Stan's has not
been able to recover from these distributor changes, as it has lacked the
working capital and effective marketing programs needed to promote its brands
and get significant attention from its new distributors, retail accounts and
consumers.
The Company has introduced St. Stan's to Southern Wine & Spirits ("SWS"),
whose distribution and sales organization covers all of California, for the
purpose of exploring the opportunity of SWS distributing St. Stan's throughout
California. Due to the nature of SWS's operations, its substantial retail
account base and its relationship with Beverage Works, this could have a
substantial positive effect on St. Stan's sales in 1997.
Sales declined at the brewpub/restaurant approximately $46,000 or 7.6% for
the first nine months of 1996, when compared to the similar period in 1995. The
primary reason was increased competition from several restaurants and two
multi-tap brewpubs, and the lack of an effective marketing program for the
brewpub.
Gross Profit: Gross profits decreased by 25.4% from $508,240 for the nine
months ended September 30, 1995 to $379,104 for the nine months ended September
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 St.
Stan's to lower prices to distributors faster than St. Stan's could lower
production costs and increase sales.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased less than 1.0% from $415,163 or 27.1% of sales
for the nine months ended September 30, 1995 to $418,706 or 29.9% of sales for
the nine months ended September 30, 1996. Selling, general and administrative
expenses remained basically the same as St. Stan's was forced to scale back in
most areas and try to allocate more funds for sales and marketing activities.
St. Stan's was unable to generate sufficient working capital and unable to re-
allocate enough funds to marketing and sales to counter competitive pressures
and grow the brands.
Interest: Interest expense increased 8.6% from $76,028 for the nine months
ended September 30, 1995 to $82,597 for the nine months ended September 30,
1996. Such increase is due to an increase in related party notes payable.
Net Income (Loss): Net income was $17,049 or 1.1% of net sales for the
nine months ended September 30, 1995 versus a net loss of $(122,199) or (8.7)%
of net sales for the period ended September 30, 1996. Overall competition has
significantly affected margins, and coupled with increased selling and interest
costs, caused the St. Stan's to incur a loss in 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.
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.
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<PAGE> 33
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded operations primarily from the
private placement of common stock grossing approximately $1,655,000 in one
offering and $150,000 in another, netting approximately $1,569,000 million after
costs of the offerings, and $750,000 in two debt financings of $500,000 and
$250,000 as of December 20, 1996 to be repaid from proceeds from the Offering.
The Company has also secured a $175,000 line of credit from a related party of
OEBC. Through December 20, 1996, the Company has borrowed $121,941 on such line
of credit. The Company intends to close up to an additional $500,000 in debt in
January 1997 to be repaid from proceeds of the proposed Offering. The Company's
operations have used substantial cash in the November 8, to December 31, 1995,
post acquisition period and for the nine month period ending September 30, 1996.
The Company has insufficient capital to fund cash used in operations to enable
the Company to continue as going concern without additional working capital in
the immediate future and cannot implement its strategy to lower cost of sales on
a percent of sales basis, initiate its sales and marketing plans or its growth
strategy without completing the planned Offering.
Initially, the Company's profitability will be adversely affected as the
result of its growth strategy. The Company has incurred, and will continue to
incur, substantial expense pursuant to its growth strategy which includes
expanded marketing and advertising expenses, as well as legal and accounting
expenses pursuant to its planned expansion through strategic alliances and
acquisitions. Until the consummation of the acquisition and partnership
agreements concurrent with this Offering, the Company has limited influence on
the operations of these companies, and is restricted in achieving certain
operating efficiencies and income growth. Furthermore, until such time that a
certain number of craft breweries have been acquired or joint ventured, and
functioning according to the Company's operating performance standards, and
consolidation and marketing strategies, 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 operating efficiencies,
financial, sales and marketing assistance. Furthermore, the Company will need to
spend substantial funds on sales and marketing in order to increase sales
volume. 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. Management plans to centralize
purchasing to reduce costs of materials on a per-unit basis. Management also
intends to consolidate its operations in Lake Elsinore, California with
Riverside, California operations during 1997 in an effort to reduce its
operating expenses. Management has estimated that such cost will be $30,000.
(See "Use of Proceeds"). There are no assurances that management's plans will be
implemented in a manner which will attain profitable operations after the
consummation of the Offering.
The Company's reciprocal marketing and production agreement with Chicago
Brewing Company should have a limited positive effect on the Company's cash
flow, but is important strategically as it enables the Company to produce and
market incremental business from existing wholesale and contract-brew accounts,
and enhance its competitive position in the craft brewing industry. Under this
agreement, the Company currently produces Red Pig for Cabo Distributing
Company's East Coast accounts at the Chicago Brewing Company facility.
The Company's production agreement with Minnesota Brewing Company should
have a positive effect on cash flow as it does not require the Company to incur
any additional capital or production related expenditures. Under this agreement,
the Company will package, store and sell Humpback Ale (draught only,
approximately 500 kegs per month) to SWS.
The Company currently has approximately $100,000 cash on hand, a credit
facility for $175,000 with approximately $50,000 credit available. 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 receive approximately $7.5 million from the
Offering, net of expenses, of which $3.5 million is contractually committed to
or is expected to be utilized almost immediately and specifically for
30
<PAGE> 34
the payment of a legal settlement ($200,000), paydown of accounts payable
($500,000), costs associated with consolidating operations ($30,000), repayment
of bridge ($1,250,000) and short-term debt obligations ($175,000), and cash
outlays associated with acquiring new property and equipment ($250,000) and with
completing the acquisition and partnership ($1,079,000). See "Use of Proceeds."
The Company is expected to have a current ratio of approximately 3 to 1
immediately after the public offering. The remaining net proceeds of $4.0
million refers to the following line items in the use of proceeds that will be
expended over the 12 to 18 month period following the Offering, including
marketing and sales ($1,500,000), acquisitions and new products ($1,000,000) and
working capital ($1,562,498). Even though the Company has plans to improve cash
flows through increased sales and reductions in cost of sales through improved
operating efficiencies (of which there are no assurance), it does not expect to
have positive cash flows until at least the fourth quarter of 1997 or early
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 Company also anticipates spending substantially on sales and marketing,
with planned expenditures for the first 18 months after the offering totaling
approximately $1.5 million. The Company will also invest approximately $250,000
to increase production capacity, quality control and consolidate and standardize
brewing operations. The Company will also seek additional acquisition candidates
to expand its product lines, at an estimated cost of $1.0 million. Management
intends to compliment its product line expansion through 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.
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, after taking
into consideration its use of a portion of such net proceeds for debt reductions
(including accounts payable) and Partnership contributions totaling $3,004,000,
will be sufficient to support the Company's capital expenditures, expansion of
product lines 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, consolidate operations or improve operating efficiencies fast enough in
the face of increased competitive pressures. Management must stabilize
operations and improve cash flows adequately to remain 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 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 or convertible debt securities, ownership dilutions to the Company's
shareholders may result. In the event that adequate funds are not available, the
Company's business may be adversely affected.
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<PAGE> 35
BUSINESS
The Company was formed on August 2, 1995 as a California corporation, for
the purpose of creating a multi-brand, multi-regional specialty beer company,
capable of assuming a leadership role in the craft brewing industry. The
Company's growth strategy is distinctly different from most other companies in
the craft brewing industry, as it does not allocate resources and capital
towards the development or improvement of a single local or regional brand and
brewing facility, but focuses on acquiring a variety of existing regional brands
with growth potential and existing production capacity, and/or entering
strategic alliances with key industry players. The Company plans to allocate
resources towards creating operating efficiencies by consolidating production
capacity, sales and marketing operations, distribution channels, and effective
multi-brand management. Thus the Company expects to achieve operating
efficiencies, and plans to use its capital to spur revenue growth by effectively
marketing its portfolio of existing and new products and services in targeted
local and regional markets nationwide.
The Company has acquired Heritage Brewing Company of Lake Elsinore,
California ("Heritage" or "HBC"), and as soon as practicable after the date of
this Prospectus will have acquired Orange Empire Brewing Company ("OEBC"), the
parent of Riverside Brewing Company of Riverside, California ("Riverside" or
"RBC"), which operates a brewpub-restaurant and a separate craft brewery and
have become a majority partner with Prost Partners L.P. ("Prost") in BWI-Prost
Partners, doing business as St. Stan's Brewing Company of Modesto, California
("St. Stan's"), operating a brewpub restaurant and a brewery (collectively the
"Breweries").
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 March 31, 1997 or if the Company has not funded at least
$500,000 of interim financing during the period November 4, 1996 through January
10, 1997. The exercise of the call option requires Heritage to repay all monies
advanced by the Company for payments of its Small Business Administration loan
and Liberty National Bank 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.
Heritage was established in 1989 as one of the first microbrewers in
California. Heritage's brands are Red Fox Ale and Mulligan. Heritage also
currently acts as a contract brewer for other craft brands, such as Catalina
Ale, Airship, Rodeo Colt, and Belmont Brewing Co. Heritage also obtained the
license rights for Hussong's Cerveza, which was successfully launched by the
Company in September 1996.
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 facility.
Riverside Brewing Company
The Company has agreed to acquire all of the outstanding shares of OEBC,
the parent of RBC. The closing of the sale is expected to occur as soon as
practicable following the closing of this Offering. In exchange for the OEBC
shares, the Company will issue 141,063 shares of its common stock to OEBC
shareholders. In addition, certain non-management shareholders of OEBC will
receive an additional 155,000
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<PAGE> 36
shares of the Company's Common Stock based on a specified number of barrels of
beer produced and sold by OEBC ("Earnout Shares"). For each barrel of beer over
7,000 that the OEBC produces, ships and sells from the closing date of the
acquisition through December 31, 1998, the Company will issue an additional four
Earnout Shares up to a maximum of 120,000 Earnout Shares. If OEBC produces,
ships and sells 40,000 or more barrels of beer during that same period, then
those shareholders will receive an additional 35,000 Earnout Shares. The Company
has agreed to provide up to 80 percent of the current potential maximum capacity
(i.e., 24,000 barrels out of a 35,000 barrel capacity) per year for production
of the OEBC products to meet the Earnout Shares criteria. In the event that such
product is not produced because of capacity constraints at the OEBC facilities
and additional capacity cannot be provided elsewhere, then the number of barrels
required for OEBC to produce, ship and sell in order for the shareholders to be
entitled to receive any or all of the Earnout Shares shall be adjusted in good
faith by the Company and the OEBC shareholders. The number of shares issued to
the OEBC shareholders will be increased (or decreased) dollar for dollar by the
amount by which the net book value of OEBC on the closing date is greater (or
less) than a deficit of $1,411,542 (the OEBC April 30, 1996 unaudited
shareholders deficit of $911,542 plus $500,000) based on a share price of $8.00
per share. Based on the September 30, 1996 unaudited OEBC consolidated financial
statements included elsewhere herein, Management does not believe shares issued
will be adjusted upward under this provision.
At the closing of the OEBC acquisition, Brewery Leasing Company, a company
wholly-owned by Michael Hagerman, a director and principal shareholder of OEBC,
has agreed to amend the terms of certain equipment leases it currently has with
OEBC in exchange for 50,000 shares of the Company's Common Stock. The amendments
include (i) reducing the effective interest rate of the equipment leases to 10%,
(ii) reducing the lease obligation by $500,000, (iii) granting the Company the
option to purchase the leased equipment for $1.00 upon the expiration of such
leases, and (iv) increasing the lease obligation $61,950 for delinquent lease
payments through December 1995.
Also, concurrently with the closing of the OEBC acquisition, Michael
Hagerman and Norman Kretschmar agree to assume $220,941 of the principal amount
of a loan to OEBC by Riverside National Bank, which has agreed to release OEBC
from that portion of the loan. The Company and OEBC will assume the balance of
the loan in the amount of $312,552. To induce Messrs. Hagerman and Kretschmar to
assume that portion of the loan, the Company has agreed to issue a total of
27,618 shares of Common Stock.
The Company has also entered into a Debt Exchange Agreement whereby the
certain debtholders of OEBC have agreed to forgive approximately $644,000 of
loans to OEBC. In return the debtholders will receive a total of $301,000 in
cash and 24,125 shares of the Company's Common Stock and Class D Warrants to
acquire up to a maximum of 50,000 shares of the Company's Common Stock at an
exercise price of $5.00 per share.
Assuming the acquisition of OEBC is consummated, the Company has agreed to
repay Mike Hagerman $175,000 for advances Mr. Hagerman made to OEBC to finance
working capital. These advances are to be repaid out of the proceeds of this
Offering. Any additional advances currently totalling approximately $121,941
will be repaid by the Company after 30 months from the close of this Offering.
The Company has also entered into a two year consulting agreement with
Brewery Leasing Company, whereby Brewery Leasing Company will provide the
Company advisory services on the brewery equipment and assist on the disposition
and acquisition of brewery equipment. Brewery Leasing Company will receive
10,000 shares of the Company's Common Stock over the term of this consulting
agreement. This consulting agreement is effective on the close of the OEBC
acquisition.
The Company has entered into a Brewpub Management Agreement with Mike
Hagerman and Norman Kretschmar. Messrs. Hagerman and Kretschmar have agreed to
manage the Riverside Brewing Company brewpub over the next two years and have
agreed to guarantee the brewpub's cashflow to at least break even during that
period. In return, the Company will issue a total of 10,000 shares of its Common
Stock to Messrs. Hagerman and Kretschmar.
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. RBC then began to sell a full line of
specialty craft beers outside its brewpub. In October 1995, RBC began additional
production in a new
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<PAGE> 37
18,000 square feet leased facility, independent of its brewing facilities at the
pub, which has an initial production capacity of 35,000 barrels per year and can
be expanded to 80,000 barrels per year. RBC currently brews five styles of draft
beer. Its beers have won numerous awards in local, state, national and
international competitions.
The brewpub restaurant produces its products in draught only, mostly for
on-site sales from its 5,000 barrel annual capacity brewery. The brewery sells
its products in draught and bottled package (both 12-oz. and 22-oz. bottles).
The majority of RBC beers are sold in California. To a limited extent, its beers
are sold in 27 other states and Japan. In addition, the brewery produces private
label brands for the Claim Jumper restaurant chain and the Rusty Pelican Chain,
both in California. RBC has also entered into contract brewing agreements with
various companies, including La Jolla Brewing Company of California, Water
Street Brewing Company of Texas, Copperhead Brewing Company of California, and
Rodeo Colt of California. RBC also produces Humpback Ale (draft only), in a
joint venture operation with Minnesota Brewing Company, for Southern Wine and
Spirits of 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 with Prost Partners, L.P. ("Prost")
doing business as St. Stan's Brewing Company to form BWI-Prost Partners
("Partnership"), which closes upon the consummation of this Offering. BWISS and
Prost will share 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 $459,120 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 ("Owens Note") in the principal amount of $668,927. 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
Group to amend, after a principal reduction payment of $168,927, the terms of
the Owens Note to allow for principal and interest payable to be based on a 15
year amortization period, 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 $1,166,953 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 over four years based on (i) the fair market value of the
Partnership's tangible assets plus (ii) the Partnership's net income before
interest, taxes, depreciation and amortization for the preceding twelve months
multiplied by three less (iii) accrued and contingent liabilities. This amount
will likely be substantially less than the amount paid by BWISS.
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
exercise the Option within three years, Prost has the initial right to acquire
BWISS's interest in the Partnership based on the fair market value of the
Partnership's assets, tangible and intangible, less accrued liabilities. 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."
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St. Stan's 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. The result is a beer that generally is perceived as smoother than British
or American style brews. Since this style of beer was not found in the United
States, St. Stan's was developed to fill this niche. The majority of St. Stan's
sales are in Northern California.
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 a biergarten and pub. The brewery currently
has an annual capacity of approximately 30,000 barrels per year. 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. St. Stan's will be involved in the production and sale
of Hussong's Cerveza for the Northern California and North-West markets under an
agreement with Heritage starting January 1, 1997.
RECIPROCAL PRODUCTION AND MARKETING AGREEMENTS
The Company has entered a reciprocal marketing and production agreement
with Chicago Brewing Company ("CBC"). CBC operates a 30,000 barrel per year
brewery in Chicago, Illinois. Under the agreement, the Company can cause
production of its own brands and contract brews destined for Mid-West and East
Coast markets at CBC. The Company has entered an agreement with Minnesota
Brewing Company ("MBC") for the joint production and packaging of Humpback Ale,
a brand owned by Southern Wine and Spirits of California, one of the Company's
primary distributors.
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
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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 resources, 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 plans 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, strategic alliances, brand
strategies, high profile introduction of new products, and consolidation of
brewing, sales and marketing, distribution and administrative operations. The
Company plans to utilize the proceeds from this Offering to spur revenue growth
by effectively marketing its portfolio of products and services in local and
regional markets nationwide. There is no assurance, however, that the Company's
strategy will be successful.
Acquisitions
The Company's initial acquisition strategy focused 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 and 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 improve operating efficiencies and 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.
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Standardized Production and Centralized Purchasing. The Company
plans to aggressively consolidate brewing operations where appropriate,
and 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 Sales, Marketing Planning and Support. The Company
expects to benefit from available resources, efficiencies and cost
savings in the field of sales, sales management, brand management,
marketing, planning, advertising and promotion. The Company's sales and
marketing department coordinates all field sales 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, distributor incentive programs, 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's
consolidated sales force is organized to properly service and support these
distributors, promote the Breweries' products, 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 brewing and brewpub restaurant
expertise and sales manpower. The Company has started the process of
coordinating sales and marketing, brewpub restaurant management, 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 significantly
increase its regional brewing operations in Southern California, and to expand
its operations into the Mid-West and the South-East United States. As a first
step to improving its Southern California operating efficiency, the Company is
considering plans to integrate Heritage's brewing operation and Riverside's
brewery into a single, highly efficient, state-of-the-art facility, while
keeping capital expenditures at a minimum.
The Company plans to become a low cost operator through the implementation
of uniform 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.
The Company utilizes sterile filtration in all its breweries. The Company
plans to utilize flash pasteurisation, tunnel pasteurisation or other methods to
provide additional assurances for product stability and extended shelf life
under extreme distribution and storage conditions.
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Marketing Strategies
The Company plans to utilize its resources and capital to spur revenue
growth by effectively marketing its portfolio of existing and new products and
services in targeted local and regional markets nationwide. The Company's
marketing and marketing communication strategies focus on developing strong
local brand awareness and following of the Company's brands at distributor,
retail account and consumer level, 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
utilizing the Breweries and the brewpub restaurants as "anchors". 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;
and grow its contract brew business from medium sized contract brewers, thus
optimizing 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 its marketing staff and 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 Rusty Pelican,
both of which are in California. All brews are marketed on the basis of quality,
freshness and unique, distinctive flavor profiles.
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).
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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 (Bronze Award-1996 Wine Journal).
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
Hussong's Cerveza Negra: A very smooth, deep amber ale.
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).
Contract Brews/Private Label Brands/Other
Claimjumper Honey Blond Ale: Private label brew for Claimjumper
restaurants, brewed at Riverside.
Claimjumper Original Red Ale: Private label brew for Claimjumper
restaurants, brewed at Riverside. (Silver Medal-1996 World Beer Championships).
Red Pig Ale: Contract brew for Cabo Distributing, California, brewed at
Heritage, Riverside and Chicago.
Humpback Ale (draft only): Contract brew for Southern Wine and Spirits of
Southern California, packaged at Riverside in a joint production agreement with
Minnesota Brewing Company.
Copperhead Ale: Contract brew for Copperhead Brewing Co. brewed at
Riverside.
La Jolla Red Roost Ale: Contract brew for La Jolla Brewing Co. brewed at
Riverside.
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Rowdy's Perfect Ale: Contract brew for Waterstreet Brewing Co. brewed at
Riverside.
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 5,000 barrels per year. The brewpub has a 14 barrel
brewhouse, four 14-barrel fermentation tanks, twelve 7 barrel bright beer tanks
and other 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
35,000 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'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 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 30,000 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, but would require expansion into the
brewpub area or the installation of external insulated 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.
BREWING OPERATIONS
Brewing Ingredients
The Company's beers 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
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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.
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.
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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 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. Two suppliers accounted for
approximately 60.0% (unaudited) of product purchases for the nine months ended
September 30, 1996. No one supplier accounts for 10% or more of total accounts
payable at September 30, 1996 (unaudited). St. Stan's 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. Purchases
from these suppliers during the nine-month periods ended September 30, 1996 and
1995 totaled approximately 47.4% (unaudited) and 38.8% (unaudited),
respectively. Riverside purchased certain products from two companies which
accounted for approximately 31.0% (unaudited) and 57.0% (unaudited) of
consolidated purchases for the nine months ended September 30, 1996 and 1995,
respectively. One company accounted for approximately 40.0% and 38.0% of product
purchases for the years ended December 31, 1995 and 1994, respectively. No one
vendor made up 10% or more of accounts payable as of September 30, 1996.
Accounts payable to one company accounted for 26.0% as of December 31, 1995.
Management believes that the loss of any major supplier would not have a
material adverse effect on the Company.
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,
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<PAGE> 46
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.
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.
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 has appointed 40 distributors in 28 states. St. Stan's has appointed
35 distributors in 19 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.
Four distributors accounted for 27.0%, 17.0%, 24.0% and 11.0% of Heritage
net sales (unaudited), respectively, for the nine-month period ended September
30, 1996. Two distributors accounted for 57.0% and 35.0% of the accounts
receivable balance (unaudited), respectively, as of September 30, 1996.
For St. Stan's, 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 nine months ended
September 30, 1996 (unaudited), one distributor accounted for 10.0% of sales. No
distributor accounted for more than 10% of sales during the nine-month period
ended September 30, 1995 (unaudited). Five distributors accounted for 69.5% of
the accounts receivable balance at December 31, 1995, of which one distributor
accounted for 33.6%. No distributors accounted for more than 10.0% of the
accounts receivable balance at September 30, 1996 and 1995 (unaudited).
For Riverside, one distributor accounted for approximately 25.0%
(unaudited) of consolidated net sales for the nine months ended September 30,
1996. No one distributor accounted for 10.0% or more of consolidated net sales
for the nine months ended September 30, 1995 (unaudited). One distributor
accounted for approximately 12.0% of consolidated net sales for the year ended
December 31, 1995 and one distributor accounted for approximately 18.0% of net
sales for the year ended December 31, 1994. Four distributors accounted for
38.0%, 22.0%, 14.0% and 14.0%, respectively, of the accounts receivable balance
at September 30, 1996 (unaudited). Four distributors accounted for 23.0%, 18.0%,
18.0% and 16.0% respectively, of the accounts receivable balance at December 31,
1995.
SALES AND MARKETING
Marketing Strategies
The Company plans to spur revenue growth by effectively marketing its
portfolio of existing and new products and services in targeted local and
regional markets nationwide. Its marketing and marketing communication
strategies focus on developing strong local brand awareness and consumer
following for the Company's brands and brewpub restaurants at distributor,
retail and consumer levels, 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
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<PAGE> 47
the advantage of consuming fresh locally produced beer over beer imported from
out-of-state, utilizing its breweries and its brewpub restaurants to gain
additional corporate and brand recognition. 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 also 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. The Company has prepared
such programs for all of its main brands, scheduled for implementation
throughout the first and second quarter of 1997.
Advertising & Promotion
The Company has allocated approximately $1.5 million from the proceeds of
the Offering towards product development, market research, point of sale
materials, 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, AirTouch,
Nextel and others. Paragon has been assigned with formulating brand strategies,
creative campaigns, new packaging designs, market research and creating a
corporate identity program for the Company 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 marketing staff and 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 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 import, manufacture and distribution of the Company's products in
Europe.
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<PAGE> 48
COMPETITION
The craft-brewed and high-end segments in the U.S. beer market are highly
competitive due to continuing proliferation of microbrewers and contract
brewers, the recent introduction of fuller flavored beers by national brewers,
efforts by other microbrewers 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 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."
The Breweries produce beer and sell it to distributors or retailers and to
consumers at its brewpub restaurants. Brewery, wholesale and retail 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
45
<PAGE> 49
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.
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 budget
balancing 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 names of several 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.
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<PAGE> 50
EMPLOYEES
The Company and its subsidiaries will employ 135 employees after the
closing of the Offering, including 26 in brewery operations, 98 in the
brewpub-restaurants, 4 in administration and 8 in sales and marketing. These
include all employees of St. Stan's, 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.
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 1997. The Company does not intend to renew
the lease.
The Company's principal executive offices are located at 9800 South
Sepulveda Boulevard, Suite. 720, Los Angeles, California. The monthly rent is
$1,280, on a month-to-month lease and includes: maintenance, security, cleaning,
utilities and office equipment. The Company subleases this office from The
Deretin Group, an entity wholly owned by Lyle Maul an executive officer and
director of the Company. The company's other executive office is located in
Newport Beach at 200 Newport Center Drive, Suite. 205, Newport Beach,
California. The monthly rent payment is $900 and the term is for three years.
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
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<PAGE> 51
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 -- Product Liability Risk."
LEGAL PROCEEDINGS
The Company and its subsidiaries are not currently involved in any material
pending legal proceedings, and the Company is not aware of any material legal
proceedings threatened against it, other than discussed below.
Tamkin Capital Partners ("Tamkin") has filed a suit in Los Angeles County
Superior Court alleging that it has been damaged by the Company negotiating and
entering the acquisition agreement with Riverside and the partnership agreement
with St. Stan's 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. Management has
reached a tentative settlement with Tamkin whereby the Company will pay $400,000
in cash and will issue 30,000 shares of its common stock. The Company is
expected to pay $200,000 upon the execution of a settlement agreement, $150,000
upon the close of the Offering and $50,000 13 months from January 1, 1997. The
30,000 shares of common stock have demand registration rights 180 days after the
effective date of the Offering.
Riverside Brewing Company has been threatened with litigation where the
plaintiff is claiming damages against Riverside in the amount of $130,000.
Controlling principals of OEBC, RBC's parent corporation, have agreed to
indemnify the Company for any loss, if any, incurred by RBC arising out of this
threatened 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>
Lyle R. Maul................ 44 President, Chief Executive Officer and Chairman of
the Board of Directors
Frederik G.M. Rodenhuis..... 41 Executive Vice President and Acting Chief Financial
Officer
Janet Lee Johns............. 47 Secretary
Garith Helm................. 53 Vice President of Brewing Operations
Kathleen Burke.............. 43 Vice President -- Sales
John Stoner................. 38 Vice President of New Breweries and Director
Jim S. McClusky............. 39 Director
Robert Hutchison............ 44 Director
</TABLE>
- ---------------
* The Company's bylaws provide that the authorized number of directors shall be
no fewer than five (5) nor more than nine (9). The present number of
authorized directors is six (6), which may be changed within the limits
specified above by either the board of directors or by the shareholders. If
the number of directors is increased, the board may fill such vacancy. The
Representative has the right to appoint one member to the board of directors.
The Representative has not yet appointed such person to the board. Directors
are elected at the annual shareholders meeting. Each director's term will
expire at the next shareholder meeting scheduled for May 1997.
MANAGEMENT BIOGRAPHIES
Lyle R. Maul, Chairman, President and Chief Executive Officer. Mr. Maul
has been the Company's Chief Executive Officer and Chairman of the Board of
Directors since January 1997. Prior to that, Mr. Maul was the Company's Chief
Financial Officer since November 1995 and Chief Operations Officer since
September 1996. From October 1990 to April 1996, Mr. Maul was the President of
Deretin Enterprises, Inc. also known as The Deretin Group after January 1995, a
business consulting firm with clients in the following industries, among others:
consumer products, publishing, microcomputer products, communications, and real
estate development. Mr. Maul is a co-founder and former Executive Vice President
Finance 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.
Frederik G.M. Rodenhuis, Executive Vice President and Acting Chief
Financial Officer. Prior to becoming the Executive Vice President in January
1997, Mr. Rodenhuis was the Chief Executive Officer and Chairman of the Board of
Directors of the Company since November 1995. Mr. Rodenhuis is considered the
driving force behind the formulation and implementation of the Company's
strategic plans, including capitalization, key acquisitions, industry alliances,
and long term product, marketing & distribution strategies. 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 and sales 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
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<PAGE> 53
business administration from Erasmus University, The Netherlands. 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. Mr.
Rodenhuis has advised the Company that in 1994 and 1995, during his tenure at
Seaborn Beverages Company, he forwent salary and expense payments and dedicated
his personal resources and assets to cover payment obligations of that company.
In March of 1995, he was forced to seek Chapter 13 reorganization bankruptcy
protection against forced collection of some of these obligations and a personal
indebtedness resulting from these commitments. Seaborn Beverages Company filed
for bankruptcy in May 1996.
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 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 and has provided the direction for
the growth of that 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 -- Sales. Ms. Burke has been the Vice
President -- Sales for the Company since December 1995. From 1993 to 1995, Ms.
Burke was 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. Ms. Burke has obtained a Bachelor's Degree of Arts at Mt. Saint Mary's
College and a California Teaching Credential. Ms. Burke brings a wealth of
distributor and their account sales and sales management experience to the
Company.
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.
Janet Lee Johns, Secretary. Ms. Johns has been the Company's secretary
since January 1997. Since January 1993, she has been the secretary of Orange
Empire Brewing Company and since June, 1996 she has been the chief financial
officer of Orange Empire Brewing Company. From March 1986 to December 1992, she
was an insurance agent for Talbot Insurance Agency.
Mr. Jim S. McCluskey, Director. Mr. McCluskey has been Southern California
State Manager for Domec Importers, Inc. since May of 1996. Between 1989 and
1996, Mr. McCluskey was Specialty Brands Manager and Division Manager for Jim
Beam Brands Company. Prior thereto, Mr. McCluskey worked for E&J Gallo Winery,
the Seagram Wine Company and Christian Brothers Sales Company and brings 15
years of alcoholic beverage expertise, in particular the field of distribution
and brand management. Mr. McCluskey obtained a Bachelor's Degree in Business
Administration from California State University Long Beach.
Robert H. Hutchison, Director. Mr. Hutchison is a partner in the public
accounting firm of Belden-Hutchison & Co. in Costa Mesa, California. He
graduated from the University of Southern California
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<PAGE> 54
in 1975 with a degree in business with an accounting emphasis. Mr. Hutchison
spent four years with Arthur Andersen & Company in the audit division obtaining
a variety of experience dealing with larger corporations. Since 1979, he has
worked in both public accounting and private industry gaining expertise in the
tax accounting and management areas of small to medium size businesses. Mr.
Hutchison joined his current firm in 1987. He is licensed in California and his
home state of Oregon. He is a member of the American Institute of Certified
Public Accountants.
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.
EXECUTIVE COMPENSATION
Compensation of Executive Officers. The following table sets forth the
cash compensation paid by the Company to its President and Chief Executive
Officer and its other officers for services rendered during the fiscal year
ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------------------- UNDERLYING ALL
OTHER ANNUAL OPTIONS/ OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION SARS COMPENSATION(1)
- ---------------------------------------------- ---- -------- ----- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Lyle R. Maul.................................. 1996 $ 75,000 $ 0 $5,000 682,491 $ --
President and Chief Executive Officer
Frederik G.M. Rodenhuis....................... 1996 120,000 0 6,000 682,491 --
Executive Vice President
Kathleen Burke................................ 1996 75,000 0 5,500 111,350 --
Vice President -- Sales
John Stoner................................... 1996 75,000 0 5,000 113,584 123,032
Vice President of New Breweries
Mark Mericle.................................. 1996 75,000 0 5,000 113,584 123,028
Operations Manager
</TABLE>
- ---------------
(1) Messrs. Stoner and Mericle received 24,508 and 24,507 shares of Common
Stock, respectively, valued at $4.00 per share as consideration for
consulting services provided to the Company and $25,000 each as a one time
cash bonus in connection with obtaining the rights to produce and market
Hussong's products in the western United States.
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<PAGE> 55
OPTIONS GRANT TABLE
COMMON STOCK OPTIONS GRANTED IN FISCAL YEAR 1996*
<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>
Lyle R. Maul.............................. 682,491 33.7 * 9/3/06
Chief Executive Officer and President
Frederik G. M. Rodenhuis.................. 682,491 33.7% * 9/3/06
Executive Vice President
Kathleen Burke............................ 111,350 5.5 * 9/3/06
Vice President-Sales
John Stoner............................... 113,584 5.6 * 9/3/06
Vice President of New Breweries
Mark Mericle.............................. 113,584 5.6 * 9/3/06
Operations Manager
</TABLE>
- ---------------
* 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
in fiscal year 1996. 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 exercisable at $5.10 per share and 300,000 options (or 27.4%
each of the total granted) under the Incentive Stock Option Plan exercisable
at $5.20 per share. Ms. Burke was granted 41,350 options (or 4% of the total
granted) under the Nonqualified Stock Option Plan exercisable at $5.10 per
share and 70,000 options (or 6.4% of the total granted) under the Incentive
Stock Option Plan exercisable at $5.20 per share. Messrs. Stoner and Mericle
were each granted 63,584 options (or 7% each of the total granted) under the
Nonqualified Stock Option Plan exercisable at $5.10 per share and 50,000
options (or 4.6% each of the total granted) under the Incentive Stock Option
Plan exercisable at $5.20 per share.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Lyle R. Maul, pursuant to
which Mr. Maul is to serve as Chief Executive Officer and President. The
employment agreement, which becomes effective on the close of the Offering,
provides for a minimum base salary of $150,000 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, and is required under the employment
agreement to devote, 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 an employment agreement with Frederik G.M. Rodenhuis,
pursuant to which Mr. Rodenhuis is to serve as Executive Vice President of the
Company for four years. The employment agreement, which becomes effective on the
close of the Offering, provides for a minimum base salary of $152,000 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, and is required under the
employment agreement to devote, his full business time to the Company, his
employment agreement permits him to engage in other business activities that are
52
<PAGE> 56
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. Maul's and Mr. Rodenhuis' 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."
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. Each of these employment agreements provides for benefits
comparable to those provided to other Company employees, and $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 March 31, 1997. Mr. Maul will also be entitled to
a $10,000 bonus, up to a maximum of $20,000, for each acquisition or joint
venture completed or approved by the Company's Board of Directors prior to March
31, 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 the date of this Prospectus, options to
purchase 1,091,000 shares of Common Stock have been granted to certain employees
and consultants 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 be 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 or disability). 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. On September 3, 1996, options to purchase 933,500 shares of
53
<PAGE> 57
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 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 Nonqualified 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." Each grantee of options under
the Nonqualified Plan may exercise such options at $5.10 per share four years
after the date of grant. However options become exercisable earlier if the
Company meets certain earnings criteria. One third of the options granted become
exercisable if the Company's modified net income (net income before interest,
income taxes, depreciation, and amortization and excluding certain other gains
or losses not in the ordinary course of business) for any fiscal year exceeds
$1,000,000, two-third of the options become exercisable if modified net income
exceeds $2,000,000 for any fiscal year, and all of the options are exercisable
if modified net income exceeds $3,000,000 for any fiscal year. No option is
exercisable more than 10 years from the date of grant or after the option holder
leaves the Company's employ (other than by reason of death or disability).
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 are determined by the committee of the Board of Directors administering the
Nonqualified Plan.
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 Directors' Compensation Plan ("Directors' Plan"), which was
adopted by the Board of Directors in January 1997 provides that, effective upon
the close of this Offering, each outside director is to receive cash
compensation in the amount of $1,250 per quarter. In addition, each outside
director will receive 1,250 warrants per quarter to acquire the Company's Common
Stock exercisable at $5.20 per share. The Company has reserved 100,000 shares of
Common Stock for issuance under the Directors' Plan. In addition, each outside
director will be reimbursed for travel expenses related to board meetings and
other pre-approved Company business expenses.
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<PAGE> 58
CERTAIN TRANSACTIONS
The Company has agreed to pay Lyle Maul, the Company's President and Chief
Executive 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. These costs incurred by Mr. Maul
on the Company's behalf were accrued for in the Company's financial statements
in the same period such expenses were incurred. 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
$3,700.
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>
PERCENT OWNED
------------------------------
BEFORE AFTER
NAME AND ADDRESS NUMBER OF SHARES(1) OFFERING(2) OFFERING(2)(3)
- ------------------------------------------------ ------------------- ----------- --------------
<S> <C> <C> <C>
Guy Schebovitz(4)............................... 178,684 10.71% 5.64%
Frederik G.M. Rodenhuis(5)...................... 112,479 6.74 3.55
Patrick and Lee Miller(6)....................... 100,000 5.99 3.16
Gerald Cochran(7)............................... 100,000 5.99 3.16
Johan Vets(8)................................... 99,996 5.99 3.16
Robert E. Reale(9).............................. 85,720 5.14 2.71
Lyle R. Maul(10)................................ 68,406 4.10 2.16
John Stoner(11)................................. 62,785 3.76 1.98
All executive officers and directors as a 243,643 14.60 7.69
group.........................................
</TABLE>
- ---------------
(1) 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.
(2) Includes 141,063 shares of Common Stock which are to be issued to the
former of OEBC shareholders in accordance with the Share Purchase
Agreement, 24,125 shares of Common Stock to be issued to the OEBC
debtholders in accordance with the Debt Exchange Agreement, 10,000 shares
of Common Stock to be issued pursuant to the Brewpub Management Agreement,
60,000 shares of Common Stock to be issued to Brewery Leasing Company
pursuant to the equipment lease agreement and the brewery equipment
consulting agreement and 27,618 shares to be issued to certain former OEBC
shareholders for assuming a portion of OEBC bank debt. Does not include
155,000 shares of Common Stock which may be issued pursuant to the former
OEBC shareholders pursuant to the earnout provisions of the Share Purchase
Agreement see "Business -- Breweries -- Riverside Brewing Company."
Includes 30,000 shares of Common Stock to be issued pursuant to the
tentative settlement agreement with Tankin Capital Partners. See
"Business -- Legal Proceedings." Does not include 2,433,500 shares of
Common Stock issuable upon exercise of authorized options granted under the
Company's stock option plans or shares of Common Stock issuable upon
exercise of other outstanding warrants or options. See
"Management -- Incentive Stock Option Plan," "-- Nonqualified Stock Option
Plan," "Description of Securities" and "Management -- Director
Compensation."
(3) Does not include 1,500,000 shares of Common Stock issuable upon exercise of
the Class A Warrants, 225,000 shares of Common Stock pursuant to the
Underwriter's over-allotment option, 225,000 shares of Common Stock
issuable upon exercise of the Class A Warrants pursuant to the
Underwriter's over-
55
<PAGE> 59
allotment option, or 300,000 shares of Common Stock issuable upon exercise
of the Representative's Purchase Option and Warrants. See "Description of
Securities" and "Underwriting."
(4) Mr. Schebovitz' address is 931 East 77th Street, 2nd Floor, Brooklyn, New
York 11236.
(5) Mr. Rodenhuis' address is 9800 S. Sepulveda Boulevard, Suite 720, Los
Angeles, California 90045. This figure includes the proportional number of
shares held by Manhattan Enterprises, Inc., which is the owner of 55,369
shares. Mr. Rodenhuis is the beneficial owner of 89.8% of Manhattan
Enterprises, Inc.
(6) The Millers' address is 1300 W. Garmon Road, SW, Atlanta, Georgia 30327.
(7) Dr. Cochran's address is 400 Horton Road, SW, Rainsville, Alabama 35986.
(8) Mr. Vets' address is 39 Graaf de Granvellelaan, 2650 Edegem, Belgium, 6,250
of the 99,996 shares are owned by Group Nollet-Vets, of which Mr. Vets is a
principal.
(9) Mr. Reale's address is 6501 5th Avenue, Brooklyn, New York 11220.
(10) Mr. Maul's address is 9800 S. Sepulveda Boulevard, Suite 720, Los Angeles,
California 90045. This figure includes the proportional number of shares
held by Manhattan Enterprises, Inc., which is the owner of 55,369 shares.
Mr. Maul is the beneficial owner of 10.2% of Manhattan Enterprises, Inc.
(11) Mr. Stoner's address is 9800 S. Sepulveda Boulevard, Suite 720, Los
Angeles, California 90045.
56
<PAGE> 60
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, 1,670,453 shares were
issued and outstanding, which includes shares issued under the Orange Empire
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 or subscription rights.
Holders of shares of Common Stock may cumulate their votes for electing
directors if candidates' names are placed in nomination prior to commencement of
voting and a holder has given notice at the meeting, before voting has begun of
the holders intent to cumulate votes. 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 outstanding 728,229 shares of common stock with certain
registration rights. These shares are being registered along with this Offering
subject to certain lock-up provisions. These lock-up provisions may be waived
with the prior written consent of the Representative. 65,000 shares will become
freely tradeable 60 days after the date of the registration statement of which
this Prospectus is a part, 40,000 shares will become freely tradeable 90 days
after the date of the registration statement, 10,000 shares will become freely
tradeable 120 days after the date of the registration statement, 30,000 shares
will become freely tradeable 150 days after the date of the registration
statement, 92,484 shares will become freely tradeable one year after the date of
the registration statement, and 486,745 shares will become freely tradeable 13
months after the closing date of this Offering. Of the 486,745 shares being
registered subject to the 13 month lockup, 4,000 of the shares are owned by
Kathleen Burke, the Company's Vice President -- Sales. The Company has also
granted certain registration rights to holders of Class B Warrants and Class E
Warrants. The 70,000 shares of Common Stock issuable upon exercise of the Class
B Warrants at $4.75 and the 892,000 shares of Common Stock issuable upon
exercise of the Class E Warrants at $6.30 per share are being registered along
with this Offering. However, such shares may not be sold for a period of 180
days after the effective date of the registration statement without the prior
written consent of the Representative. The Company has also granted demand
registration rights to certain shareholders which provides that such holders may
demand 180 days after the effective date of the registration statement that the
Company seek to register up to 135,000 shares of Common Stock. See "Risk
Factors -- Shares Eligible for Future Sale."
57
<PAGE> 61
WARRANTS
Class A Warrants. Each Class A Warrant entitles the holder to purchase, at
a price of $6.00, one share of Common Stock for a period of five years
commencing on the date of this Prospectus unless redeemed by the Company prior
to such expiration date. The exercise price of the Class A Warrants and the
number of shares of Common Stock or other securities or property to be obtained
upon exercise of the Class A Warrants, are subject to adjustment under certain
circumstances, including, issuance by the Company of any shares of its Common
Stock as a dividend, or subdivision or combination of the Company's outstanding
shares of Common Stock into a greater or lesser number of shares. Reference is
hereby made to the complete text of the form of Class A Warrant Agreement filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part.
The Class A Warrants are redeemable by the Company for $0.05 per Class A
Warrant, upon 30 days' prior written notice, if the market price of the Common
Stock equals or exceeds $12.00 per share. In the event that the Company gives
notice of its intention to redeem the Class A Warrants, holders would be forced
to exercise their Class A Warrants or accept the redemption price. For purposes
of redemption, market price means (i) the average closing bid price for any 10
consecutive trading days within a period of 30 consecutive trading days, ending
within five days of the date of the notice of redemption, of the Common Stock as
reported by Nasdaq or (ii) the average of the last reported sale price for the
10 consecutive business days ending within five days of the date of the notice
of redemption, on the primary exchange on which the Common Stock is traded, if
the Common Stock is traded on a national securities exchange.
The Class A Warrants may be exercised by filling out and signing the
appropriate notice of exercise form attached to the Class A Warrant and mailing
or delivering it (together with the Class A Warrant) to American Stock Transfer
& Trust Company of New York, New York, the Warrant Agent, in time to reach the
Warrant Agent prior to the time fixed for termination or redemption of the Class
A Warrants, accompanied by payment of the full warrant exercise price.
The holders of the Class A Warrants are not entitled to vote, receive
dividends, or exercise any of the rights of the holders of shares of Common
Stock for any purpose until the Class A Warrants have been duly exercised and
payment of the Class A Warrant exercise price has been made. Although it is
anticipated that the Class A Warrants will commence trading on Nasdaq following
the issuance of such Class A Warrants, there can be no assurance that a trading
market for the Class A Warrants will ever develop.
For the life of the Class A Warrants, the holders are given the opportunity
to profit from the rise, if any, in the market price of the Common Stock at the
expense of the remaining holders of the Common Stock. However, during the
outstanding period of the Class A Warrants, the Company might be deprived of
favorable opportunities to secure additional equity capital for its business,
since holders of Class A Warrants may be expected to exercise their Class A
Warrants at a time when the Company would be able to obtain equity capital by a
public sale of new securities on terms more favorable than those provided in the
Class A Warrants.
Class B Warrants. As part of the Company's May 1996 bridge loan (See
"Description of Securities -- Bridge Notes.") the Company issued Class B
Warrants entitling the holder thereof to purchase, at any time through April 20,
1999, up to 70,000 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
shares of Common Stock issuable upon exercise of the Class B Warrants were
registered in this Offering, subject to a 180 day lockup.
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
58
<PAGE> 62
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 Orange Empire
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) years 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.
Class E Warrants. There are currently issued and outstanding warrants
issued in connection with the Company's initial financing in 1995, entitling the
holders to purchase an aggregate of 892,000 shares of Common Stock, subject to
adjustment in certain circumstances (the "Class E Warrants"). Each Class E
Warrant entitles the holder thereof to purchase, at any time through the period
ending five years after December 18, 1996, one share of Common Stock at a price
per share of the lower of 105% of the offering price of the Shares in the
Offering or $8.25, subject to adjustment in accordance with the anti-dilution
and other provisions referred to below. The Class E 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 Class E
Warrants. At any time that the Class E Warrants are exercisable, the Class E
Warrants are also subject to redemption by the Company on not less than 30 days
notice at $0.01 per Class E Warrant, provided the average closing bid price (or
the average of the last reported sale price if the Common Stock is traded on a
national securities exchange) of the Company's Common Stock for any ten (10)
consecutive trading days exceeds 200% of the exercise price.
The exercise price and the number of shares of Common Stock purchasable
upon the exercise of the Class E 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 Class E 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 Class E Warrant immediately prior to such event. No adjustment to the
exercise price of the shares subject to the Class E 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 Class E Warrants or any
other options or warrants.
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.
Directors' Warrants. As part of the Directors' Compensation Plan, warrants
to purchase up to 100,000 shares of the Company's Common Stock are reserved for
future issuance to the Company's non-employee directors ("Directors' Warrants").
The Directors' Warrants may be exercised at any time after issuance at $5.20 per
share through the period ending three (3) years after issuance. The Directors'
Compensation Plan becomes effective after the completion of the Offering and no
Directors' Warrants have been issued as of the date of this Prospectus. The
exercise price and the number of shares of Common Stock purchasable upon
exercise of the Directors' Warrants are subject to adjustment upon the
occurrence of certain events, including
59
<PAGE> 63
stock dividends, stock splits, combinations or reclassification of the Common
Stock. These warrants and the common stock issuable upon exercise of the
Directors' Warrants are "restricted securities" under Rule 144. See
"Management -- Director Compensation."
REPRESENTATIVE PURCHASE OPTION
For nominal consideration, the Company has granted to the Representative of
the Underwriters the Representative's Purchase Option which allows the
Representative to acquire 150,000 shares of Common Stock at $7.20 per share and
150,000 common stock purchase warrants at the price of $0.18 per share. See
"Underwriting." The Representative's Purchase Option entitle the holders to
purchase an aggregate of 150,000 shares of Common Stock, subject to adjustment
in certain circumstances. The Representative's Purchase Option entitles the
holders to purchase an aggregate of 150,000 warrants at any time one year after
exercise of the Representative's Purchase Option through the date five years
from the date of the Prospectus, one share of Common Stock at a price of $7.20
per share, subject to adjustment in accordance with the anti-dilution and other
provisions referred to below. The warrants underlying the Representative's
Purchase Option shall have generally the same terms and conditions as provided
in the Class A Warrants except that the warrants underlying the Representative's
Purchase Option shall not be subject to redemption. The Representative's
Purchase Option 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 Purchase Option. The
exercise price and the number of shares of Common Stock purchasable upon
exercise of the Representative's Purchase Option, and the exercise price and the
number of shares of Common Stock purchasable upon exercise of the warrants
underlying the Representative's Purchase Option, are subject to adjustment upon
the occurrence of certain events, including stock dividends, stock splits,
combinations or reclassification of the Company's Common Stock. See
"Underwriting."
BRIDGE NOTES
In May 1996, the Company issued a $500,000 principal amount note secured by
the Company's assets 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 April 15, 1997. Under the terms of this note and an extension
agreement, the investor received 20,000 shares of Common Stock and 70,000 Class
B Warrants. The shares of Common Stock underlying the Class B Warrants are being
registered along with this Offering subject to a lock-up period of 180 days
following the effective date of the Registration Statement for this Offering.
The 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."
In December, 1996, the Company issued a $250,000 unsecured promissory note
to Patrick Miller, a shareholder of the Company. The note, which pays simple
interest at 12% per annum, matures 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) September 1, 1997. Interest is payable at maturity. The note
will be repaid in full out of the 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 Warrant Agent for the Company's Common Stock and
Class A Warrants is American Stock Transfer & Trust Company.
60
<PAGE> 64
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom First London Securities Corporation is acting
as Representative, have severally agreed to purchase from the Company an
aggregate of 1,500,000 Shares of Common Stock ("Shares") and 1,500,000 Class A
Warrants (collectively the "Securities"). The number of Shares and Class A
Warrants which each Underwriter has agreed to purchase is set forth opposite its
name.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
UNDERWRITER SHARES WARRANTS
-------------------------------------------- --------- ---------
<S> <C> <C>
First London Securities Corporation.........
--------- ---------
TOTAL............................. 1,500,000 1,500,000
======== ========
</TABLE>
The Securities are offered by the Underwriters subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to approval
of certain legal matters by counsel and certain other conditions. The
Underwriters are committed to purchase all Securities offered by this
Prospectus, if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities offered hereby to the public at the
offering price set forth on the cover page of this Prospectus. The
Representative has advised the Company that the Underwriters propose to offer
the Securities through members of the National Association of Securities
Dealers, Inc. ("NASD"), and may allow a concession, in their discretion, to
certain dealers who are members of the NASD and who agree to sell the Securities
in conformity with the NASD Conduct Rules. Such concessions shall not exceed the
amount of the underwriting discount that the Underwriters are to receive.
The Company has granted to the Representative options, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 225,000
Shares and an additional 225,000 Class A Warrants at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus
(the "Over-Allotment Option"). The Representative may exercise this option
solely to cover over-allotments in the sale of the Securities being offered by
this Prospectus.
Officers and directors of the Company may introduce the Representative to
persons to consider this offering and purchase Securities either through the
Representative, other Underwriters, or through participating dealers. In this
connection, officers and directors will not receive any commissions or any other
compensation.
The Company has agreed to pay the Representative a commission of ten
percent (10%) of the gross proceeds of the offering (the "Underwriting
Discount"), including the gross proceeds from the sale of the Over-Allotment
Option, if exercised. In addition, the Company has agreed to pay to the
Representative a non-accountable expense allowance of three percent (3%) of the
gross proceeds of this Offering, including proceeds from any Securities
purchased pursuant to the Over-Allotment Option. The Representative's expenses
in excess of the non-accountable expense allowance will be paid by the
Representative. To the extent that the expenses of the Representative are less
than the amount of the non-accountable expense allowance received, such excess
shall be deemed to be additional compensation to the Representative. The
Representative has informed the Company that it does not expect sales to
discretionary accounts to exceed five (5%) of the total number of Securities
offered by the Company hereby.
The Representative shall have a preferential right for a period of one year
from this Offering to represent the Company in any private or public offering of
the Company's securities.
61
<PAGE> 65
The Company will pay the Representative a fee of five (5%) percent of the
aggregate exercise price of each Class A Warrant exercised commencing one year
after the Effective Date, 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 Class A
Warrant was not in violation of Rule 10b-6 of the Securities Exchange Act of
1934.
Prior to the date of this Prospectus, the Company's officers and directors
have agreed in writing not to sell, assign or transfer any of the Company's
securities beneficially owned by them without the Representative's prior written
consent for a period of twenty four (24) months from the Effective Date.
Furthermore, all sales of the Company's securities owned by the officers and
directors are required to be effected only through the Representative. The
Representative may designate a member of the Company's Board of Directors and to
appoint one person to act as an observer at the Company's Board of Directors'
meeting for three years.
Prior to the Offering, there has been no public market for the Shares of
Common Stock or Class A Warrants of the Company. Consequently, the initial
public offering price for the Securities, and the terms of the Class A Warrants
(including the exercise price of the Warrants), have been determined by
negotiation between the Company and the Representative. Among the factors
considered in determining the public offering price were the history of, and the
prospect for, the Company's business, an assessment of the Company's management,
its past and present operations, the Company's development and the general
condition of the securities market at the time of the offering. The initial
public offering price does not necessarily bear any relationship to the
Company's assets, book value, earnings or other established criterion of value.
Such price is subject to change as a result of market conditions and other
factors, and no assurance can be given that a public market for the Shares
and/or Class A Warrants will develop after the close of the Offering, or if a
public market in fact develops, that such public market will be sustained, or
that the Shares and/or Class A Warrants can be resold at any time at the
offering or any other price. See "Risk Factors." Certain transactions between
third parties as discussed below may be deemed by prospective investors to
reflect the value of the Company. In determining the price of the Shares and
Class A Warrants offered in this Offering, the Company and the Representative
did not consider these transactions as factors. On November 22, 1996, Adam
Wachtel, a former director of the Company sold 182,484 shares of Common Stock to
an investor for $250,000, or $1.37 per share. These shares have registration
rights which provide for the sale of such shares as follows: 30,000 shares are
freely tradeable 60 days after the effective date of the registration statement
to which this Prospectus is a part, 30,000 shares after 90 days, 30,000 shares
after 150 days and 92,484 shares after one year. Simultaneous which this
transaction, Mr. Wachtel retired 1,160,216 shares of Common Stock, all of the
remaining shares owned by Mr. Wachtel, to the Company in return for general
releases from the Company and certain other shareholders. On May 16, 1996,
Imafina, S.A. sold 100,000 warrants to purchase the Company's Common Stock for
$8.25 per share at $3.00 per warrant to Patrik and Lee Miller. On December 10,
1996, Imafina S.A. transferred 400,000 additional warrants to the Millers for
$4,000 as part of a settlement and general release of the original warrant sale
agreement. After the transfer of these warrants, Imafina, S.A. agreed to retire
2,110,000 warrants to the Company. The remaining outstanding 892,000 warrants
were exchanged by the $8.25 warrantholders in return for 892,000 Class E
Warrants.
At the closing of the Offering, the Company will issue to the
Representative and/or persons related to the Representative, for nominal
consideration, Representative's Purchase Option to purchase up to 150,000 shares
and 150,000 warrants. The Representative's Purchase Option will be exercisable
for a five year period commencing one year from the effective date of the
Registration Statement. The initial exercise price of each share shall be $7.20
per share (120% of the public offering price). The initial exercise price of
each warrant shall be $7.20 per warrant (120% of the public offering price).
Each warrant will be exercisable for a five (5) year period commencing one year
from the date of this Prospectus to purchase one share of Common Stock at an
exercise price of $7.20 per share of Common Stock. The Representative's Purchase
Option will not be transferable for one year from the date of this Prospectus,
except (i) to officers of the Representative, other Underwriters, and members of
the selling group and officers and partners thereof; (ii) by will; or (iii) by
operation of law.
62
<PAGE> 66
The Representative's Purchase Option contains provisions providing for
appropriate adjustment in the event of any merger, consolidation,
recapitalization, reclassification, stock dividend, stock split or similar
transaction. The Representative's Purchase Option contains net issuance
provisions permitting the holders thereof to elect to exercise the
Representative's Purchase Option in whole or in part and instruct the Company to
withhold from the securities issuable upon exercise, a number of securities,
valued at the current fair market value on the date of exercise, to pay the
exercise price. Such net exercise provision has the effect of requiring the
Company to issue shares of Common Stock without a corresponding increase in
capital. A net exercise of the Representative's Purchase Option will have the
same dilutive effect on the interests of the Company's shareholders as will a
cash exercise. The Representative's Purchase Option does not entitle the holders
thereof to any rights as a shareholder of the Company until such
Representative's Purchase Option is exercised and shares of Common Stock are
purchased thereunder.
The Representative's Purchase Option and the securities issuable thereunder
may not be offered for sale except in compliance with the applicable provisions
of the Securities Act of 1933. The Company has agreed that if it shall cause a
post-effective amendment, a new registration statement, or similar offering
document to be filed with the Commission, the holders shall have the right, for
seven years from the date of this Prospectus, to include in such registration
statement or offering statement the Representative's Purchase Option and/or the
securities issuable upon its exercise at no expense to the holders.
Additionally, the Company has agreed that, upon request by the holders of 50% or
more of the Representative's Purchase Option during the period commencing one
year from the date of this Prospectus and expiring four years thereafter, the
Company will, under certain circumstances, register the Representative's
Purchase Option and/or any of the securities issuable upon its exercise.
The Company has also agreed that if the Company participates in any merger,
consolidation or other such transactions which the Representative has brought to
the Company during a period of five years after the closing of this Offering,
and which is consummated after the closing of this Offering (including an
acquisition of assets or stock for which it pays, in whole or in part, with
Shares or other securities), then the Company will pay for the Representative's
services in an amount equal to 5% of up to one million dollars of value paid or
received in the transaction, 4% of the next million dollars of such value, 3% of
the next million dollars of such value, 2% of the next million dollars of such
value and 1% of the next million dollars and all of such value above $4,000,000.
The Company has agreed to indemnify the Underwriters against any costs or
liabilities incurred by the Underwriters by reasons of misstatements or
omissions to state material facts in connection with the statements made in the
Registration Statement and the Prospectus. The Underwriters have in turn agreed
to indemnify the Company against any liabilities by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Prospectus, based on information relating to the Underwriters and furnished in
writing by the Underwriters. To the extent that this section may purport to
provide exculpation from possible liabilities arising from the federal
securities laws, in the opinion of the Commission, such indemnification is
contrary to public policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
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. Hecht & Steckman, P.C. acquired 14,000 shares of Common Stock and a
warrant to purchase 15,583 shares of Common Stock at the exercise price of $4.50
per share. The firm of Jackson & Walker, L.L.P., Dallas, Texas, has acted as
counsel for the Underwriters in connection with certain legal matters relating
to this Offering.
63
<PAGE> 67
EXPERTS
The 1995 and 1994 historical financial statements of the Company, Orange
Empire Brewing Company and the St. Stan's Brewing & Brewpub Operations 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 and Class A Warrants being offered hereby and shares of the Company's
Common Stock being offered by certain selling securityholders. 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 and Class A Warrants being offered hereby, and shares
of the Company's Common Stock being offered by selling securityholders,
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.
64
<PAGE> 68
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 September 30, 1996
(Unaudited)............................................................... F-4
Pro Forma Condensed Consolidated Balance Sheet, Summary of Pro Forma
Adjustments (Unaudited)................................................... F-5 to F-8
Pro Forma Condensed Consolidated Statement Of Operations For The Nine Months
Ended September 30, 1996 (Unaudited)...................................... F-9
Pro Forma Condensed Consolidated Statement Of Operations For The Year Ended
December 31, 1995 (Unaudited)............................................. F-10
Pro Forma Condensed Consolidated Statement Of Operations, Summary Of Pro
Forma Adjustments (Unaudited)............................................. F-11 to F-12
Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)... F-13 to F-27
BEVERAGE WORKS, INC. AND SUBSIDIARY, HISTORICAL CONSOLIDATED FINANCIAL
STATEMENTS
Independent Auditor's Report................................................. F-28
Consolidated Balance Sheets As Of September 30, 1996 (Unaudited) and
December 31, 1995......................................................... F-29
Consolidated Statements Of Operations For The Nine Months Ended September 30,
1996 (Unaudited), and For The Period From Incorporation (August 2, 1995)
To September 30, 1995 (unaudited), and for the period from Incorporation
(August 2, 1995) to December 31, 1995..................................... F-30
Consolidated Statements Of Stockholders' Equity For The Nine Months Ended
September 30, 1996 (Unaudited) and For The Period From Incorporation
(August 2, 1995) To December 31, 1995..................................... F-31
Consolidated Statements Of Cash Flows For The Nine Months Ended September 30,
1996 (Unaudited), and For The Period From Incorporation (August 2, 1995)
To September 30, 1995 (unaudited), and for the period from Incorporation
(August 2, 1995) to December 31, 1995..................................... F-32 to F-33
Notes to Consolidated Financial Statements................................... F-34 to F-59
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
Independent Auditors' Report................................................. F-60
Historical Statements of Assets and Liabilities To Be Contributed to
BWI -- Prost Partners General Partnership As Of September 30, 1996
(Unaudited) and
December 31, 1995......................................................... F-61
Historical Statements Of Historical Operations Of Assets and Liabilities To
Be Contributed to BWI -- Prost Partners General Partnership For The Nine
Months Ended September 30, 1996 (Unaudited) and 1995 (Unaudited), and For
The Years Ended December 31, 1995 and 1994................................ F-62
Historical Statements Of Changes In Equity Of Assets and Liabilities To Be
Contributed to BWI -- Prost Partners General Partnership For The Nine
Months Ended September 30, 1996 (Unaudited), and For The Years Ended
December 31, 1995 and 1994................................................ F-63
Historical Statements Of Cash Flows Of Assets and Liabilities To Be
Contributed to BWI -- Prost Partners General Partnership For The Nine
Months Ended September 30, 1996 (Unaudited) and 1995 (Unaudited), and For
The Years Ended December 31, 1995 and 1994................................ F-64
</TABLE>
F-1
<PAGE> 69
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Notes To Historical Financial Statements Of Assets and Liabilities To Be
Contributed To BWI -- Prost Partners General Partnership.................. F-65 to F-75
ORANGE EMPIRE BREWING COMPANY AND SUBSIDIARY
Independent Auditors' Report................................................. F-76
Consolidated Balance Sheets As Of September 30, 1996 (Unaudited) and
December 31, 1995......................................................... F-77
Consolidated Statements Of Operations For The Nine Months Ended September 30,
1996 (Unaudited) and 1995 (Unaudited), and For The Years Ended December
31, 1995 and 1994......................................................... F-78
Consolidated Statements Of Stockholders' Equity (Capital Deficiency) For The
Nine Months Ended September 30, 1996 (Unaudited) and For The Years Ended
December 31, 1995 and 1994................................................ F-79
Consolidated Statements of Cash Flows For The Nine Months Ended September 30,
1996 (Unaudited) and 1995 (Unaudited), and For The Years Ended December
31, 1995 and 1994......................................................... F-80 to F-81
Notes To Consolidated Financial Statements................................... F-82 to F-96
</TABLE>
F-2
<PAGE> 70
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 nine months ended September 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. proposed Initial Public
Offering and the application of the proceeds therefrom as described in
"Use of Proceeds".
(2) The consummation of the proposed Beverage Works, Inc. and Orange Empire
Brewing Company Share Purchase Agreement, and related agreements.
(3) The consummation of the proposed 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 September 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 proposed initial
public offering and the application of the proceeds therefrom, the consummation
of the proposed Beverage Works, Inc. and Orange Empire Brewing Company Share
Purchase Agreement, and the consummation of the proposed BWI-Prost Partners
Contribution and Partnership Agreements.
The unaudited proforma condensed consolidated financial information does
not purport to be indicative of the consolidated 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 consolidated financial position or
results of operations of the Company for any future period.
F-3
<PAGE> 71
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ST. STAN'S
BEVERAGE ORANGE BREWERY AND PRO FORMA
WORKS, EMPIRE BREWPUB PRO FORMA SEPTEMBER 30,
INC. BREWING CO. OPERATIONS SUBTOTAL ADJUSTMENTS REF 1996
---------- ----------- ----------- ---------- ----------- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents (Notes 1, 2,
3, 4, 5, 8 and 10)................... $ 159,716 $ 33,419 $ 26,223 $ 219,358 $ 4,132,485 (a) $ 4,351,843
Accounts receivable, net............... 40,992 45,326 110,456 196,774 -- 196,774
Inventories............................ 171,451 233,868 194,262 599,581 -- 599,581
Prepaid expenses and other (Note 2).... 52,567 17,629 22,359 92,555 (19,711) (b) 72,844
---------- ---------- ---------- ---------- ---------- -----------
Total current assets.......... 424,726 330,242 353,300 1,108,268 4,112,774 5,221,042
Property and equipment, net (Notes 2
and 3)............................... 1,335,939 1,328,422 2,373,283 5,037,644 (41,362) (c) 4,996,282
Goodwill and other intangible assets
(Notes 1 and 2)...................... 191,619 -- -- 191,619 3,633,410 (d) 3,825,029
Investments in and advances to
affiliates
(Notes 2 and 9)...................... 206,511 55,475 -- 261,986 (261,986) (e) --
Deferred offering costs (Notes 1 and
2)................................... 300,034 -- -- 300,034 (300,034) (f) --
Other assets (Notes 2 and 4)........... 14,600 21,710 25,547 61,857 20,000 (g) 81,857
---------- ---------- ---------- ---------- ---------- -----------
$2,473,429 $1,735,849 $2,752,130 $6,961,408 $ 7,162,802 $14,124,210
========== ========== ========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Accounts payable and accrued expenses
(Notes 2, 5, 8 and 9)................ $1,257,530 $ 612,167 $ 153,014 $2,022,711 $(1,250,532) (h) $ 772,179
Notes payable (Note 4)................. 546,237 171,698 25,534 743,469 (507,777) (i) 235,692
Capital lease due to related party
(Note 8)............................. -- 143,498 -- 143,498 76,587 (j) 220,085
Notes payable to related parties (Note
5)................................... 93,896 668,297 459,120 1,221,313 (1,048,253) (k) 173,060
Due to affiliate (Note 9).............. 42,500 -- -- 42,500 (42,500) (l) --
Deferred income taxes (Note 2)......... 58,007 -- -- 58,007 124,682 (m) 182,689
---------- ---------- ---------- ---------- ---------- -----------
Total current liabilities..... 1,998,170 1,595,660 637,668 4,231,498 (2,647,793) 1,583,705
Notes payable, net of current portion
(Note 4)............................. 363,089 394,581 643,393 1,401,063 (382,091) (n) 1,018,972
Capital lease, net of current
portion.............................. -- 29,955 -- 29,955 -- 29,955
Capital lease due to related party, net
of current portion (Note 8).......... -- 866,461 -- 866,461 (514,637) (o) 351,824
Deferred income taxes, net of current
portion (Note 2)..................... 337,752 -- -- 337,752 1,122,137 (p) 1,459,889
Distribution payable (Notes 6 and 7)... -- -- -- -- 1,166,953 (q) 1,166,953
Minority Interest (Notes 6 and 7)...... -- -- -- -- 304,116 (r) 304,116
---------- ---------- ---------- ---------- ---------- -----------
Total liabilities............. 2,699,011 2,886,657 1,281,061 6,866,729 (951,315) 5,915,414
Total stockholders' equity
(capital deficiency) (Notes
1, 2, 4, 5, 7, 8 and 10).... (225,582) (1,150,808) 1,471,069 94,679 8,114,117 (s) 8,208,796
---------- ---------- ---------- ---------- ---------- -----------
$2,473,429 $1,735,849 $2,752,130 $6,961,408 $ 7,162,802 $14,124,210
========== ========== ========== ========== ========== ===========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-4
<PAGE> 72
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SUMMARY OF PRO FORMA ADJUSTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
REFERENCE ADJUSTMENT 1996
--------- -------------------------------------------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents (a) Net proceeds from BWI initial public offering, net
of deferred offering costs (see Notes 1 and
2).............................................. $ 7,846,532
Payment of costs incurred in connection with the
consolidation of operations (see Note 1)........ (30,000)
Paydown of accounts payable from IPO proceeds (see
Note 2)......................................... (500,000)
Purchases of property and equipment from IPO
proceeds (see Note 3)........................... (250,000)
Paydown of St. Stan's note payable by BWISS (see
Note 4)......................................... (168,927)
Payment of loan costs associated with paydown of
St. Stan's note payable (See Note 4)............ (20,000)
Repayment of bridge note payable from IPO proceeds
(see Note 4).................................... (500,000)
Payment of St. Stan's notes payable to related
parties (see Note 5)............................ (459,120)
Paydown of OEBC notes payable to related parties,
plus accrued interest (see Note 5).............. (301,000)
Repayment of notes payable to related party from
IPO proceeds (see Note 5)....................... (175,000)
Payment of consulting fees (see Note 8)........... (10,000)
Payment of legal settlement (see Note 8).......... (400,000)
Repayment of additional bridge notes payable from
IPO proceeds (see Note 10)...................... (750,000)
Repayment of advances from related party from IPO
proceeds (see Note 10).......................... (150,000)
----------
4,132,485
----------
Prepaid expenses and (b) Write-off of deferred financing costs (see Note
other 2).............................................. (19,711)
----------
INCREASE IN CURRENT ASSETS............................................................... 4,112,774
----------
Property and equipment, (c) Adjustment to machinery and equipment to fair
net value in connection with the acquisition of OEBC
(see Note 2).................................... (291,362)
Purchases of property and equipment from IPO
proceeds (see Note 3)........................... 250,000
----------
(41,362)
----------
</TABLE>
F-5
<PAGE> 73
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SUMMARY OF PRO FORMA ADJUSTMENTS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
REFERENCE ADJUSTMENT 1996
--------- -------------------------------------------------- -------------
<S> <C> <C> <C>
Goodwill and other (d) Goodwill from acquisition of OEBC (See Notes 1 and
intangible assets 2).............................................. 3,408,410
Costs related to the acquisition of OEBC; costs
classified as OEBC Goodwill (see Notes 1 and
2).............................................. 42,023
Costs related to the formation of BWI-Prost
Partnership (see Note 2)........................ 11,265
Reclassification of investments in affiliates to
intangible assets; costs classified as OEBC
Goodwill (see Notes 1 and 2).................... 72,977
Reclassification of investments in affiliates to
intangible assets; BWI-Prost Partnership
Formation costs (see Note 2).................... 98,735
-------------
3,633,410
-------------
Investments in and (e) Reclassification of investments in affiliates to
advances to affiliates intangible assets (see Note 2).................. (72,977)
Reclassification of investments in affiliates to
intangible assets (see Note 2).................. (98,735)
Eliminate intercompany activity between OEBC and
BWI (see Note 9)................................ (90,274)
-------------
(261,986)
-------------
Deferred offering costs (f) Reclassification of deferred offering costs (see
Notes 1 and 2).................................. (300,034)
-------------
Other assets (g) Establish deferred loan costs (see Note 4)........ 20,000
-------------
INCREASE IN TOTAL ASSETS................................................................. $ 7,162,802
==========
LIABILITIES AND EQUITY
Accounts payable and (h) Paydown of accounts payable from IPO proceeds (see
accrued expenses Note 2)......................................... $ (500,000)
Repayment of OEBC accrued interest on notes
payable to related parties (see Note 5)......... (69,808)
Payment of legal settlement (see Note 8).......... (571,000)
Effect of renegotiation of capital lease due to
related party (see Note 8)...................... (61,950)
Eliminate intercompany activity between OEBC and
BWI (see Note 9)................................ (47,774)
-------------
(1,250,532)
-------------
Notes payable (i) Paydown of BWISS note (see Note 4)................ (7,777)
Repayment of bridge note payable from IPO proceeds
(see Note 4).................................... (500,000)
Establishment and repayment of additional bridge
notes payable (see Note 10)..................... --
-------------
(507,777)
-------------
</TABLE>
F-6
<PAGE> 74
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SUMMARY OF PRO FORMA ADJUSTMENTS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
REFERENCE ADJUSTMENT 1996
---------- -------------------------------------------------- -------------
<S> <C> <C> <C>
Capital lease due to (j) Effect of renegotiation of capital leases due to
related party related party (see Note 8)...................... 76,587
----------
Notes payable to related (k) Repayment of OEBC notes payable to related parties
parties (see Note 5).................................... (574,192)
Repayment of St. Stan's note payable to related
party (see Note 5).............................. (459,120)
Repayment of BWI notes payable to related parties
(see Note 5).................................... (14,941)
Establishment and repayment of BWI related party
advances (see Note 5)........................... --
----------
(1,048,253)
----------
Due to affiliate (l) Eliminate intercompany activity between OEBC and
BWI (see Note 9)................................ (42,500)
----------
Deferred income taxes (m) Establish current portion of deferred tax
liability from tax-free acquisition of OEBC (see
Note 2)......................................... 124,682
----------
DECREASE IN TOTAL CURRENT LIABILITIES.................................................... (2,647,793)
----------
Notes payable, net of (n) Paydown of BWISS note payable (see Note 4)........ (161,150)
current portion
Debt assumed by related parties in connection with
OEBC debt exchange agreement (see Note 4)....... (220,941)
----------
(382,091)
----------
Capital lease due to (o) Effect of renegotiation of capital lease due to
related party, net of related party (see Note 8)...................... (514,637)
current portion ----------
Deferred income taxes, (p) Establish deferred tax liability, net of current
net of current portion portion, from tax-free acquisition of OEBC (see
Note 2)......................................... 1,122,137
----------
Distribution payable (q) Establish distribution payable to minority
interest partners (see Notes 6 and 7)........... 1,166,953
----------
Minority interest (r) Establish historical minority interest in
BWI-Prost Partners (see Note 7)................. 1,471,069
Establish distribution payable to minority
interest partners (see Notes 6 and 7)........... (1,166,953)
----------
304,116
----------
DECREASE IN TOTAL LIABILITIES............................................................ (951,315)
----------
</TABLE>
F-7
<PAGE> 75
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SUMMARY OF PRO FORMA ADJUSTMENTS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
REFERENCE ADJUSTMENT 1996
--------- -------------------------------------------------- -------------
<S> <C> <C> <C>
Stockholders' equity (s) Net proceeds from BWI initial public offering, net
(capital deficiency) of deferred offering costs of $300,034 (See
Notes 1 and 2).................................. 7,546,498
Issuance of common stock in connection with OEBC
Exchange Agreement (see Note 1)................. 719,421
Reversal of historical OEBC capital deficiency
(see Note 1).................................... 1,150,808
Costs incurred in connection with the
consolidation of operations (see Note 1)........ (30,000)
Costs related to formation of BWI-Prost
Partnership (see Note 2)........................ 11,265
Costs related to the acquisition of OEBC (see Note
2).............................................. 42,023
Write-off of deferred financing costs (see Note
2).............................................. (19,711)
Issuance of common stock in connection with OEBC
debt exchange agreement (see Note 4)............ 140,850
Extraordinary gain in connection with the OEBC
debt exchange agreement (see Note 4)............ 80,091
Establish BWI notes payable to related parties
used for working capital purposes (see Note
5).............................................. (160,059)
Issuance of common stock in connection with
repayment of OEBC notes payable to related
parties (see Note 5)............................ 123,038
Extraordinary gain in connection with repayment of
OEBC notes payable to related parties (see Note
5).............................................. 219,962
Establish historical minority interest in
BWI-Prost Partners (see Note 7)................. (1,471,069)
Issuance of common stock in connection with
renegotiation of capital lease due related party
(Note 8)........................................ 255,000
Extraordinary gain in connection with the
renegotiation of capital lease due related party
(Note 8)........................................ 245,000
Consulting fees paid (see Note 8)................. (10,000)
Issuance of stock in connection with legal
settlement (see Note 8) 171,000
Establish BWI notes payable used for working
capital purposes (see Note 10).................. (750,000)
Establish unused portion BWI related party
advances used for working capital purposes (see
Note 10)........................................ (150,000)
----------
8,114,117
----------
INCREASE IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY).................................... $ 7,162,802
==========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-8
<PAGE> 76
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ST. STAN'S
BEVERAGE ORANGE BREWERY AND PRO FORMA
WORKS, EMPIRE BREW PUB PRO FORMA SEPTEMBER 30,
INC. BREWING CO. OPERATIONS SUBTOTAL ADJUSTMENTS REF 1996
----------- ----------- ----------- ----------- ----------- --- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales (Note 2 and 9)............ $ 195,552 $ 2,372,629 $ 1,401,453 $ 3,969,634 $ (66,550) (a) $ 3,903,084
Cost of sales (Notes 2, 3 and 9).... 421,158 1,667,326 1,022,349 3,110,833 (46,931) (b) 3,063,902
----------- ---------- ---------- ----------- --------- -----------
Gross profit...................... (225,606) 705,303 379,104 858,801 (19,619) 839,182
Selling, general and administrative
expenses (Notes 2, 8 and 9)....... 1,443,607 1,099,063 418,706 2,961,376 820,537 (c) 3,781,913
Provision for settlements........... 571,000 166,000 -- 737,000 -- 737,000
----------- ---------- ---------- ----------- --------- -----------
Operating loss...................... (2,240,213) (559,760) (39,602) (2,839,575) (840,156) (3,679,731)
Interest and other expenses, net
(Notes 2, 4, 5, 6, 8 and 10)...... 76,960 226,334 82,597 385,891 22,248 (d) 408,139
Minority interest in loss of
partnership (Note 7).............. -- -- -- -- (116,942) (e) (116,942)
----------- ---------- ---------- ----------- --------- -----------
Loss before income tax benefit...... (2,317,173) (786,094) (122,199) (3,225,466) (745,462) (3,970,928)
Income tax (expense) benefit (Notes
1 and 2).......................... 43,519 (1,200) -- 42,319 93,511 (f) 135,830
----------- ---------- ---------- ----------- --------- -----------
Net loss............................ $(2,273,654) $ (787,294) $ (122,199) $(3,183,147) $(651,951) $ (3,835,098)
=========== ========== ========== =========== ========= ===========
Net loss per share.................. $ (1.13)
===========
Common shares and equivalents
outstanding (Note 2).............. 3,384,390
===========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-9
<PAGE> 77
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 and 9)............ $ 44,810 $ 2,553,977 $ 2,029,424 $ 4,628,211 $ 347,751 (a) $ 4,975,962
Cost of sales (Notes 2, 3 and 9).... 81,627 1,824,065 1,396,217 3,301,909 512,570 (b) 3,814,479
--------- ---------- ---------- ---------- --------- ----------
Gross profit...................... (36,817) 729,912 633,207 1,326,302 (164,819) 1,161,483
Selling, general and administrative
expenses (Notes 2, 8 and 9)....... 491,330 990,701 583,568 2,065,599 1,477,837 (c) 3,543,436
--------- ---------- ---------- ---------- --------- ----------
Operating profit (loss)............. (528,147) (260,789) 49,639 (739,297) (1,642,656) (2,381,953)
Interest and other expenses (Notes
2, 4, 5, 6, 8 and 10)............. 28,320 163,169 98,398 289,887 112,774 (d) 402,661
Minority interest in loss of
partnership (Note 7).............. -- -- -- -- (104,552) (e) (104,552)
--------- ---------- ---------- ---------- --------- ----------
Loss before income tax benefit...... (556,467) (423,958) (48,759) (1,029,184) (1,650,878) (2,680,062)
Income tax (expense) benefit
(Notes 1 and 2)................... 7,706 (1,600) -- 6,106 177,639 (f) 183,745
--------- ---------- ---------- ---------- --------- ----------
Net loss............................ $(548,761) $ (425,558) $ (48,759) $(1,023,078) $(1,473,239) $ (2,496,317)
========= ========== ========== ========== ========= ==========
Net loss per share.................. $ (0.82)
==========
Common shares and equivalents
outstanding (Note 2).............. 3,059,837
==========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-10
<PAGE> 78
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SUMMARY OF PRO FORMA ADJUSTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
REFERENCE ADJUSTMENT 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
Eliminate intercompany activity (see Note 9)...... (66,550) --
--------- -----------
(66,550) 347,751
--------- -----------
Cost of sales (b) Cost of sales of Heritage prior to November 8,
1995 (date of acquisition) (see Note 2)......... -- 448,379
Reduction to depreciation for adjustment to fair
value of OEBC property and equipment, net (see
Note 2)......................................... (31,217) (41,623)
Additional depreciation related to assets under
capital lease (see Note 2)...................... -- 70,100
Additional depreciation related to capital
expenditures from IPO proceeds (see Note 3)..... 26,786 35,714
Eliminate intercompany activity (see Note 9)...... (42,500) --
--------- -----------
(46,931) 512,570
--------- -----------
DECREASE IN GROSS PROFIT................................................................. (19,619) (164,819)
--------- -----------
Selling, general and (c) Estimated incremental BWI selling, general and
administrative expenses administrative expenses and actual Heritage
selling, general and administrative expenses
(see Note 2).................................... 261,581 700,496
Amortization of OEBC goodwill (see Note 2)........ 264,256 352,341
Amortization of St. Stan's formation costs (see
Note 2)......................................... 16,500 22,000
Shares and warrants issued for consulting services
(see Note 8).................................... 283,125 377,500
Issuance of stock for brewpub management services
(see Note 8).................................... 19,125 25,500
Eliminate intercompany activity (see Note 9)...... (24,050) --
--------- -----------
820,537 1,477,837
--------- -----------
INCREASE TO OPERATING LOSS............................................................... (840,154) (1,642,655)
--------- -----------
Interest and other (d) Write-off of deferred financing costs (see Note
expenses 2).............................................. 19,711 --
(income), net Reduction of historical interest expense due to
OEBC debt exchange agreement (see Note 4)....... (16,571) (22,094)
Reduction of historical interest due to paydown of
St. Stan's notes payable (see Note 4)........... (15,265) (17,426)
Amortization of St. Stan's deferred loan costs
(see Note 4).................................... 3,000 4,000
Reduction of historical interest expense due to
repayment of OEBC notes payable to related
parties (see
Note 5)......................................... (54,790) (59,786)
Reduction of historical interest expense due to
repayment of St. Stan's notes payable to related
party (see Note 5).............................. (24,800) (26,658)
Interest expense related to warrants issued in
connection with the extension of the April 1996
Bridge Note (see Notes 4 and 10)................ 24,938 33,250
</TABLE>
F-11
<PAGE> 79
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SUMMARY OF PRO FORMA ADJUSTMENTS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
REFERENCE ADJUSTMENT 1996 1995
--------- -------------------------------------------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest expense related to common stock issued in
connection with the extension of the April 1996
Bridge Note (see Notes 4 and 10)................ 85,500 114,000
Interest expense related to OEBC debt exchange
warrants (see Note 5)........................... 3,750 5,000
Interest expense on Distribution Payable (Note
6).............................................. 87,521 116,695
Reduction to interest expense due to OEBC related
party lease amendment (see Note 8).............. (90,746) (34,207)
--------- -----------
22,248 112,774
--------- -----------
Minority interest in loss (e) Reflect minority interest in net loss of St.
of partnership Stan's (see Note 7)............................. (59,878) (23,892)
Reflect minority interest in pro forma adjustments
related to St. Stan's (see Note 7).............. (57,064) (80,660)
--------- -----------
(116,942) (104,552)
--------- -----------
INCREASE TO NET LOSS BEFORE INCOME TAX BENEFIT........................................... (745,462) (1,650,877)
Income tax benefit (f) Income tax benefit attributable to nondeductible
amortization of OEBC goodwill (see Note 2)...... 93,511 124,682
Income tax benefit attributable to nondeductible
depreciation of the fixed asset step-up and
nondeductible goodwill recorded in connection
with the Heritage acquisition (see Note 2)...... -- 52,957
--------- -----------
93,511 177,639
--------- -----------
INCREASE TO NET LOSS..................................................................... $(651,950) $ (1,473,239)
========= ===========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-12
<PAGE> 80
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 1,500,000 shares of common stock at an estimated offering
price of $6.00 per share, and warrants to purchase 1,500,000 shares of common
stock exercisable at $6.00 per share at an estimated offering price of $0.15 per
warrant. The letter of intent (see below) provides for an overallotment of units
to be offered not to exceed 15% of the proposed offering. Total estimated gross
proceeds from the proposed offering, excluding the underwriter's overallotment,
is $9,225,000.
In connection with the proposed initial public offering (the "IPO"), the
Company received a letter of intent on a proposed "firm commitment" basis with
an underwriter, whereby for services rendered in connection with the proposed
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 $922,500, plus an additional 3% for nonaccountable expenses,
amounting to $276,750. As of September 30, 1996, BWI had incurred $300,034 of
costs related to the proposed 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 $179,218 of costs related to this
proposed offering, excluding the underwriters fees and expenses.
Assumed net cash proceeds, excluding the underwriters overallotment
provision, included in the accompanying unaudited pro forma condensed
consolidated balance sheet related to the proposed IPO totals $7,846,532 and
$7,546,498 (after giving effect to the $300,034 of deferred offering costs at
September 30, 1996).
Orange Empire Brewing Company Exchange Agreement
On September 11, 1996, the Company entered into a proposed stock-for-stock
exchange (the "Exchange Agreement") with Orange Empire Brewing Company ("OEBC")
contingent upon the successful consummation of the proposed IPO (see below).
Pursuant to the Exchange Agreement, BWI is to issue 141,063 shares of its common
stock in exchange for all of the outstanding shares of OEBC. Such shares have
been valued at $719,421, or $5.10 per share, based on the estimated IPO price
per share of $6.00 (see Note 2). Due to certain transferability restrictions
under Rule 144 of the Securities Act of 1933, the valuation of the common stock
of BWI to be issued reflects a discount of 15%. The common stock of BWI to be
issued in the exchange is subject to adjustment (based on the change in net
assets of OEBC, as defined). Management has estimated direct acquisition costs
to be $115,000. Assuming the Exchange Agreement was consummated on September 30,
1996, the purchase price, plus the net liabilities assumed over the fair value
of the assets acquired, is estimated at $3,523,410 as follows:
<TABLE>
<S> <C>
Purchase price........................................ $ 834,421
----------
Fair value of assets to be acquired (see Note 2)...... 1,444,487
Less -- Liabilities assumed, including deferred tax
liability of $1,246,819............................. (4,133,476)
----------
Excess liabilities assumed............................ (2,688,989)
----------
Goodwill.............................................. $ 3,523,410
==========
</TABLE>
Management of BWI and OEBC intend for the Exchange Agreement to be a
statutory tax-free exchange under the Internal Revenue Code. Accordingly, in
accordance with Statement of Financial Accounting Standards No. 109, a deferred
tax liability has been reflected in the accompanying unaudited pro forma
F-13
<PAGE> 81
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 1 -- PROPOSED INITIAL PUBLIC OFFERING, ACQUISITION AND JOINT VENTURE --
(CONTINUED)
condensed consolidated balance sheet as of September 30, 1996 for goodwill which
is not expected to be deductible for Federal and state tax reporting purposes.
In addition, up to 155,000 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 proposed IPO. If for any
reason the proposed IPO does not occur on or before March 31, 1997, or the
proposed 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. 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 December 17, 1996, the Company's wholly-owned subsidiary, BWI -St.
Stan's Inc. ("BWISS") entered into a partnership agreement 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 consummation of the proposed IPO
and the assumption and partial repayment of certain debt (see Notes 4, 5 and 6)
at the date of contribution, the "Contribution Date", the date of the successful
consummation of the proposed IPO of BWI's common stock, occurring on or before
March 31, 1997, realizing minimum gross proceeds of at least $8,000,000. Also
see Note 9 in the Notes to the St. Stan's Brewery and Brewpub Operations
Financial Statements which represent the Historical Financial Statements of
Assets and Liabilities to be Contributed to BWI -- Prost Partners General
Partnership, included elsewhere in this registration statement, for discussion
regarding the timing and nature of contributions.
Heritage Brewing Company
During 1997, BWI intends to combine the operations of Heritage Brewing
Company with the operations of Riverside Brewing Company. The combined
operations are to be located at Riverside Brewing Company. The Heritage Brewing
Company facility lease expires in April 1997, and the storage lease is on a
month-to-month basis. In connection with the combining of operations, BWI
anticipates it will incur certain costs for the removal, transportation and
installation of equipment estimated at $30,000.
Included in the accompanying unaudited pro forma condensed consolidated
balance sheet is an adjustment to reflect the payment of such costs (shown as a
reduction to equity). No adjustment has been made to the unaudited pro forma
condensed consolidated statements of operations as such costs are non recurring
in nature.
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 proposed 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).
F-14
<PAGE> 82
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 2 -- PRINCIPLES OF ACCOUNTING FOR CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS -- (CONTINUED)
The accompanying unaudited pro forma condensed consolidated balance sheet is
presented as if the transactions had been effected as of September 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 September 30, 1996, and the actual
results of operations of the Company would have been for the nine months ended
September 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 period January 1, 1995 to November 8, 1995.
For the nine months ended September 30, 1996, an increase totaling $261,581
was made to selling, general and administrative expense in the accompanying
unaudited pro forma condensed consolidated statement of operations to effect
expected incremental salaries of BWI estimated at $186,581 and certain expected
ongoing expenses of BWI associated with conducting business as a public entity
estimated at $75,000 (insurance, public relations, etc.).
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 ongoing 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.............................................. -- 448,379 448,379
Selling, general and administrative expenses............... 577,820 122,676 700,496
Interest................................................... -- -- --
Income tax benefit......................................... -- (52,957) (52,957)
-------- --------- ---------
Increase to net loss....................................... $577,820 $ 170,347 $ 748,167
======== ========= =========
</TABLE>
The net adjustment to BWI for the year ended December 31, 1995, represents
the effect of the expected incremental salaries and operating expenses of
$477,820 and other incremental operating expenses aggregating approximately
$100,000 (for insurance, public relations, etc.). The adjustments to Heritage
for the year ended December 31, 1995, represent the actual sales, cost of sales
and selling, general and administrative expenses for Heritage for the period
January 1, 1995 to November 8, 1995, adjusted for depreciation of assets
adjusted to fair value, and the related tax effects, recorded in connection with
the stock-for-stock exchange as discussed
F-15
<PAGE> 83
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 2 -- PRINCIPLES OF ACCOUNTING FOR CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS -- (CONTINUED)
above and in Note 1 to the Consolidated Financial Statements of Beverage Works,
Inc. and Subsidiary included elsewhere in this registration statement.
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. The estimated increase to cash
balances which are expected to arise from the IPO (see Note 1) is estimated at
$4,132,485. Management expects that such unused cash balances will be invested
in interest bearing accounts. The accompanying unaudited pro forma condensed
consolidated statements of operations do not include adjustments for any
interest that would be earned.
Property and Equipment
In connection with the OEBC Exchange Agreement (see Note 1), certain
machinery and equipment (see Note 3) was reduced by $291,362 to reflect its fair
market value. In connection with this property adjustment, depreciation and
amortization expense was reduced $31,217 and $41,623 for the nine months ended
September 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
depreciation of such assets for a full twelve-month period.
Goodwill and Other Intangible Assets
Goodwill
Goodwill of $3,523,410 (including $115,000 of estimated OEBC acquisition
costs discussed below) has been estimated in connection with the OEBC Exchange
Agreement (see Notes 1 and 2), assuming the exchange was consummated on
September 30, 1996, and is expected to be amortized on a straight-line basis
over a period of 10 years. Amortization of OEBC goodwill has been included in
the accompanying unaudited pro forma condensed consolidated statements of
operations amounting to $264,255 and $352,341 for the nine months ended
September 30, 1996 and the year ended December 31, 1995, respectively. Such
amortization is reflected as an increase to selling, general and administrative
expenses.
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.
F-16
<PAGE> 84
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 2 -- PRINCIPLES OF ACCOUNTING FOR CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS -- (CONTINUED)
OEBC Acquisition Costs
The Company has incurred $72,977 through September 30, 1996 of costs
consisting primarily of legal and accounting fees, which are directly related to
the Exchange Agreement. Such costs have been reflected as investments in and
advances to affiliates in the accompanying unaudited pro forma condensed
consolidated balance sheet at September 30, 1996. The Company anticipates to
incur additional acquisition costs of $42,023, totaling $115,000, which is
considered additional consideration towards the purchase price of OEBC. Such
amounts have been considered in goodwill as discussed above.
Partnership Formation Costs
The Company has incurred $98,735 through September 30, 1996 of costs
consisting primarily of legal and accounting fees, which are directly related to
the formation of the Partnership. Such costs have been reflected as investments
in and advances to affiliates on the accompanying unaudited pro forma condensed
consolidated balance sheet at September 30, 1996. Management expects to incur
additional formation costs of $11,265. Partnership formation costs will be
amortized over a period of five (5) years. Accordingly, selling, general and
administrative expenses have been increased by $16,500 and $22,000 in the
unaudited pro forma condensed consolidated statements of operations for the nine
months ended September 30, 1996 and the year ended December 31, 1995,
respectively.
Deferred Financing Costs
Deferred financing costs, included in prepaid and other current assets,
arose from the issuance of BWI warrants to purchase common stock, as well as
cash paid for loan fees, which represent interest costs associated with a bridge
financing which was funded in May 1996. The remaining unamortized balance of
such costs, totaling $19,711 at September 30, 1996, have been written off and
reflected as a reduction to prepaid and other current assets and stockholders'
equity in the accompanying unaudited pro forma condensed consolidated balance
sheet.
An increase to interest expense has been made in the accompanying unaudited
pro forma condensed consolidated statements of operations for the nine months
ended September 30, 1996 to reflect such write-off. Also see Note 10 for
additional warrants and common stock issued in connection with such bridge
financing.
Deferred Offering Costs
Deferred offering costs represent costs associated with BWI's proposed IPO
(see Note 1). Such costs, totaling $300,034 at September 30, 1996, have been
netted against the assumed IPO proceeds 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
proposed IPO (see Note 1) to reduce past due accounts and contractual
commitments. Accordingly, accounts payable and cash have been reduced in the
accompanying unaudited pro forma condensed consolidated balance sheet.
F-17
<PAGE> 85
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 2 -- PRINCIPLES OF ACCOUNTING FOR CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS -- (CONTINUED)
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) and
common stock expected to be issued in connection with the proposed OEBC
acquisition and BWI-Prost Partners joint venture (see Note 1). 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 $6.00 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 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. Such calculation had been adjusted for the
effect of the shares and warrants which have been retired subsequent to
September 30, 1996. See discussion in the notes to the Historical Financial
Statements of the Company included elsewhere in the Registration Statement.
Income Taxes
In connection with the OEBC Exchange Agreement (see Note 1), management
established a deferred income tax liability totaling $1,246,819, of which
$124,682 is classified as a current liability in the accompanying unaudited pro
forma condensed consolidated balance sheet, which is attributable to goodwill
which is not expected to be deductible for Federal and state income tax
reporting. 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 relating to
the acquisition of Heritage and OEBC, as discussed in Notes 1 and 2, and the
depreciation related to the acquisition of Heritage (please refer to the
historical financial statements of BWI), an adjustment to record the related
deferred tax benefit amounting to $93,511 and $124,682 for the nine months ended
September 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, as adjusted, in the accompanying unaudited pro
forma condensed consolidated balance sheet consists of the following as of
September 30, 1996:
<TABLE>
<S> <C>
Machinery and equipment................................................. $ 2,930,791
Building and leasehold improvements..................................... 2,280,920
Equipment under capital lease........................................... 915,254
Furniture and equipment................................................. 13,859
----------
6,140,824
Less accumulated depreciation and amortization.......................... (1,144,542)
----------
$ 4,996,282
==========
</TABLE>
F-18
<PAGE> 86
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT, NET -- (CONTINUED)
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 $250,000 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 $26,786 and
$35,714 for the nine months ended September 30, 1996 and the year ended December
31, 1995, respectively.
NOTE 4 -- NOTES PAYABLE
OEBC Note Payable to Bank
In connection with the OEBC Exchange Agreement and concurrent with the
Closing Date, a note payable, which aggregated approximately $533,493 at
September 30, 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 $312,552 will be paid to the
bank 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 $140,850 using 85% of the estimated IPO price per share of $6.00 (see
Note 2). Due to transferability restrictions under Commission Rule 144 of the
1933 Act, the valuation reflects a discount of 15%. 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 $140,850. The difference of $80,091, deemed to be an
extraordinary gain, has also been reflected as a reduction to equity (see Notes
1 and 2). No adjustment has been reflected in the accompanying unaudited pro
forma condensed consolidated statement of operations for the nine months ended
September 30, 1996, as such gain is non-recurring in nature.
In connection therewith, interest expense in the accompanying unaudited pro
forma condensed consolidated statements of operations was reduced by $16,571 and
$22,094 for the nine months ended September 30, 1996 and the year ended December
31, 1995, respectively.
BWISS New Note Payable
BWISS has obtained a commitment letter from a lender to refinance a note
with a balance of $668,927 at September 30, 1996 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 $168,927 to cash and a
corresponding reduction to notes payable.
In connection therewith, interest expense in the accompanying unaudited pro
forma condensed consolidated statements of operations was reduced by $15,265 and
$17,426 for the nine months ended September 30, 1996 and the year ended December
31, 1995, respectively.
BWISS will be charged $20,000 for loan fees by the lender upon the
assumption. Accordingly, the accompanying unaudited pro forma condensed
consolidated balance sheet reflects the payment of such costs as a reduction to
cash and an increase to other assets. The accompanying unaudited pro forma
condensed consolidated statements of operations have been adjusted to reflect
the amortization of such costs totaling $3,000 and $4,000 for the nine months
ended September 30, 1996 and the year ended December 31, 1996, respectively.
F-19
<PAGE> 87
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 4 -- NOTES PAYABLE -- (CONTINUED)
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 (such note was funded in May 1996). Interest is payable monthly. On
December 19, 1996, such Bridge Note was extended to mature the earlier of the
closing of the proposed IPO (see discussion below) or April 15, 1997 (see Note
10). The Bridge Note is secured by the assets of BWI. As of September 30, 1996,
$500,000 was outstanding under the terms of this financing.
The accompanying unaudited pro forma condensed consolidated balance sheet
as of September 30, 1996 reflects the repayment of the Bridge Note from the
proceeds of the IPO.
Notes payable, as adjusted, in the accompanying unaudited pro forma
condensed consolidated balance sheet consist of the following as of September
30, 1996:
<TABLE>
<S> <C>
BWI note payable to bank, bearing interest at prime, plus 2.75% per annum
(11.50% at September 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. ......................... $ 385,800
BWI note payable to bank, bearing interest at prime, plus 2.529% per
annum (11.279% at September 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. ................. 23,526
OEBC note payable to bank, expected to bear interest at prime plus 1.75%
per annum (10.50% at September 30, 1996), expected to be payable in
monthly installments of principal and interest of approximately
$14,311, expected to be due December 1, 1998, secured by substantially
all of the assets of OEBC. ............................................ 312,552
BWISS note payable to a lending institution, expected to bear interest at
11% per annum, expected to be payable in monthly installments of
principal and interest of $5,683, expected to be due December 31, 2001
(assuming a closing date of the IPO of December 31, 1996), secured by
substantially all of the assets of the Partnership. ................... 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. ..................................................... 32,786
----------
1,254,664
Less current portion..................................................... (235,692)
----------
$1,018,972
==========
</TABLE>
F-20
<PAGE> 88
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 4 -- NOTES PAYABLE -- (CONTINUED)
Future annual principal installments of notes payable, as adjusted, as of
September 30, 1996 are expected to be as follows:
<TABLE>
<CAPTION>
YEARS ENDING
SEPTEMBER 30,
-----------------------------------------------------------------
<S> <C>
1997........................................................ $ 235,692
1998........................................................ 201,552
1999........................................................ 199,235
2000........................................................ 184,298
2001........................................................ 25,202
Thereafter.................................................. 408,685
----------
$1,254,664
==========
</TABLE>
See Note 10 for discussion related to additional financings.
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 $574,192 of principal and $69,808 of
accrued interest as of September 30, 1996. Upon the consummation of the proposed
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 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 $231,192 to notes
payable to related parties and a decrease of $69,808 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, (of which $219,962 is reflected as an extraordinary gain) 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 proposed IPO, it has been reflected herein as it is
management's intent to promptly effect such repayment. No adjustment has been
made to the accompanying unaudited pro forma condensed consolidated statements
of operations as such extraordinary gain is deemed nonrecurring in nature.
In connection therewith, interest expense in the accompanying unaudited pro
forma condensed consolidated statements of operations has been reduced by
$54,790 and $59,786 for the nine months ended September 30, 1996 and the year
ended December 31, 1995, respectively, to reflect the principal reductions
described above. In addition, interest expense in the accompanying unaudited pro
forma condensed consolidated statement of operations has been increased $3,750
and $5,000 for the nine months ended September 30, 1996 and for the year ended
December 31, 1995, respectively, to reflect the difference between the exercise
price of the warrants at $5.00 and the value of the underlying common stock of
$5.10 which represents the estimated proposed IPO price per share of $6.00, less
a 15% discount due to certain transferability restrictions under Rule 144 of the
Securities Act of 1933.
F-21
<PAGE> 89
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 5 -- NOTES PAYABLE TO RELATED PARTIES -- (CONTINUED)
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 notes payable to a related party.
The balances of such notes payable total $459,120 as of September 30, 1996.
Accordingly, the unaudited 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 $24,800 and $26,658
for the nine months ended September 30, 1996 and the year ended December 31,
1995, respectively.
Related Party Financing
On June 24, 1996, the Company entered into an agreement with a significant
stockholder of OEBC, 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 June
30, 1997. At September 30, 1996, BWI had $14,941 of borrowings outstanding under
this agreement.
The accompanying unaudited pro forma condensed consolidated balance sheet
reflects the establishment of the unused portion of the credit facility totaling
$160,059 and the related use of such funds for working capital purposes (a
reduction to stockholders' equity), and the repayment of such amount from the
proceeds of the IPO.
Notes payable to related parties, as adjusted, in the accompanying
unaudited pro forma condensed consolidated balance sheet consist of the
following as of September 30, 1996:
<TABLE>
<S> <C>
OEBC unsecured demand notes payable to certain officers and stockholders,
interest at 7.75% per annum............................................. $ 45,981
BWI unsecured note payable to an officer, noninterest bearing, payable
monthly at 3% of monthly sales, as defined.............................. 78,955
Other..................................................................... 48,124
--------
$173,060
========
</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 $1,128,047 of the
$2,295,000 capital contribution (see note 1) will be satisfied through BWISS's
assumption and repayment of $459,120 of notes payable to related parties (see
Note 5) and full assumption and partial repayment of $668,927 of a note payable
to lender (see Note 4). Accordingly, the remaining required capital contribution
of BWISS, which is estimated to be $1,166,953 at September 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 included elsewhere in this
registration statement 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
F-22
<PAGE> 90
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 6 -- DISTRIBUTION PAYABLE -- (CONTINUED)
unaudited pro forma condensed consolidated statements of operations has been
increased by $87,521 and $116,695 for the nine months ended September 30, 1996
and the year ended December 31, 1995, respectively.
NOTE 7 -- MINORITY INTEREST
The accompanying unaudited pro forma condensed consolidated balance sheet
has been adjusted to reflect the establishment of the minority interest
liability totaling $1,471,069 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 $1,166,953 distribution payable (see Note 6 above).
The accompanying unaudited pro forma condensed consolidated statements of
operations for the nine months ended September 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 AND CONTINGENCIES
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 10%, a
provision that all such leased equipment may be purchased by the Company for $1
upon expiration of the lease, the inclusion in the lease obligation of all
delinquent lease payments due through December 31, 1995, and a reduction of the
lease obligation in the amount of $500,000 in exchange for 50,000 shares of BWI
common stock. The lease payments are to be unaffected by the aforementioned
modifications through December 31, 1997, at which time the reduced balance will
be due over a period of five (5) years.
Included in the accompanying unaudited pro forma condensed consolidated
balance sheet is a reclassification from accounts payable to the long-term
portion of the capital lease due to related party totaling $61,950, to reflect
the inclusion of delinquent lease payments through December 31, 1995. Also,
included in the accompanying unaudited pro forma condensed consolidated balance
sheet is a reclassification of $76,587 to the current portion from the longterm
portion of the capital lease due to related party. Also included in the
accompanying unaudited pro forma condensed consolidated balance sheet is a
reduction to the capital lease obligation of $500,000 and an increase to equity
of $255,000 which represents the issuance of 50,000 shares of BWI common stock
valued at $5.10 (the estimated IPO price per share of $6.00 less a 15% discount
due to certain transferability restrictions under Rule 144 of the Securities Act
of 1933). The remaining $245,000 has also been reflected as an increase to
equity on the accompanying unaudited pro forma condensed balance sheet as of
September 30, 1996 representing an extraordinary gain. No entry has been made to
the accompanying unaudited pro forma condensed statement of operations for the
nine months ended September 30, 1996 or for the year ended December 31, 1995 as
such extraordinary gain is nonrecurring in nature.
F-23
<PAGE> 91
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 8 -- ]COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Future annual aggregate minimum lease payments under the capital lease due
to related party, as modified in the accompanying unaudited pro forma condensed
consolidated balance sheet are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
SEPTEMBER 30,
-------------
<S> <C>
1997.................................................. $ 267,372
1998.................................................. 117,112
1999.................................................. 75,401
2000.................................................. 75,401
2001.................................................. 75,401
Thereafter............................................ 100,535
----------
711,222
Less amounts representing interest.................... (139,313)
----------
Present value of minimum lease payments............... 571,909
Less current portion.................................. (220,085)
----------
$ 351,824
==========
</TABLE>
In connection therewith, interest expense in the accompanying unaudited pro
forma condensed consolidated statements of operations has been reduced by
$90,746 and $34,207 for the nine months ended September 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. 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
$19,125 and $25,500 for the nine months ended September 30, 1996 and the year
ended December 31, 1995, respectively, to reflect the estimated expense for such
Management Agreement. Such expense represents 5,000 shares to be issued for a
one year period valued at $5.10 per share (estimated IPO price per share of
$6.00 less a 15% discount due to certain transferability restrictions under Rule
144 of the Securities Act of 1933).
Consulting Agreements
On December 28, 1996, BWI entered into a one year consulting agreement with
an individual to provide financial advisory services. In connection therewith,
BWI is obligated to pay $10,000 in cash and issue 60,000 shares of its common
stock. Under a registration rights agreement, the Company is obligated to
register 35,000 shares with in 180 days; the remaining 25,000 shares have "piggy
back" registration rights under the Securities Act of 1933. Since the shares
have registration rights under the Securities Act of 1933, the Board of
Directors
F-24
<PAGE> 92
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
reflected a discount of 5% from the estimated IPO price of $6.00 per share.
Accordingly, such shares have been valued at $5.70 per share.
In addition, in connection with the OEBC Exchange Agreement, BWI will enter
into a two-year consulting agreement with a related party for brewery advisory
services and assistance with the acquisition and disposition of equipment. In
connection therewith, BWI is obligated to issue 5,000 shares of its common stock
at the end of each twelve-month period commencing on the Closing Date.
Accordingly, such shares have been valued at $5.10 (estimated IPO price per
share of $6.00 less a 15% discount due to certain transferability restrictions
under Rule 144 of the Securities Act of 1933).
The accompanying unaudited pro forma condensed consolidated balance sheet
has been adjusted at September 30, 1996 to reflect the payment of $10,000 in
cash and reduce stockholders' equity for consulting expenses.
Selling, general and administrative expenses in the accompanying unaudited
pro forma condensed consolidated statements of operations have been increased by
$283,125 and $377,500 for the nine months ended September 30, 1996 and the year
ended December 31, 1995, respectively, to reflect the estimated expense for such
consulting agreements.
Litigation
A lawsuit was brought against BWI, certain of its officers and its former
investment banker in Los Angeles Superior Court, alleging, among other things,
that the Plaintiff is entitled to compensation for the proposed partnership and
the proposed OEBC Exchange Agreement. Management has reached a tentative
settlement with the Plaintiff whereby the Company will pay $400,000 in cash and
will issue 30,000 shares of its common stock. BWI is expected to pay $200,000
upon the execution of a settlement agreement, $50,000 upon the close of the
Company's proposed IPO and $150,000 13 months from January 1, 1997. The 30,000
shares of common stock will be subject to demand registration rights under the
Securities Act of 1933, 180 days after the effective date of the proposed IPO.
Accordingly, such shares have been valued at $5.70 per share (a discount of 5%
due to transferability restrictions under the 1933 Act). At September 30, 1996,
management recorded a provision for loss totaling $571,000.
The accompanying unaudited pro forma condensed consolidated balance sheet
as of September 30, 1996 has been adjusted to reflect the cash payment of
$400,000 related to the aforementioned litigation out of estimated IPO proceeds
(Note 1), an increase in stockholders' equity totaling $171,000 for the issuance
of the 30,000 shares of common stock and a reduction to accounts payable
totaling $571,000.
NOTE 9 -- RELATED PARTY TRANSACTIONS
During 1996, OEBC utilized its facilities to brew and bottle beer for BWI.
OEBC billed Heritage $42,500 for such services which is included in sales of
OEBC. In addition, OEBC transferred certain raw materials, at cost, totaling
$12,975 to Heritage. At September 30, 1996, the intercompany receivable and
payable in the accompanying unaudited pro forma condensed consolidated balance
sheet of $55,475 is eliminated, and the related sales and cost of sales of OEBC
totaling $42,500 is eliminated in the accompanying unaudited pro forma condensed
statement of operations for the nine months ended September 30, 1996.
In June 1996, in anticipation of consummating the OEBC Exchange Agreement,
BWI and OEBC entered into a management agreement, whereby BWI manages and
operates OEBC. As compensation for such services, BWI is to receive $6,500 per
month, plus reimbursement of expenses as defined. The agreement terminates upon
consummation of the proposed IPO. At September 30, 1996, and for the nine months
then
F-25
<PAGE> 93
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 9 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
ended, a total of $24,050 was recorded as revenues by BWI under the terms of the
agreement and, accordingly, is eliminated in consolidation.
BWI has advanced approximately $10,749 to OEBC and BWISS during the through
September 30, 1996, which is included in investments in and advances to
affiliates.
Included in the accompanying unaudited pro forma condensed consolidated
balance sheet is an adjustment to eliminate intercompany obligations against
receivables, aggregating $90,274 which primarily represents the results of the
aforementioned.
In addition, in the accompanying unaudited pro forma condensed consolidated
statement of operations for the nine months ended September 30, 1996, is an
adjustment to remove the effects of the aforementioned agreements.
NOTE 10 -- SUBSEQUENT EVENTS
Related Party Advances
During the period October 1, 1996 and through the proposed 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.
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 proposed IPO.
Bridge Notes Payable
On December 19, 1996, the Company and Bridge Note holder (see Note 4)
agreed to extend the due date of the $500,000 note until April 15, 1997. In
consideration to extend the Bridge Note, the Company issued 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; such warrants have "piggy-back"
registration rights, subject to a "lock-up" agreement at an exercise price of
$4.75 for a period of three years from the date of issuance. In addition, BWI
will issue 20,000 shares of its common stock with "piggy-back" registration
rights, subject to a "lock-up" agreement.
Included in the accompanying unaudited pro forma condensed consolidated
statements of operations is an increase to interest expense of $24,938 and
$33,250 for the nine months ended September 30, 1996 and December 31, 1995,
respectively to reflect the difference between the exercise price of the Bridge
Warrants at $4.75 and the value of the underlying common stock at $5.70 per
share (estimated IPO price of $6.00 less a 5% discount due to registration
rights associated with such bridge warrants).
In addition, there is an increase to interest expense of $85,500 and
$114,000 for the nine months ended September 30, 1996 and the year ended
December 31, 1995, respectively to reflect the issuance of the 20,000 shares of
BWI common stock valued at $5.70 per share (estimated IPO price of $6.00 less a
5% discount due to registration rights associated with such shares).
Additional Bridge Notes
On December 10, 1996, BWI received $250,000 pursuant to a 12% promissory
note, principal and interest due the earlier of the IPO, with aggregate proceeds
of $6,000,000 or more, or on September 1, 1997. In
F-26
<PAGE> 94
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 10 -- SUBSEQUENT EVENTS -- (CONTINUED)
addition, BWI anticipates receiving additional Bridge financing prior to the
consummation of the IPO totaling $500,000. Management expects such financings
will bear similar terms to the aforementioned promissory note.
The accompanying unaudited pro forma condensed consolidated balance sheet
has been adjusted to reflect the establishment of such financings aggregating
$750,000 and the related use of proceeds for working capital purposes (a
reduction to stockholders' equity), and the repayment of such amounts from the
proceeds of the IPO (see Note 1).
F-27
<PAGE> 95
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 (capital deficiency)
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, has current
liabilities in excess of current assets and a capital deficiency. 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, among others, 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 a proposed 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 Note 8 as to which
the date is December 10, 1996
and Note 11 as to which
the date is January 7, 1997
F-28
<PAGE> 96
BEVERAGE WORKS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Note 2)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................ $ 159,716 $1,041,723
Accounts receivable, net of allowance for doubtful accounts of
$33,000 (1996) (unaudited) and $0 (1995) (Note 5)............. 40,992 1,311
Inventories (Notes 3 and 5)...................................... 171,451 45,135
Prepaid expenses and other (Note 5).............................. 52,567 33,208
---------- ----------
Total current assets..................................... 424,726 1,121,377
Property and equipment, net (Notes 4 and 5)........................ 1,335,939 1,296,434
Deferred licensing fees (Note 7)................................... 14,600 --
Deferred offering costs (Note 11).................................. 300,034 37,320
Investments in and advances to affiliates (Note 9)................. 206,511 --
Goodwill, net of accumulated amortization of $18,841 (1996) and $0
(1995) (Note 1).................................................. 191,619 210,460
---------- ----------
$ 2,473,429 $2,665,591
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses............................ $ 686,530 $ 95,774
Legal settlement payable (Note 7)................................ 571,000 --
Notes payable (Note 5)........................................... 546,237 41,286
Notes payable to related parties (Note 6)........................ 93,896 109,072
Deferred income taxes (Note 10).................................. 58,007 60,704
Due to affiliate (Note 9)........................................ 42,500 --
---------- ----------
Total current liabilities................................ 1,998,170 306,836
Notes payable, net of current portion (Note 5)..................... 363,089 398,240
Deferred income taxes, net of current portion (Note 10)............ 337,752 381,774
---------- ----------
Total liabilities........................................ 2,699,011 1,086,850
---------- ----------
Commitments and contingencies (Notes 7 and 9)
Stockholders' equity (capital deficiency)
(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;
2,457,863 (1996) (unaudited) and 2,341,363 (1995) shares
issued and outstanding........................................ 2,596,833 2,127,502
Accumulated deficit.............................................. (2,822,415) (548,761)
---------- ----------
Total stockholders' equity (capital deficiency).......... (225,582) 1,578,741
---------- ----------
$ 2,473,429 $2,665,591
========== ==========
</TABLE>
See independent auditors' report and accompanying notes
to consolidated financial statements
F-29
<PAGE> 97
BEVERAGE WORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THE PERIOD FROM THE PERIOD
INCORPORATION FROM INCORPORATION
(AUGUST 2, 1995) TO (AUGUST 2, 1995) TO
SEPTEMBER 30, DECEMBER 31, 1995
1995 -------------------
THE NINE -------------------
MONTHS ENDED
SEPTEMBER 30, (UNAUDITED)
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Sales (Note 7)............................. $ 208,034 $ -- $ 48,395
Less excise taxes (12,482) -- (3,585)
----------- -------- ----------
Net sales................................ 195,552 -- 44,810
Cost of sales.............................. 421,158 -- 81,627
----------- -------- ----------
Gross profit (loss)...................... (225,606) -- (36,817)
----------- -------- ----------
Operating expenses:
Salaries and wages (Note 8).............. 379,017 -- 295,336
Professional fees (Note 8)............... 513,909 -- 78,516
Other general and administrative (Notes
7, 8 and 9)........................... 502,819 4,793 108,445
Marketing and selling.................... 47,862 -- 9,033
Provision for legal settlement (Note
7).................................... 571,000 -- --
----------- -------- ----------
Total operating expenses......... 2,014,607 4,793 491,330
----------- -------- ----------
Loss from operations....................... (2,240,213) (4,793) (528,147)
Interest expense (Notes 5, 6 and 8)........ 76,960 -- 28,320
----------- -------- ----------
Loss before benefit for income taxes....... (2,317,173) (4,793) (556,467)
Benefit for income taxes (Note 10)......... 43,519 -- 7,706
----------- -------- ----------
Net loss................................... $ (2,273,654) $(4,793) $ (548,761)
=========== ======== ==========
Net loss per common share.................. $ (0.85) $ -- $ (0.23)
=========== ======== ==========
Common shares and equivalents outstanding
(Notes 2 and 11)......................... 2,687,359 245,310 2,362,806
=========== ======== ==========
</TABLE>
See independent auditors' report and accompanying notes
to consolidated financial statements
F-30
<PAGE> 98
BEVERAGE WORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
FOR THE NINE MONTHS ENDED SEPTEMBER 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 $4.00
per share in connection with the
stock-for-stock exchange on November 8,
1995 (Notes 1 and 8)................... 142,276 569,104 -- 569,104
Issuance of common stock valued at $4.00
per share for services rendered (Note
8)..................................... 49,015 196,060 -- 196,060
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 $4.00
per share for services rendered (Note
8)..................................... 16,583 66,332 -- 66,332
Issuance of common stock purchase units
for cash at $4.00 per share, net of
offering costs of $168,318 (Note 8).... 333,746 1,166,666 -- 1,166,666
Net loss................................. -- -- (548,761) (548,761)
--------- ---------- --------- ----------
Balances, December 31, 1995.............. 2,341,363 2,127,502 (548,761) 1,578,741
Issuance of common stock for cash 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 $.95 per share, representing
interest (Notes 5 and 8)............... -- 33,250 -- 33,250
Issuance of common stock purchase units
for cash at $5.00 per equivalent share,
net of offering costs of $24,999 (Note
8)..................................... 30,000 125,001 -- 125,001
Net loss................................. -- -- (2,273,654) (2,273,654)
--------- ---------- --------- ----------
Balances, September 30, 1996
(unaudited)............................ 2,457,863 $2,596,833 $(2,822,415) $ (225,582)
========= ========== ========= ==========
</TABLE>
See independent auditors' report and accompanying notes
to consolidated financial statements.
F-31
<PAGE> 99
BEVERAGE WORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE PERIOD FROM
THE NINE INCORPORATION THE PERIOD FROM
MONTHS ENDED (AUGUST 2, 1995) TO INCORPORATION
SEPTEMBER 30, SEPTEMBER 30, (AUGUST 2, 1995) TO
1996 1995 DECEMBER 31, 1995
------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(2,273,654) $(4,793) $ (548,761)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 302,260 -- 30,282
Provision for loss on accounts receivable............ 33,000 -- --
Common stock issued for services rendered (Note 8)... -- -- 262,392
Common stock issued to related parties for interest
(Notes 5 and 8).................................... -- -- 21,332
Changes in operating assets and liabilities, net of
acquired company:
Accounts receivable.................................. (72,681) -- --
Inventories.......................................... (126,316) -- --
Prepaid expenses and other........................... 352 (2,630) (18,715)
Accounts payable and accrued expenses................ 590,756 2,100 37,216
Accrued legal settlement (Note 7).................... 571,000 -- --
Deferred income taxes................................ (46,719) -- (7,706)
----------- ------- ----------
Net cash used in operating activities................... (1,022,002) (5,323) (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) -- --
Investments in and advances to affiliates (Note 9)...... (206,511) -- --
Purchases of property and equipment..................... (200,185) -- (86,117)
----------- ------- ----------
Net cash used by investing activities................... (436,696) -- (80,165)
----------- ------- ----------
Cash flows from financing activities:
Due to affiliate (Note 9)............................... 42,500 -- --
Proceeds from issuance of common stock (Note 8)......... 402,281 -- 1,245,996
Proceeds from issuance of common stock purchase warrants
(Note 8)............................................. -- -- 28,100
Deferred offering costs (Note 8)........................ (262,714) -- (37,320)
Deferred financing costs (Note 5)....................... (60,000) -- --
Proceeds from issuance of notes payable
(Note 5)............................................. 500,000 -- --
Proceeds from issuance of notes payable to related
parties (Note 6)..................................... 14,941 5,323 109,072
Payments on notes payable (Note 5)...................... (30,200) -- --
Payments on notes payable to related parties (Note 6)... (30,117) -- --
----------- ------- ----------
Net cash provided by financing activities............... 576,691 5,323 1,345,848
----------- ------- ----------
Net change in cash and cash equivalents................... (882,007) -- 1,041,723
Cash and cash equivalents, beginning of period............ 1,041,723 -- --
----------- ------- ----------
Cash and cash equivalents, end of period.................. $ 159,716 $ -- $ 1,041,723
=========== ======= ==========
Supplemental disclosure of cash flow information --
Cash paid during the period for:
Interest............................................. $ 47,523 $ -- $ 2,771
=========== ======= ==========
Income taxes......................................... $ 1,600 $ -- $ 800
=========== ======= ==========
</TABLE>
See independent auditors' report and accompanying notes
to consolidated financial statements
F-32
<PAGE> 100
BEVERAGE WORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
Supplemental disclosure of noncash investing and financing activities:
September 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 $33,250 for deferred financing costs (see Notes
5 and 8).
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 $262,392 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............................................ $1,433,766
Value of stock given as consideration.................................... (569,104)
----------
Liabilities assumed.................................................... $ 864,662
==========
</TABLE>
See independent auditors' report and accompanying notes
to consolidated financial statements
F-33
<PAGE> 101
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31, 1995
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 its proposed
initial public offering (the "IPO") by March 31, 1997 with gross proceeds of at
least $5,000,000 or if the Company has not funded at least $500,000 of interim
financing during the period November 4, 1996 through January 10, 1997. In the
event the proposed IPO is not consummated by June 30, 1997, 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 proposed IPO is probable of being consummated. The
purchase price was $569,104, plus acquisition costs of $18,480. The price was
based on the number of shares issued at $4.00 per share. The price per share was
based on the price received by the Company in its first private placement which
occurred shortly after the acquisition (see Note 8). The minority interest
relating to the remaining stockholders of Heritage was not recorded as the
amount was not considered significant. The excess of purchase price over the
fair value of the net assets acquired (goodwill) as a result of this transaction
was $210,460 (see Note 2). 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............................................... $(623,926)
==========
Net loss per share..................................... $ (0.20)
==========
</TABLE>
The unaudited proforma information above is not necessarily indicative of
the actual results which may have occurred had the acquisition been consummated
on January 1, 1995.
The historical audited condensed results of operations of Heritage for the
ten month and eight day period ended November 8, 1995 are as follows:
<TABLE>
<S> <C>
Revenues............................................... $ 347,751
Costs.................................................. (484,097)
----------
Net loss............................................... $(136,346)
==========
</TABLE>
As discussed in Note 11, on September 11, 1996, BWI entered into a
stock-for-stock exchange, as amended on January 7, 1997, (the "Exchange
Agreement") with Orange Empire Brewing Company ("OEBC"), a California
corporation. Additional agreements were entered into along with the execution of
the Exchange Agreement. In anticipation of the proposed IPO, an agreement with
BWI to actively manage OEBC's operations was consummated (see Note 7). See Note
11 for further discussion of the Exchange Agreement and related agreements which
may have a significant effect on the consolidated financial position and results
of operations of the Company.
F-34
<PAGE> 102
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 1 -- ORGANIZATION -- (CONTINUED)
On June 25, 1996, BWI formed a wholly-owned subsidiary, BWI - St. Stan's,
Inc. ("BWISS"). On December 17, 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 proposed IPO, and the assumption
of certain debt on the contribution date, the "Contribution Date", the date of
the successful consummation of the proposed 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 may have a significant effect on the
consolidated financial position and results of operations of the Company.
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 $2,273,654 (unaudited) and $548,761, for the nine months ended
September 30, 1996 and for the period from incorporation (August 2, 1995) to
December 31, 1995, respectively. In addition, at September 30, 1996, BWI has
current liabilities in excess of current assets of $1,573,444 (unaudited) and a
capital deficiency of $225,582 (unaudited). BWI will require significant capital
to fund operations, to consummate its proposed acquisition and joint venture
(Note 11) and to enable it to achieve revenues to support its cost structure.
These factors, among others, raise substantial doubt about BWI's ability to
continue as a going concern.
BWI has funded operations from two private placements of equity securities
(see Note 8) and two private bridge financings (see Notes 5 and 11). BWI plans
to effect the proposed IPO to raise additional capital, certain of which, if the
proposed IPO is successful and the proposed acquisitions are consummated, the
proceeds will be used to close the proposed acquisition and Partnership (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 meet BWI's proposed cost structure. There are no
assurances that management's plans can be effected, which includes the
consummation of the proposed 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-35
<PAGE> 103
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Parent Only Financial Information
Beverage Works, Inc., parent only condensed financial information consists
of the following:
FINANCIAL POSITION
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash............................................................ $ 140,000 $ 1,035,771
Other current assets............................................ 22,829 2,715
------------ -----------
Total current assets......................................... 162,829 1,038,486
Property and equipment, net....................................... 16,196 5,312
Investments....................................................... 189,327 478,480
Advances to affiliates............................................ 766,415 193,573
Deferred offering costs........................................... 300,034 37,320
Other............................................................. 39,645 --
------------ -----------
$ 1,474,446 $ 1,753,171
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Liabilities:
Accounts payable and accrued expenses........................... $ 535,132 $ 65,358
Accrued legal settlement........................................ 571,000 --
Bridge note payable............................................. 500,000 --
Notes payable to related party.................................. 93,896 109,072
------------ -----------
1,700,028 174,430
Stockholders' equity (capital deficiency)......................... (225,582) 1,578,741
------------ -----------
$ 1,474,446 $ 1,753,171
============ ===========
</TABLE>
F-36
<PAGE> 104
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Parent Only Financial Information -- (Continued):
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE AUGUST 2,
MONTHS ENDED 1995 TO
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net revenues (Note 7)............................................. $ 24,050 $ --
Cost of revenues.................................................. -- --
------------ -----------
Gross profit................................................. 24,050 --
Selling, general and administrative expenses...................... 1,246,210 417,600
Provision for legal settlement (Note 7)........................... 571,000 --
------------ -----------
Loss from operations......................................... (1,793,160) (417,600)
Equity in loss of subsidiary...................................... 438,808 131,161
Interest expense, net............................................. 41,686 --
------------ -----------
Net loss.......................................................... $(2,273,654) $ (548,761)
============ ===========
</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. 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, the net
realizability of inventory, and the evaluation of the potential impairment of
property and equipment and goodwill.
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, investments in and advances to affiliates, 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
September 30, 1996 (unaudited) and December 31, 1995. In the case of the
investments in and advances to affiliates (Note 9) and 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
F-37
<PAGE> 105
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
Four customers accounted for sales ranging from 11% to 27% of total sales
(unaudited) for the nine-month period ended September 30, 1996. Such
concentrations were similar during the period from November 8, 1995 (date of
acquisition of Heritage) to December 31, 1995.
Two vendors of the raw material used in its brewing process supplied
materials representing 17% and 43% of total purchases for the nine-month period
ended September 30, 1996 (unaudited). Such concentrations were similar 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.
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. 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 has certain significant distribution relationships. The loss of one
or more of these distributors would have a material adverse effect on the
Company's ability to bring its products to market and, therefore, adversely
effect its sales and results of operations. 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.
Potential "Dram Shop" Liability
Some states have enacted "dram shop" laws and legislation which impose
criminal and civil liability on licensed alcoholic beverage servers for injuries
or damages caused by their negligent service of alcoholic beverages to a visibly
intoxicated person or to a minor, if such service is the proximate cause of the
injury or damage and such injury or damage is reasonably foreseeable. California
has enacted legislation granting broad
F-38
<PAGE> 106
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
immunity to servers of alcoholic beverages from civil liability, except for the
sale of alcoholic beverages to minors. While the Company maintains liquor
liability insurance as part of its comprehensive general liability insurance
which management believes is adequate to protect against such liability, there
can be no assurance that the Company will not be subject to a judgment or fine
in excess of such insurance coverage or that it will be able to continue to
maintain such insurance coverage at reasonable costs or at all. The imposition
of a judgment or fine substantially in excess of the Company's insurance
coverage would have a material adverse effect on the Company. Similarly, the
failure of the Company to obtain and maintain insurance coverage could also
materially and adversely affect the Company.
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 enacted in the future.
Trademarks
The Company and the Breweries have obtained or applied for U.S. Trademark
Registrations for the names of several 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.
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 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 and 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
F-39
<PAGE> 107
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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, included in prepaid expenses and other current
assets, arose from loan fees paid of $60,000 and the issuance of 35,000 common
stock purchase warrants valued at $33,250 which were deemed by management to
represent interest costs associated with the issuance of a bridge note payable
(the "Bridge Note") (Note 5). Such interest costs are currently being amortized
over the nine-month period ending December 31, 1996. Amortization of such costs
during the nine months ended September 30, 1996 was $73,539 (unaudited). Also
see Note 5 for additional common stock and common stock purchase warrants issued
in connection with this note.
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 are 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 deferred
at December 31, 1995 were recorded net of the proceeds received. In the event
the proposed IPO is unsuccessful, the $300,034 of costs incurred through
September 30, 1996 (unaudited), and costs to be incurred, will be charged to
operations.
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.
F-40
<PAGE> 108
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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. Management has based this assessment on the
anticipated benefits to be derived from the successful completion of the
Company's proposed IPO and the consummation of the Exchange Agreement and the
Partnership Agreement (see Note 11). If the Company's proposed IPO is not
successfully completed, the Company could be forced to liquidate its assets if
it ceases to continue as a going concern. The amounts the Company would receive
from a sale of its property and equipment under such circumstances could be
substantially less than the carrying values reflected in the accompanying
consolidated financial statements.
Goodwill
The excess of cost of the investment over net assets acquired (goodwill) is
amortized on a straight-line basis over the expected periods to be benefitted.
The Company assesses 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, is measured based on projected undiscounted cash flows and
is charged to operations in the period in which goodwill impairment is
determined by management. Goodwill is amortized on the straight-line method over
an expected ten (10) year life. The methodology that management uses to project
results of operations is based on a five-year trend line of expected cash flows.
To date, management has not identified an impairment of goodwill. Management has
based this assessment on the anticipated benefits to be derived from the
successful completion of its proposed IPO and the consummation of the Exchange
Agreement and the Partnership Agreement (see Note 11). If the proposed IPO is
not successfully completed, management may be required to charge operations for
the impairment of goodwill.
Deferred Licensing Fees
Deferred licensing fees (see 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 are amortized on a straight-line basis
over one year. Amortization during the nine-month period ended September 30,
1996 totaled $49,200 (unaudited).
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 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).
F-41
<PAGE> 109
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
Advertising and Marketing Expense
Advertising and marketing costs are expensed as incurred.
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 proposed IPO
price (estimated at $6.00 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
proposed IPO price during the twelve-month period preceding the date of the
initial filing of the registration statement (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. The aforementioned calculations
have not been adjusted to reflect the retirement of 1,342,700 shares of common
stock occurring subsequent to September 30, 1996 (see Note 8).
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 September 30, 1996, and
results of operations and cash flows for the nine-month period 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 nine-month period ended September 30, 1996 are not
necessarily indicative of results of operations to be expected for the year
ending December 31, 1996.
F-42
<PAGE> 110
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 3 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
1996 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
Raw materials and purchased packaging.............. $ 101,695 $ 32,900
Work in process and finished goods................. 69,756 12,235
---------- ----------
$ 171,451 $ 45,135
========== ==========
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
1996 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
Machinery and equipment............................ $1,450,335 $ 1,250,150
Furniture and fixtures............................. 8,446 8,446
Leasehold improvements............................. 68,120 68,120
---------- ----------
1,526,901 1,326,716
Less accumulated depreciation and amortization..... (190,962) (30,282)
---------- ----------
$1,335,939 $ 1,296,434
========== ==========
</TABLE>
F-43
<PAGE> 111
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 5 -- NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
1996 1995
------------ -----------
(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.................. $ 385,800 $ 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.................. 23,526 31,519
Bridge Note payable to a less than 5% stockholder
of the Company, bearing interest at 18% per
annum, interest payable monthly, maturing the
earlier of the closing of the proposed IPO or
April 15, 1997, secured by all assets of BWI (see
below)........................................... 500,000 --
---------- ----------
909,326 439,526
Less current portion............................... (546,237) (41,286)
---------- ----------
$ 363,089 $ 398,240
========== ==========
</TABLE>
In April 1996, in connection with the Bridge Note, the Company paid $60,000
in loan fees and issued warrants (the "Bridge Warrants") to purchase 35,000
shares of the Company's common stock. Each Bridge Warrant has registration
rights and 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 registration rights provide for the underlying shares to be registered in
the Company's proposed IPO, with such shares being subject to a six-month
"lock-up" agreement, as defined. The Bridge Warrants are fully exercisable and
expire April 20, 1999. The Bridge Warrants were valued at $0.95 per warrant (see
Note 8). Such costs have been capitalized as deferred financing costs and are
included in prepaid expenses and other in the accompanying consolidated balance
sheet at September 30, 1996 (see Note 1). In December 1996, the Company agreed
to issue an additional 35,000 Bridge Warrants with the same terms described
above and 20,000 shares of its common stock. Such additional warrants and shares
of common stock (which have demand registration rights effective 180 days after
the close of the Company's proposed IPO) with an estimated combined value of
$147,250, and will be charged to operations as interest expense from December 1,
1996 to April 15, 1997.
Interest expense on the notes payable discussed herein amounted to $76,519
(unaudited) for the nine-month period ended September 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, which excludes the $500,000 Bridge Notes, due 1996, are as follows:
F-44
<PAGE> 112
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 5 -- NOTES PAYABLE -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
--------------------------------------------------
<S> <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 an additional bridge note totaling $250,000
subsequent to September 30, 1996.
NOTE 6 -- NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Two noninterest bearing unsecured demand notes payable to
stockholders, paid July 1, 1996............................ $ -- $ 26,327
Noninterest bearing unsecured note payable to an officer and
stockholder, payable at a rate of 3% of sales.............. 78,955 82,745
Unsecured line of credit up to a maximum of $175,000 to an
affiliate of OEBC, interest at 11% per annum payable
monthly, with all principal and unpaid interest due the
earlier of the consummation of an IPO with gross proceeds
exceeding $10,000,000 or June 30, 1997..................... 14,941 --
------- --------
$93,896 $109,072
======= ========
</TABLE>
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 proposed IPO (Note 11). The employment
contracts also provide for certain expense allowances.
F-45
<PAGE> 113
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 7 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Future annual minimum base salaries plus allowances, and in the aggregate,
consist of the following at December 31, 1995 (without taking into consideration
the employment agreements effective on the consummation of the Company's
proposed IPO):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
-------------
<S> <C>
1996.......................................... $ 451,200
1997.......................................... 451,200
1998.......................................... 203,025
----------
$1,105,425
==========
</TABLE>
Also see Note 11 regarding the cancellation and replacement of employment
contracts upon consummation of the proposed IPO.
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 plan under Section
162(m) of the Internal Revenue 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 maximum 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.
See Note 8 for options and warrants granted by the Board of Directors.
Operating Leases
The Company leases its Lake Elsinore, California facility under a
noncancelable operating lease which expires February 1998. The Company
previously leased its Newport Beach, California office on a month-to-month
arrangement for $2,105. In November 1996, the Company entered into a new office
lease arrangement for office space located in Newport Beach, California. The
lease payment is $941 per month and expires November 1999.
Future annual minimum lease payments at December 31, 1995 are as follows
(without taking into consideration the new lease executed in November, 1996):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
-------------
<S> <C>
1996............................................ $26,050
1997............................................ 27,560
1998............................................ 4,630
-------
$58,240
=======
</TABLE>
Rent expense under all operating lease agreements totaled $34,886
(unaudited) for the nine-month period ended September 30, 1996, and $10,525 for
the period ended December 31, 1995.
F-46
<PAGE> 114
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 7 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
See Note 11 for discussion regarding a month-to-month lease agreement
entered into with a related party subsequent to September 30, 1996.
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 for a term
of five years pursuant to certain minimum sales quotas set forth in the
agreement. If a minimum sales volume has been met at the end of year five of the
agreement, the agreement can be extended for an additional term, as defined,
upon payment of a $100,000 extension fee. 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,
paid certain fees and expenses totaling $5,000, and paid advance royalties of
$10,000. The agreement provides for the payment of a $25,000 licensing fee upon
the commencement of year two of the agreement. Such amounts, excluding the
advanced royalties and the second year licensing fee, have been capitalized as
deferred licensing fees in the accompanying consolidated balance sheet at
September 30, 1996 (unaudited) (see Note 2); advance royalties of $10,000 are
included in prepaid expenses and other current assets in such consolidated
balance sheet at September 30, 1996 (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.
Contract Brewing Agreements
The Company has entered into four contract brewing agreements 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 agreements specify the prices at which such products
are to be purchased, but do not specify the quantities to be produced by the
Company and purchased by the counterparty. The terms of the agreements are one
year, generally cancelable with 30 days notice. 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.
Management Agreement
In anticipation of consummating the Exchange Agreement, effective June 10,
1996, the Company entered into a management agreement with OEBC, whereby BWI
manages and operates 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 proposed IPO. Included in investments in and advances to
affiliates in the accompanying consolidated balance sheet is $24,050 (unaudited)
of past due management fees at September 30, 1996.
F-47
<PAGE> 115
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 7 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Management fee income under this agreement totaled $24,050 (unaudited) for the
nine-month period ended September 30, 1996 and is reflected in the consolidated
statement of operations.
Also see Note 11, for discussion regarding a management agreement effective
upon consummation of the proposed IPO.
Consulting Agreement
On January 5, 1996, the Company entered into a design, advertising and
marketing agreement. In November 1996, the Company agreed to issue qualified
incentive stock options pursuant to its plan (see Note 8) to purchase 110,000
shares of common stock at an exercise price of $5.20 per share in lieu of
$67,500 in fees. The value of the services which will be satisfied through the
issuance of such options will be charged to operations with a corresponding
credit to common stock as such services are provided.
Litigation
The Company and its subsidiaries are currently not involved in any material
pending legal proceedings. Other than as described below, the management of the
Company is not aware of any material legal proceedings threatened against it.
A lawsuit was brought against the Company, certain of its officers and its
former investment banker in Los Angeles Superior Court, alleging, among other
things, that the Plaintiff is entitled to compensation for the proposed
Partnership with St. Stan's and the proposed acquisition with OEBC. Management
has reached a tentative verbal settlement with the Plaintiff whereby the Company
will pay $400,000 and issue 30,000 shares of its common stock valued at $5.70
per share. The Company is expected to pay $200,000 upon the execution of the
settlement agreement, $150,000 upon the close of the Company's proposed IPO and
$50,000 13 months from January 1, 1997. The shares will be subject to demand
registration rights 180 days after the effective date of the proposed IPO.
Accordingly, management recorded a provision for loss totaling $571,000
(unaudited) in the accompanying consolidated statement of operations for the
nine-month period ended September 30, 1996.
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 on the Company's consolidated operations or financial position.
NOTE 8 -- STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
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. In 1995, 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 proposed IPO price per share of $6.00. In the event the securities
are issued
F-48
<PAGE> 116
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 8 -- STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) -- (CONTINUED)
under Commission Rule 144 of the 1933 Act, the Board of Directors reflected a
discount of 15% from the estimated proposed IPO price (approximately $5.10 per
share) 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 5% from the estimated proposed
IPO price (approximately $5.70 per share).
Common stock transactions since incorporation (August 2, 1995) through
December 31, 1995, and during the nine-month period ended September 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.
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
November 22, 1996, the Company entered into an agreement with a holder of
1,342,700 shares of common stock of the Company (such shares were
originally issued by the Company in October 1995) (the "Stock Retirement
Agreement"). The Stock Retirement Agreement requires the stockholder to
surrender 1,160,216 shares of common stock to the Company. In consideration
for such surrender, the Company is to provide the stockholder with
registration rights for the 182,484 shares not surrendered. The
registration rights provide for such shares to be registered in the
Company's anticipated IPO, with such shares being subject to a 12-month
staggered "lock-up" agreement, as defined.
On October 6, 1995, the Company sold warrants 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 192,000 shares discussed below). On December
10, 1996, the Company and the holder entered into a mutual general release
agreement whereby warrants to purchase 2,110,000 were retired. The
remaining warrants were modified to reduce the exercise price to the lesser
of 105% of the proposed IPO price or $8.25 per share. The warrants are
fully vested, expire five (5) years from the proposed IPO date and are
callable by the Company at $0.01 each provided that the closing bid price
of the Company's stock equals 200% of the warrant exercise price for a
specified period, as defined. The shares underlying such warrants are
expected to be registered in the Company's proposed IPO, subject to a
6-month "lock-up" agreement, as defined, which restricts the sale of such
securities. Although the exercise price of the warrant was 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 (capital deficiency).
On November 8, 1995, the Company issued 142,276 shares of common stock
valued at an effective price of approximately $4.00 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 $4.00 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 $196,060 to operations during the period ended December 31, 1995
for services rendered.
F-49
<PAGE> 117
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 8 -- STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) -- (CONTINUED)
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 $4.00 per share to certain parties for consulting services
provided to the Company. Accordingly, the Company charged $66,332 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
proposed IPO, subject to a 13-month lock-up agreement, as defined. Through
December 31, 1995, the Company issued 333,746 shares of its common stock
for aggregate proceeds of $1,166,666, net of offering costs of $168,318.
In April 1996, the Company issued an additional 80,000 shares of
common stock for aggregate proceeds of $277,280, net of offering costs of
$42,720 under its private placement discussed in the preceding paragraph.
On February 3, 1996, the Company issued 6,500 shares of common stock
valued at $5.20 per share pursuant to the terms of a license agreement.
Such shares are expected to be registered in the Company's proposed IPO,
subject to a 13-month "lock-up" agreement, as defined. The shares issued
were deemed consideration for acquiring its rights under the agreement and,
accordingly, the Company capitalized $33,800 for such value as deferred
licensing fees in the accompanying consolidated balance sheet at April 30,
1996 (see Notes 2 and 7).
In April 1996, the Company issued warrants to purchase 35,000 shares
of its common stock at $4.75, each full exercisable and expiring April 20,
1999. The underlying common stock has registration rights in the proposed
IPO, subject to a 6-month "lock-up" agreement, as defined. The Board of
Directors determined the estimated fair value to be $5.70 per share and,
accordingly, $33,250 was capitalized as deferred financing cost to be
amortized to interest expense over the term of the loan (Notes 2 and 5).
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
$24,999. Each unit consists of two shares of common stock and one common
stock purchase warrant exercisable at $7.00 per share. Such shares and
shares underlying the warrants are expected to be registered in the
Company's proposed IPO, subject to a staggered four-month "lock-up"
agreement. The warrants are immediately exercisable and expire in five
years.
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 192,000 shares to certain investors and directors of the Company, the
underlying shares of which are expected to be registered in the Company's
proposed IPO, subject to a 6-month "lock-up" agreement, as defined. In December
1996, the terms of the warrants were amended. Each warrant entitles the holder
to purchase one share of common stock at an exercise price of the lesser of 105%
of the proposed IPO price or $8.25 per share, as amended, and is fully
F-50
<PAGE> 118
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 8 -- STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) -- (CONTINUED)
vested as of the date of grant. The warrants are callable by the Company at $.01
each provided that the closing bid price of the Company's stock equals 200% of
the warrant exercise price for a specified period, as defined. The exercise
price substantially exceeds the estimated fair value of underlying common stock
at the date of grant. Such options expire five (5) years from the proposed IPO
date. 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.
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 1,091,000 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. No compensation expense was attributed to the options granted as the
exercise price exceeded the estimated $5.10 fair value of the underlying shares.
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 $5.10 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. No compensation expense was attributed to the
options granted as the exercise price equaled the $5.10 estimated fair value of
the underlying shares.
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 nine-month period ended September 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........................................... 1,938,500 4.75- 5.20
Exercised......................................... -- --
Canceled.......................................... -- --
--------- -----------
September 30, 1996 (unaudited)...................... 4,954,083(1) $4.50-$8.25
========= ===========
Shares exercisable at September 30, 1996
(unaudited)....................................... 3,085,478(1)
=========
</TABLE>
- ---------------
(1) Warrants to purchase 2,110,000 shares at $8.25 were retired in December 1996
as discussed above. The tables above have not been adjusted for such
retirement.
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
F-51
<PAGE> 119
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 8 -- STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) -- (CONTINUED)
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
Investments In and Advances To Affiliates
Investments in and advances to affiliates consist of the following at
September 30, 1996 (unaudited):
<TABLE>
<S> <C>
Formation costs relating to the Partnership....................... $ 98,735
Acquisition costs relating to OEBC................................ 72,977
OEBC management fees receivable (see below)....................... 24,050
Advances.......................................................... 10,749
--------
$206,511
========
</TABLE>
The Company intends to treat the Partnership formation costs as
organizational costs, to be capitalized and amortized to expense over a period
of five years. The Company intends to treat the OEBC acquisition costs incurred
to date as part of the overall purchase price to be paid in such acquisition.
Such costs will have the effect of increasing goodwill, which will be
capitalized and amortized to expense over a period of ten years. In the event
that the proposed IPO is unsuccessful, such amounts will be charged to
operations to the extent they are unrecoverable.
Due To Affiliate
During 1996, the Company utilized the brewing facilities of OEBC to brew
and bottle beer for Heritage. In connection therewith, certain raw materials
were purchased, at cost, from OEBC by Heritage. At September 30, 1996
(unaudited), due to affiliate in the accompanying consolidated balance sheet
represents the cost to the Company for such brewing and bottling services, and
inventory purchased.
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 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 nine months ended September
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
be required to assume and/or repay certain debt on behalf of or payable to
persons or entities, which after the proposed IPO, will be stockholders of the
Company. In
F-52
<PAGE> 120
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 9 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
addition, the Company will assume a capital lease obligation from a company
controlled by a significant stockholder of OEBC upon the close of the proposed
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 proposed 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 proposed 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
has approved $50,000 (unaudited) for payments to be made to two Directors, which
have been accrued in the accompanying consolidated balance sheet at September
30, 1996 and $25,000 (unaudited) has been paid by the Company to one Director at
September 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................................................... $(189,199) (34.0)%
State income taxes, net of 50% limitation on loss
carryforwards.......................................... (15,757) (2.8)
Expenses not deductible for income tax purposes and
other.................................................. 2,920 0.1
Increase in the valuation allowance for deferred tax
assets................................................. 194,330 35.3
--------- -----
Benefit for income taxes................................. $ (7,706) (1.4)%
========= =====
</TABLE>
The components of deferred tax assets and liabilities recorded in the
accompanying balance sheet at December 31, 1995 are 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............................. $ 442,478
=========
</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
F-53
<PAGE> 121
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 10 -- INCOME TAXES -- (CONTINUED)
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
Purchase Commitment
Subsequent to September 30, 1996, the Company entered into an arrangement
whereby it has committed to purchase beer kegs totaling $167,000.
Keg Management Agreement
Effective December 2, 1996, Heritage entered into a keg sale-lease back
arrangement with a vendor. The agreement provides for the vendor to purchase
kegs identified by Heritage, in increments of 100 units, at specified prices, as
defined. Heritage is required to lease back such kegs from the vendor for a
$5.00 to $15.00 usage fee per filling, as defined. During the term of the
agreement, Heritage is required to satisfy all of its keg usage needs through
the lease of such kegs from the vendor, except for usage obtained through keg
inventory retained by Heritage at the inception of the agreement. The term of
the agreement is for five years, terminable for cause, as specified, with 30
days written notice. Upon termination of the agreement, Heritage will be
required to repurchase all kegs sold to the vendor at prices (which decline as
the kegs age) which are predetermined at the original date of sale. The
agreement provides that Heritage may not enter into a similar agreement with a
competitor of the vendor for a period of three years from the date of
termination.
The Company will account for this transaction as a financing, whereby the
proceeds received from the vendor for the sale of the kegs will be recorded as a
liability. The usage fees will be recorded as interest expense as incurred. The
repurchase obligation will be assessed quarterly; any difference between the
repurchase obligation and the carrying value of the liability will be recorded
through an adjustment to interest expense.
Lease Agreement
Effective January 1, 1997, the Company has entered into an agreement to
sublease, on a month-to-month basis, office space from an officer, director and
stockholder of the Company. The agreement provides for the monthly payment of
$1,280.
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 proposed IPO. Certain
of
F-54
<PAGE> 122
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)
the new employment contracts provide for substantial incentive compensation if
certain revenue levels are achieved, as defined. No incentive compensation has
been paid through September 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 proposed IPO in the aggregate,
consist of the following assuming the consummation of the proposed IPO is on
January 1, 1997:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
-------------
<S> <C>
1997.................................................. $ 711,200
1998.................................................. 712,400
1999.................................................. 497,148
2000.................................................. 330,800
----------
$2,251,548
==========
</TABLE>
Bridge Financing
On December 10, 1996, the Company issued a $250,000 promissory note to a 7%
stockholder of the Company, interest at 12% per annum, principal, together with
interest, is due upon the earlier of the proposed IPO raising gross proceeds of
at least $6,000,000 or September 1, 1997.
Consulting Agreement
On December 28, 1996, the Company entered into a consulting agreement with
an individual to provide financial advisory services relating to the Company's
proposed IPO for a period of one year. In connection therewith, the Company is
obligated to pay $10,000 and issue 60,000 shares of its common stock. Certain of
the shares (totalling 30,000) have demand registration rights effective 180 days
after the close of the Company's proposed IPO. The remaining 25,000 shares are
to be registered in the Company's proposed IPO, with such shares subject to a
three-month "lock-up" agreement, as defined. Accordingly, such shares will be
valued at $5.70 (see share valuation discussion at Note 8) and will be charged
to operations during 1997.
Proposed Public Offering
The Company has negotiated a letter of intent on a "firm commitment" basis
with an underwriter to place 1,500,000 shares of the Company's common stock at
an estimated offering price of $6.00 per share and 1,500,000 Redeemable common
stock purchase warrants with an exercise price of $6.00 per share for five (5)
years at an estimated offering price of $0.15 per 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 units
issued in the offering solely to cover over-allotments.
In connection with the proposed IPO, the Company granted the underwriter an
option to purchase (the "Purchase Option") consisting of 150,000 shares of
common stock and 150,000 common stock purchase warrants (the "Representative
Warrants") for 120% of the proposed IPO price (based on an assumed price
F-55
<PAGE> 123
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)
per share of $6.00, the Purchase Option price would be $7.20 each). The
Representative Warrants are exercisable one year after the closing date of the
Company's proposed IPO. The Representative Warrants will expire five (5) years
from the closing date of the proposed IPO.
The Company has also agreed that if the Company participates in any merger,
consolidation or other such transactions which the Underwriter has brought to
the Company during a period of five years after the closing of the Offering, and
which is consummated after the closing of the Offering (including an acquisition
of assets or stock for which it pays, in whole or in part, with shares or other
securities), then the Company will pay for the Underwriter's services in an
amount equal to 5% of up to one million dollars of value paid or received in the
transaction, 4% of the next million dollars of such value, 3% of the next
million dollars of such value, 2% of the next million dollars of such value and
1% of the next million dollars and all of such value above $4,000,000.
Transactions Proposed With Orange Empire Brewing Company
Exchange Agreement With OEBC
As discussed in Note 1, on September 11, 1996, as amended on January
7, 1997, the Company entered into the Exchange Agreement with OEBC.
Pursuant to the Exchange Agreement, the Company is to issue 141,063 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 155,000 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 proposed IPO. If for any reason the proposed IPO does not occur
on or before March 31, 1997 or the proposed 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 (up to a maximum deficit of $7,500 per
quarter). The Management Agreement can be terminated by mutual written
consent or in the event of a breach, as defined.
The Company anticipates that it will value such shares at $5.10 per
share (see share valuation discussion at Note 8). The value of such shares
will be ratably charged by the Company to expense as the related services
are performed.
Also see Note 7 for discussion regarding a management agreement in effect
at September 30, 1996.
Consulting Agreement
In connection with the Exchange Agreement, the Company will enter into
a two-year consulting agreement with a significant stockholder of OEBC. The
agreement requires the stockholder to provide brewery advisory services and
assistance with the acquisition and disposition of equipment. For such
F-56
<PAGE> 124
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)
services, the Company will issue 5,000 shares of its common stock at the
end of each twelve-month period commencing on the Closing Date.
The Company anticipates that it will value such shares at $5.10 per
share (see share valuation discussion at Note 8). The value of such shares
will be ratably charged by the Company to expense as the related services
are performed.
Capital Lease Agreement Amendment
In connection with the Exchange Agreement and concurrent with the
Closing Date, a related party is required to enter into an agreement with
the Company to modify the existing terms of a capital lease obligation. In
consideration for such modifications, the Company will issue the related
party 50,000 shares of common stock. The modifications to the capital lease
obligation are to include a reduction in the effective interest rate to
10%, a provision that all such leased equipment may be purchased by the
Company for $1 upon expiration of the lease, the inclusion in the lease
obligation of all delinquent lease payments due through December 31, 1995
(see Note 7), and a reduction of the lease obligation in the amount of
$500,000. The dollar amount of the lease payments are to be unaffected by
the aforementioned changes in terms through December 31, 1997 (monthly
lease payments currently total $22,281). Effective January 1, 1998, all
amounts unpaid under the current lease obligation will be consolidated into
one five-year lease and the monthly payments will be revised accordingly
(the anticipated lease payment effective January 1, 1998 totals $12,151).
Lease payments that the lessor was to receive for the period January 1,
1996 through September 30, 1996 (which payments total $140,488) (unaudited)
have been repaid through the issuance of OEBC common stock.
The Company anticipates that it will value such shares at $5.10 per
share (see share valuation discussion at Note 8). The total value of such
shares is estimated at $255,000. The Company will recognize the estimated
$245,000 difference between the carrying value of the capital lease
obligation and the fair value of the common stock as an extraordinary gain
in the consolidated statement of operations in the period such transaction
occurs.
Note Payable to Bank
In connection with the Exchange Agreement and concurrent with the
Closing Date, a note aggregating approximately $533,493 (unaudited) at
September 30, 1996 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 $312,552 (unaudited) at September 30, 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.
The Company anticipates that it will value such shares at $5.10 per
share (see share valuation discussion at Note 8). The total value of such
shares is estimated at $140,850. The Company will recognize the estimated
$80,091 difference between the carrying value of the debt and the fair
value of the common stock as an extraordinary gain in the consolidated
statement of operations in the period such transaction occurs.
F-57
<PAGE> 125
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)
Notes Payable To Stockholders
At September 30, 1996, OEBC has $644,000 (unaudited) of indebtedness
due to certain related parties (consisting of $574,192 (unaudited) in
principal and $69,808 (unaudited) in accrued interest). Upon the
consummation of the proposed 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 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.
The Company anticipates that it will value the shares and warrants at
$5.10 per share (see share valuation discussion at Note 8). The Company
will amortize to expense the $.10 difference (totaling $5,000) between the
exercise price of the warrants and the fair value of the underlying common
stock over the 90-day period. The Company will recognize the estimated
$219,962 difference between the carrying value of the debt and the fair
value of the common stock as an extraordinary gain in the consolidated
statement of operations in the period such transaction occurs.
Stockholder Advances
In connection with the Exchange Agreement, the Company has agreed to
use up to $150,000 of the proceeds from the proposed 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. At
September 30, 1996, OEBC has borrowed $85,000 (unaudited) under such
agreement.
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 December 17, 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 proposed 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.
F-58
<PAGE> 126
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)
NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)
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 less all accrued Partnership liabilities, 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 less all
accrued Partnership liabilities, 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.
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 $668,927 at
September 30, 1996, unaudited), (2) the full assumption and repayment of
notes payable to related party from the Partnership (which total $459,120
at September 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, and (5) the net current asset decrease, as defined, 60
months from the Contribution Date. If the gross proceeds of the BWI
proposed 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.
In the event BWISS fails to make such payments, Prost may acquire
BWISS' interest in the Partnership based on (i) the fair market value of
the Partnership's tangible assets plus (ii) the Partnership's modified net
income for the preceding twelve months multiplied by three less (iii)
accrued and contingent liabilities. This amount would likely be for less
than the amount contributed by BWISS.
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-59
<PAGE> 127
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. proposed 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 December 17, 1996
F-60
<PAGE> 128
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>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash............................................................... $ 26,223 $ 68,105
Accounts receivable, less allowance for doubtful accounts of
$10,000 (unaudited) (1996) and $10,000 (1995) (Note 2).......... 110,456 84,846
Inventories (Notes 2 and 3)........................................ 194,262 197,070
Prepaid expenses and other current assets.......................... 22,359 46,404
---------- ----------
Total current assets....................................... 353,300 396,425
Property and equipment, net (Notes 2 and 4).......................... 2,373,283 2,492,400
Other assets......................................................... 25,547 14,759
---------- ----------
$ 2,752,130 $2,903,584
========== ==========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable................................................... $ 92,898 $ 126,455
Accrued expenses and other current liabilities..................... 60,116 103,280
Note payable (Note 5).............................................. 25,534 21,658
Notes payable to related party (Note 6)............................ 459,120 459,120
---------- ----------
Total current liabilities.................................. 637,668 710,513
Note payable, net of current portion (Note 5)........................ 643,393 662,803
---------- ----------
Total liabilities.......................................... 1,281,061 1,373,316
Commitments and contingencies (Notes 7 and 9)
Equity in assets and liabilities to be contributed................... 1,471,069 1,530,268
---------- ----------
$ 2,752,130 $2,903,584
========== ==========
</TABLE>
See independent auditors' report and accompanying notes to financial statements
F-61
<PAGE> 129
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 (NOTES 1 AND 9)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED
------------------------------ -----------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales....................................... $ 1,473,148 $ 1,603,566 $2,128,877 $1,977,805
Less excise taxes........................... (71,695) (74,313) (99,453) (86,251)
-------- -------- ---------- ----------
Net sales (Notes 2 and 8)......... 1,401,453 1,529,253 2,029,424 1,891,554
Cost of goods sold (Note 2)................. 1,022,349 1,021,013 1,396,217 1,374,318
-------- -------- ---------- ----------
Gross profit...................... 379,104 508,240 633,207 517,236
Selling, general and administrative expenses
(Note 7).................................. 418,706 415,163 583,568 518,763
-------- -------- ---------- ----------
Income (loss) from operations (Note 8)...... (39,602) 93,077 49,639 (1,527)
Interest (Notes 5 and 6).................... 82,597 76,028 98,398 104,351
-------- -------- ---------- ----------
Net income (loss)........................... $ (122,199) $ 17,049 $ (48,759) $ (105,878)
======== ======== ========== ==========
</TABLE>
See independent auditors' report and accompanying notes to financial statements
F-62
<PAGE> 130
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 NINE-MONTHS ENDED SEPTEMBER 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)........................................................... 63,000
Net loss (unaudited)............................................................. (122,199)
----------
Equity in assets and liabilities to be contributed, September 30, 1996
(unaudited).................................................................... $1,471,069
=========
</TABLE>
See independent auditors' report and accompanying notes to financial statements
F-63
<PAGE> 131
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 NINE MONTHS ENDED FOR THE YEARS ENDED
------------------------------ -----------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(122,199) $ 17,049 $ (48,759) $ (105,878)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization (Note 8).............. 148,627 137,250 179,926 174,502
Gain on disposition of assets....................... -- -- (1,701) --
Management fees (Note 7)............................ 63,000 61,864 69,604 19,372
Changes in operating assets and liabilities:
Accounts receivable, net.......................... (25,610) (1,786) 15,397 (25,532)
Inventories....................................... 2,808 (124,686) (73,643) (29,708)
Prepaid expenses and other current assets......... 24,045 6,279 (12,133) (1,066)
Accounts payable.................................. (33,557) 49,547 (1,773) (63,746)
Accrued expenses and other current liabilities.... (43,164) (631) 8,807 21,831
-------- -------- --------- ---------
Net cash provided by (used in) operating
activities................................... 13,950 144,886 135,725 (10,225)
-------- -------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment........................ -- -- 50,000 --
Purchases of property and equipment (Note 8)........... (22,462) (209,841) (307,560) (75,112)
Other assets........................................... (17,836) (21,372) (21,765) (4,059)
-------- -------- --------- ---------
Net cash used in investing activities.......... (40,298) (231,213) (279,325) (79,171)
-------- -------- --------- ---------
Cash flows from financing activities:
Payments on note payable............................... (15,534) -- (5,539) --
Net borrowings on notes payable to related party (Note
6).................................................. -- 53,595 182,212 118,692
-------- -------- --------- ---------
Net cash provided by (used in) financing
activities................................... (15,534) 53,595 176,673 118,692
-------- -------- --------- ---------
Net increase (decrease) in cash.......................... (41,882) (32,732) 33,073 29,296
Cash, beginning of period................................ 68,105 35,032 35,032 5,736
-------- -------- --------- ---------
Cash, end of period...................................... $ 26,223 $ 2,300 $ 68,105 $ 35,032
======== ======== ========= =========
Supplemental disclosures of cash flow information --
Cash paid during the period for interest............... $ 76,500 $ 76,400 $ 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-64
<PAGE> 132
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 NINE-MONTH PERIODS ENDED SEPTEMBER 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 December 17, 1996, St. Stan's entered into a
partnership agreement 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 proposed
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 a proposed
initial public offering (the "IPO") of BWI's common stock, occurring on or
before March 31, 1997, realizing minimum gross 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-65
<PAGE> 133
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (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 September 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 generally 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.
Sales generated from one customer during the nine-month period ended
September 30, 1996 (unaudited) and the year ended December 31, 1995 totaled
approximately $140,400 and $205,700, respectively, or 10% and 10.1% of net sales
for such periods. At September 30, 1996 (unaudited) and December 31, 1995,
amounts due from this customer included in accounts receivable totaled
approximately $24,700 and $31,300, respectively. At September 30, 1996
(unaudited) and December 31, 1995, accounts receivable related to another
customer totaled approximately $33,200 and $15,500, respectively. No customer
accounted for more than 10% of net sales during the nine-month period ended
September 30, 1995 (unaudited) and the year ended December 31, 1994.
St. Stan's purchases a substantial portion of its inventory (see Note 3)
from two suppliers. Purchases from these suppliers during the years ended
December 31, 1995 and 1994 totaled approximately $389,400 and $332,100,
respectively, or 39.3% and 37.2% of total purchases for such periods. Purchases
from these suppliers during the nine-month periods ended September 30, 1996 and
1995 (unaudited) totaled approximately $289,300 and $298,500, respectively, or
47.4% and 38.8% of total purchases for such periods. At September 30, 1996
(unaudited) and December 31, 1995, amounts due to these suppliers included in
accounts payable totaled approximately $50,200 and $68,800, respectively. If the
relationships between St. Stan's and these suppliers were altered, the future
results of St. Stan's Brewery and Brewpub Operations could be impacted.
Risks and Uncertainties
Financial Support
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 (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 proposed 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.
F-66
<PAGE> 134
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 proposed 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 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.
Dependence on Distributors
The St. Stan's Brewery & Brewpub Operations 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. No assurance can be given
that the St. Stan's Brewery & Brewpub Operations will be able to maintain or
secure additional distributors on terms favorable to the St. Stan's Brewery &
Brewpub Operations. The St. Stan's Brewery & Brewpub Operations has certain
significant distribution relationships. The loss of one or more of these
distributors would have a material adverse effect on the St. Stan's Brewery &
Brewpub Operations ability to bring its products to market and therefore
adversely effect its sales and results of operations. The St. Stan's Brewery &
Brewpub Operations distribution agreements are generally terminable by the
distributor on short notice. While these distribution agreements contain
provisions regarding the St. Stan's Brewery & Brewpub Operations enforcement and
termination rights, some state laws prohibit the St. Stan's Brewery & Brewpub
Operations from exercising these contractual rights. The St. Stan's Brewery &
Brewpub Operations 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.
Potential "Dram Shop" Liability
Some states have enacted "dram shop" laws and legislation which impose
criminal and civil liability on licensed alcoholic beverage servers for injuries
or damages caused by their negligent service of alcoholic beverages to a visibly
intoxicated person or to a minor, if such service is the proximate cause of the
injury or damage and such injury or damage is reasonably foreseeable. California
has enacted legislation granting broad immunity to servers of alcoholic
beverages from civil liability, except for the sale of alcoholic beverages to
minors. While the St. Stan's Brewery & Brewpub Operations maintains liquor
liability insurance as part of its comprehensive general liability insurance
which management believes is adequate to protect against such liability, there
can be no assurance that the St. Stan's Brewery & Brewpub Operations will not be
subject to a judgment or fine in excess of such insurance coverage or that it
will be able to continue to maintain such
F-67
<PAGE> 135
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
insurance coverage at reasonable costs or at all. The imposition of a judgment
or fine substantially in excess of the St. Stan's Brewery & Brewpub Operations
insurance coverage would have a material adverse effect on the St. Stan's
Brewery & Brewpub Operations. Similarly, the failure of the St. Stan's Brewery &
Brewpub Operations to obtain and maintain insurance coverage could also
materially and adversely affect the St. Stan's Brewery & Brewpub Operations.
Regulation
The manufacture and sale of alcoholic beverages is a highly regulated and
taxed business. The St. Stan's Brewery & Brewpub 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 St. Stan's Brewery & Brewpub
Operations 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 enacted in the future.
Trademarks
The St. Stan's Brewery & Brewpub Operations and the Breweries has obtained
or applied for U.S. Trademark Registrations for the names of several of its
products, and in some cases for most of its logo designs. The St. Stan's Brewery
& Brewpub Operations regards its trademarks as having substantial value and as
being an important factor in the marketing of its products. The St. Stan's
Brewery & Brewpub Operations 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 St. Stan's Brewery & Brewpub Operations from using such
trademarks in its business. The St. Stan's Brewery & Brewpub Operations policy
is to pursue registration of its marks whenever possible and to oppose
vigorously any infringements of its marks.
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 and 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
F-68
<PAGE> 136
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
not become more stringent in the future or that the St. Stan's Brewery and
Brewpub Operations will not incur costs in the future in order to comply with
such laws.
The St. Stan's Brewery and Brewpub 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 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 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.
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 should 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. St. Stan's Brewery
and Brewpub Operations 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.
F-69
<PAGE> 137
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 September 30, 1996, and for the
nine-month period ended September 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 nine-month period ended September 30,
1996 are not necessarily indicative of results of operations to be expected for
the year ending December 31, 1996.
NOTE 3 -- INVENTORIES
The following is a summary of inventories:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Raw materials and purchased
products................................................. $ 102,530 $124,772
Work in process............................................ 13,935 18,480
Finished goods............................................. 77,797 53,818
-------- --------
$ 194,262 $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>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Buildings and improvements................................. $ 1,867,917 $1,867,917
Equipment, furniture, and fixtures......................... 1,458,946 1,436,484
----------- -----------
3,326,863 3,304,401
Less accumulated depreciation.............................. (953,580) (812,001)
----------- -----------
$ 2,373,283 $2,492,400
=========== ===========
</TABLE>
F-70
<PAGE> 138
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 5 -- NOTE PAYABLE
The following is a summary of the note payable:
<TABLE>
<CAPTION>
SEPTEMBER 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)............ $ 668,927 $ 684,461
Less current portion....................................... (25,534) (21,658)
--------- ---------
$ 643,393 $ 662,803
========= =========
</TABLE>
Interest expense approximated $56,000 (unaudited) and $57,100 (unaudited)
for the nine-month preiod ended September 30, 1996 and 1995, respectively, and
$71,740 and $87,347 for the years ended December 31, 1995 and 1994,
respectively.
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>
SEPTEMBER 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................................................. $ 282,751 $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% (8.3% at September 30, 1996,
unaudited, and 8.6% at December 31, 1995), due on the
earlier of demand or December 31, 1996................... 176,369 177,164
-------- --------
$ 459,120 $459,120
======== ========
</TABLE>
F-71
<PAGE> 139
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 6 -- NOTES PAYABLE TO RELATED PARTY -- (CONTINUED)
Interest incurred totaled $26,658 and $17,004 for the years ended December
31, 1995 and 1994, respectively, and $24,800 (unaudited) and $16,600 (unaudited)
for the nine-month period ended September 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.
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 $38,430 (unaudited) and $38,250
(unaudited) for the nine-month periods ended September 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 September 30,
1996, 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.
F-72
<PAGE> 140
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 7 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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.
NOTE 8 -- SEGMENT INFORMATION
Business segment information as of and for the periods presented are as
follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
------------------------------ ----------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales:
Brewery.......................... $ 843,143 $ 924,572 $1,229,988 $1,024,018
Brewpub.......................... 558,310 604,681 799,436 867,536
-------- -------- ---------- ----------
Total.................... $ 1,401,453 $ 1,529,253 $2,029,424 $1,891,554
======== ======== ========== ==========
Operating profit (loss):
Brewery.......................... $ 1,983 $ 94,114 $ 92,925 $ (21,606)
Brewpub.......................... (41,585) (1,037) (43,286) 20,079
-------- -------- ---------- ----------
Total.................... $ (39,602) $ 93,077 $ 49,639 $ (1,527)
======== ======== ========== ==========
Depreciation and amortization:
Brewery.......................... $ 87,836 $ 76,216 $ 92,586 $ 96,583
Brewpub.......................... 60,791 61,034 87,340 77,919
-------- -------- ---------- ----------
Total.................... $ 148,627 $ 137,250 $ 179,926 $ 174,502
======== ======== ========== ==========
Capital expenditures:
Brewery.......................... $ 22,462 $ 209,841 $ 307,560 $ 73,060
Brewpub.......................... -- -- -- 2,052
-------- -------- ---------- ----------
Total.................... $ 22,462 $ 209,841 $ 307,560 $ 75,112
======== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Identifiable property and equipment:
Brewery.................................................... $ 1,487,078 $1,464,616
Brewpub.................................................... 1,839,785 1,839,785
---------- ----------
Total.............................................. $ 3,326,863 $3,304,401
========== ==========
</TABLE>
F-73
<PAGE> 141
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 8 -- SEGMENT INFORMATION -- (CONTINUED)
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 December 17, 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
proposed IPO and the assumption of certain debt (as discussed below) at the date
of contribution, the "Contribution Date", the date of the successful
consummation of a proposed 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 less all accrued
Partnership liabilities, as defined. 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 less all accrued Partnership liabilities, as defined. 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 $668,927 at September 30, 1996, unaudited -- Note
5), (2) the full assumption and repayment of the notes payable to related party
from the Partnership (which total $459,120 at September 30, 1996,
unaudited -- Note 6) not to exceed $460,000,
F-74
<PAGE> 142
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 9 -- SUBSEQUENT EVENTS -- (CONTINUED)
(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, and (5) the net current asset decrease, as
defined, 60 months from the Contribution Date. If the gross proceeds of the BWI
proposed 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.
In the event BWISS fails to make such payments, Prost may acquire BWISS'
interest in the Partnership based on (i) the fair market value of the
Partnership's tangible assets plus (ii) the Partnership's modified net income
for the preceding twelve months multiplied by three less (iii) accrued and
contingent liabilities. This amount would likely be for a sum substantially less
than the amount contributed by BWISS.
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, 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-75
<PAGE> 143
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 has had recurring losses from
operations, has current liabilities in excess of current assets and a
significant capital deficiency. These factors, among others, 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 January 7, 1997
F-76
<PAGE> 144
ORANGE EMPIRE BREWING COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Notes 2, 5, 6, 7 and 10)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash............................................................ $ 33,419 $ 56,302
Accounts receivable, less allowance for doubtful accounts of
$13,600 (unaudited) and $5,000, at September 30, 1996 and
December 31, 1995, respectively.............................. 45,326 92,273
Inventories (Note 3)............................................ 233,868 231,766
Prepaid expenses and other current assets....................... 17,629 44,441
----------- -----------
Total current assets.................................... 330,242 424,782
Property and equipment, net (Note 4).............................. 1,328,422 1,510,551
Deposits and other assets......................................... 21,710 20,679
Due from affiliate (Note 6)....................................... 55,475 --
----------- -----------
$ 1,735,849 $ 1,956,012
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(Notes 1 and 2)
Current liabilities:
Accounts payable (Note 7)....................................... $ 330,029 $ 334,780
Accrued expenses and other current liabilities (Notes 6 and
7)........................................................... 282,138 196,886
Notes payable (Note 5).......................................... 171,698 58,980
Notes payable to related parties (Notes 6 and 11)............... 668,297 767,559
Capital lease obligations to related party (Notes 7 and 11)..... 143,498 109,408
----------- -----------
Total current liabilities............................... 1,595,660 1,467,613
Notes payable, net of current portion (Note 5).................... 394,581 211,416
Capital lease obligation (Note 7)................................. 29,955 --
Capital lease obligations to related party, net of current portion
(Notes 7 and 11)................................................ 866,461 971,985
----------- -----------
Total liabilities....................................... 2,886,657 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, 331,401 (unaudited)(1996) and 247,401 (1995)
shares issued and outstanding................................ 1,399,254 1,067,766
Accumulated deficit............................................. (2,962,562) (2,175,268)
----------- -----------
Total capital deficiency................................ (1,150,808) (695,002)
----------- -----------
$ 1,735,849 $ 1,956,012
=========== ===========
</TABLE>
See independent auditors' report and accompanying notes to these consolidated
financial statements
F-77
<PAGE> 145
ORANGE EMPIRE BREWING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED
------------------------------ ---------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales........................................ $2,444,881 $1,862,113 $2,606,573 $1,399,515
Less excise taxes............................ (72,252) (45,837) (52,596) (21,045)
---------- --------- ---------- ----------
Net sales (Notes 2 and 10)......... 2,372,629 1,816,276 2,553,977 1,378,470
Cost of sales (Notes 2 and 7)................ 1,667,326 1,148,386 1,824,065 1,025,191
---------- --------- ---------- ----------
Gross profit....................... 705,303 667,890 729,912 353,279
Selling, general and administrative expenses
(Notes 7 and 9)............................ 1,265,063 769,884 990,701 624,209
---------- --------- ---------- ----------
Loss from operations (Note 10)............... (559,760) (101,994) (260,789) (270,930)
Interest expense (Notes 5, 6 and 7).......... 211,671 127,784 172,924 94,516
Other (income) expense....................... 14,663 (6,146) (9,755) 4,149
---------- --------- ---------- ----------
Loss before provision for income taxes....... (786,094) (223,632) (423,958) (369,595)
Provision for income taxes (Notes 2 and 8)... 1,200 1,200 1,600 1,600
---------- --------- ---------- ----------
Net loss..................................... $ (787,294) $ (224,832) $ (425,558) $ (371,195)
========== ========= ========== ==========
Net loss per common share (Note 2)........... $ (2.19) $ (0.66) $ (1.24) $ (1.09)
========== ========= ========== ==========
Weighted average number of common shares
outstanding................................ 359,391 341,401 342,760 341,401
========== ========= ========== ==========
</TABLE>
See independent auditors' report and accompanying notes to these consolidated
financial statements
F-78
<PAGE> 146
ORANGE EMPIRE BREWING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
FOR THE NINE MONTHS ENDED SEPTEMBER 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)
Common stock issued for
partial repayment of amounts
due to a related party at an
effective price of $3.91 per
share (Note 9).............. -- -- 50,000 195,488 -- 195,488
Common stock issued for
stockholder settlement
valued at $4.00 per share
(Note 9).................... -- -- 34,000 136,000 -- 136,000
Net loss...................... -- -- -- -- (787,294) (787,294)
------- -------- ------- ---------- ----------- -----------
Balances, September 30, 1996
(Notes 9 and
11)(unaudited).............. 110,000 $412,500 331,401 $1,399,254 $(2,962,562) $(1,150,808)
======= ======== ======= ========= ========== ==========
</TABLE>
See independent auditors' report and accompanying notes to these consolidated
financial statements
F-79
<PAGE> 147
ORANGE EMPIRE BREWING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED
------------------------------ ----------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(787,294) $(224,832) $ (425,558) $ (371,195)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 198,190 106,299 161,325 93,959
Provisions for losses on accounts receivable
and inventory............................. 8,600 25,000 25,000 --
Loss on asset disposal...................... 16,207 -- -- --
Common stock issued for stockholder
settlement (Note 9)....................... 136,000 -- -- --
Changes in operating assets and liabilities:
Accounts receivable....................... 38,347 (56,390) (70,945) (25,578)
Inventories............................... (2,102) (184,906) (196,985) (15,794)
Prepaid expenses and other current
assets................................. 26,812 43 (24,997) (8,267)
Accounts payable.......................... 85,061 228,014 242,692 16,024
Accrued expenses and other current
liabilities............................ 76,652 66,265 134,172 15,826
--------- --------- --------- ---------
Net cash used in operating
activities........................... (203,527) (40,507) (155,296) (295,025)
--------- --------- --------- ---------
Cash flows from investing activities:
Due from affiliate............................. (55,475) -- -- --
Deposits and other assets...................... (1,031) (5,114) (11,088) (9,400)
Capital expenditures........................... (11,430) (174,615) (199,216) (59,323)
--------- --------- --------- ---------
Net cash used in investing
activities........................... (67,936) (179,729) (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)................................ 32,786 -- -- --
Borrowings under notes payable to related
parties (Note 6)............................ 250,076 285,806 307,714 375,099
Repayments under bank note payable (Note 5).... (31,241) (27,363) (42,081) (35,000)
Payments under capital lease obligation........ (3,041) -- -- --
Payments under capital lease obligation to
related party (Note 7)...................... -- (45,344) (50,868) (28,234)
--------- --------- --------- ---------
Net cash provided by financing
activities........................... 248,580 213,099 414,765 349,365
--------- --------- --------- ---------
Net increase (decrease) in cash.................. (22,883) (7,137) 49,165 (14,383)
Cash at beginning of period...................... 56,302 7,137 7,137 21,520
--------- --------- --------- ---------
Cash at end of period............................ $ 33,419 $ -- $ 56,302 $ 7,137
========= ========= ========= =========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest.................................. $ 70,148 $ 127,860 $ 100,223 $ 82,144
========= ========= ========= =========
Income taxes.............................. $ 1,200 $ 1,200 $ 1,600 $ 3,200
========= ========= ========= =========
</TABLE>
Supplemental schedule of noncash financing and investing activities:
During the nine months ended September 30, 1996 (unaudited), the Company:
Purchased $41,596 (unaudited) of equipment under capital lease
agreement (see Note 7).
F-80
<PAGE> 148
ORANGE EMPIRE BREWING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
Accounts payable $42,014 (unaudited) of accrued and past due capital
lease payments due to a related party (see Note 7).
Refinanced certain notes payable due related parties with a note
payable to a bank totaling $294,388 (unaudited) (see Note 6).
Issued shares of common stock as partial repayment on amounts due to a
related party totaling $195,488 (unaudited) (see Notes 6, 7 and 9).
Issued shares of common stock for a stockholder settlement valued at
$136,000 (unaudited) (see Note 9).
During the nine months ended September 30, 1996 and 1995, the Company
(returned) purchased $(20,758) (unaudited) and $629,848 (unaudited),
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-81
<PAGE> 149
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 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 11, 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 Notes 7 and
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 September 30, 1996, the Company had excess current
liabilities in excess of current assets of $1,265,418 (unaudited) and a capital
deficiency of $1,150,808 (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 $787,294 (unaudited) for the nine-month period ended September
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 Note 11).
BWI plans to effect a proposed initial public offering ("IPO") to raise capital,
certain of which, if the proposed 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 proposed 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.
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.
NOTE 2 -- SUMMARY OF SIGNIFICANT 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, as well
as disclosure of contingent assets and liabilities at the date of the financial
statements.
F-82
<PAGE> 150
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT POLICIES -- (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
September 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 25% (unaudited) of
consolidated net sales for the nine months ended September 30, 1996. No one
customer made up 10% or more of consolidated net sales for the nine months ended
September 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 38%, 22%, 14% and 14%, respectively, of accounts receivable at
September 30, 1996. Accounts receivable from four brewery customers totaled 23%,
18%, 18% and 16%, respectively, of accounts receivable at December 31, 1995.
The Company purchased certain products from two companies which accounted
for approximately 19% (unaudited) and 12% (unaudited), and 47% (unaudited) and
10% (unaudited) of consolidated purchases for the nine months ended September
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. No one vendor made up 10% or more of accounts payable at September
30, 1996 (unaudited). Accounts payable to one company accounted for 26% of total
accounts payable as of December 31, 1995.
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.
F-83
<PAGE> 151
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT POLICIES -- (CONTINUED)
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 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.
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. 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 has certain significant distribution
relationships. The loss of one or more of these distributors would have a
material adverse effect on the Company's ability to bring its products to market
and therefore adversely effect its sales and results of operations. 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.
Potential "Dram Shop" Liability. Some states have enacted "dram shop" laws
and legislation which impose criminal and civil liability on licensed alcoholic
beverage servers for injuries or damages caused by their negligent service of
alcoholic beverages to a visibly intoxicated person or to a minor, if such
service is the proximate cause of the injury or damage and such injury or damage
is reasonably foreseeable. California has enacted legislation granting broad
immunity to servers of alcoholic beverages from civil liability, except for the
sale of alcoholic beverages to minors. While the Company maintains liquor
liability insurance as part of its comprehensive general liability insurance
which management believes is adequate to protect against such liability, there
can be no assurance that the Company will not be subject to a judgment or fine
in excess of such insurance coverage or that it will be able to continue to
maintain such insurance coverage at reasonable costs or at all. The imposition
of a judgment or fine substantially in excess of the Company's insurance
coverage would have a material adverse effect on the Company. Similarly, the
failure of the Company to obtain and maintain insurance coverage could also
materially and adversely affect the Company.
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 enacted in the future.
F-84
<PAGE> 152
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT POLICIES -- (CONTINUED)
Trademarks
The Company and the Breweries have obtained or applied for U.S. Trademark
Registrations for the names of several 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.
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 and 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.
F-85
<PAGE> 153
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT POLICIES -- (CONTINUED)
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. Management has based this assessment on the
anticipated benefits to be derived from the successful completion of the BWI
proposed IPO and the consummation of the Exchange Agreement (see Note 11). If
the BWI proposed IPO is not successfully completed and/or the Exchange Agreement
is not consummated, the Company could be forced to liquidate its assets if it
ceases to continue as a going concern. The amounts the Company would receive
from a sale of its property and equipment under such circumstances could be
substantially less than the historical carrying values reflected in the
accompanying consolidated financial statements.
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 September 30, 1996, and
results of operations and cash flows as of and for the nine-month period ended
September 30, 1996 and 1995. Although management believes that the disclosures
regarding interim financial information in these financial statements
F-86
<PAGE> 154
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT POLICIES -- (CONTINUED)
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 nine months ended September 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
SEPTEMBER 30, 31,
1996 1995
------------- ----------
(UNAUDITED)
<S> <C> <C>
Finished goods and work in process......................... $ 84,165 $ 30,616
Raw materials and purchased products....................... 149,703 201,150
------------- ----------
$ 233,868 $ 231,766
========== =========
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER
SEPTEMBER 30, 31,
1996 1995
------------- ----------
(UNAUDITED)
<S> <C> <C>
Equipment under capital lease with a related party (Note
7)....................................................... $ 1,139,737 $1,160,495
Equipment under capital lease (Note 7)..................... 41,596 --
Equipment.................................................. 82,227 76,888
Furniture and fixtures..................................... 13,956 50,875
Leasehold improvements (Note 7)............................ 499,980 495,147
------------- ----------
1,777,496 1,783,405
Less accumulated depreciation and amortization............. (449,074) (272,854)
------------- ----------
$ 1,328,422 $1,510,551
========== =========
</TABLE>
F-87
<PAGE> 155
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 5 -- NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER
SEPTEMBER 30, 31,
1996 1995
------------- ----------
(UNAUDITED)
<S> <C> <C>
Note payable to bank, bearing interest at prime plus 1.75%
per annum (10% at September 30, 1996), payable monthly in
principal payments of $11,576 plus accrued interest,
matures August 1, 2000, secured by substantially all
assets of the Company and guaranteed by a former officer
and certain stockholders of the Company.................. $ 533,493 $ --
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...................... -- 270,396
Unsecured demand notes with vendors generally bearing
interest at 11% per annum, payable in aggregate monthly
installments of $4,091 through February, 1997............ 32,786 --
------------- ----------
566,279 270,396
Less current portion....................................... (171,698) (58,980)
------------- ----------
$ 394,581 $ 211,416
========== =========
</TABLE>
Interest expense amounted to $28,708 (unaudited) and $18,147 (unaudited)
for the nine-month period ended September 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-88
<PAGE> 156
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 6 -- NOTES PAYABLE TO RELATED PARTIES
During 1996, the Company utilized its brewing facilities to brew and bottle
beer for BWI. In connection therewith, certain raw materials were purchased, at
cost, from the Company by BWI. At September 30, 1996 (unaudited), due from
affiliate in the accompanying consolidated balance sheet represents fees for
such brewing and bottling services and inventory purchased.
Due to related parties consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 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).......................................... $ 80,110 $ 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............ -- 254,364
Unsecured demand notes payable to certain officers and
stockholders, interest at 7.75% per annum, partially repaid
through the issuance of common stock (see Note 9)........... 458,229 335,229
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
Other......................................................... 48,124 --
-------- --------
$ 668,297 $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 at the date of
refinance ($270,396 at December 31, 1995 -- see Note 5) and unsecured demand
notes payable to certain stockholders totaling $294,338. The new note payable
totaled $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 amounts payable to related parties amounted to $54,681
(unaudited) and $57,549 (unaudited) for the nine-month period ended September
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 $76,387 (unaudited) and $27,995 at
September 30, 1996 and December 31, 1995, respectively. Accrued interest is
included in accrued expenses and other current liabilities in the accompanying
consolidated balance sheets.
See Note 7 for discussion of capital lease obligations with a related party
and management agreement with BWI.
See Note 11 for discussion of a debt exchange agreement to be entered into
upon consummation of the Exchange Agreement (see Note 1).
F-89
<PAGE> 157
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
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.
In June 1996, the Company acquired certain equipment totaling $41,596
(unaudited) under a noncancelable capital lease obligation. Such lease bears
interest at 17% per annum and is due in monthly payments of $1,186 through May
2000.
The Company leases certain brewing, kitchen and equipment, as well as
leasehold improvements under a noncancelable capital lease obligation, as
amended, with an entity controlled by a significant stockholder of the Company.
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.
Future annual aggregate minimum lease payments under noncancelable
operating lease arrangements and under the capital lease obligation with a
related party, as amended, 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 $145,374 (unaudited)
and $98,163 (unaudited) for the nine-month period ended September 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 $128,282 (unaudited) and $52,088 (unaudited) for the nine-month period ended
September 30, 1996 and 1995, respectively, and $75,945 and $45,012 for the years
ended December 31, 1995 and 1994, respectively.
As of September 30, 1996, the Company was in default on the capital lease
obligation to the related party. In September 1996, $140,488 of such past due
capital lease payments were repaid through the issuance of common stock (see
Note 9). Past due capital lease payments totaling $61,950 (unaudited) and
$42,053 as of September 30, 1996 and December 31, 1995, respectively, are
included in accounts payable in 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.
F-90
<PAGE> 158
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 7 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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.
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. The Company has terminated such agreement. The
financial effect of such termination was immaterial.
Management Agreements
In anticipation of consummating the Exchange Agreement (see Notes 1 and
11), effective 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 proposed BWI IPO. Included in notes payable due to related
parties in the accompanying consolidated balance sheet is $24,050 of past due
management fees at September 30, 1996 (unaudited). Management fee expense under
this agreement totaled $24,050 for the nine-month period ended September 30,
1996 (unaudited).
See Note 11 for discussion of a Brewpub management agreement to be entered
into in connection with the Exchange Agreement (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 amounts were
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. In November 1996,
the Company and such retail chain entered into an agreement of compromise,
settlement and general release. The agreement specifies the Company will pay
$30,000, payable in periodic installments of $5,000 through October 1997, as
defined. Such has been included in accrued expenses and other current
liabilities in the accompanying consolidated balance sheet as of September 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 on the
Company's operations or financial position.
F-91
<PAGE> 159
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
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.
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 Exchange Agreement (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
F-92
<PAGE> 160
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 9 -- COMMON STOCK -- (CONTINUED)
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 September 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.
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. In September 1996, the Company issued an
additional 34,000 shares of Series B common stock to such stockholders to
effectively reduce their price per share to $4.00. The additional shares were
ascribed a value of $136,000 (unaudited), or $4.00 per share. The value of such
shares is included in selling, general and administrative expenses in the
accompanying consolidated statement of operations for the nine-month period
ended September 30, 1996.
In September 1996, the Company issued 50,000 shares of Series B common
stock valued at $195,488 (unaudited), or $3.91 per share, to an officer and
stockholder as partial satisfaction of past due capital lease payments totaling
$140,488 and partial satisfaction of a demand note totaling $55,000 (see Notes 6
and 7).
F-93
<PAGE> 161
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 10 -- SEGMENT INFORMATION
Business segment information as of and for the periods presented is as
follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
------------------------------ ----------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales:
Brewery............................. $ 1,042,775 $ 732,528 $ 865,433 $ 252,154
Brewpub............................. 1,402,106 1,129,585 1,741,140 1,147,361
---------- --------- ---------- ----------
Total....................... $ 2,444,881 $ 1,862,113 $2,606,573 $1,399,515
========== ========= ========== ==========
Operating loss:
Brewery............................. $ (549,069) $ (8,022) $ (162,850) $ (92,469)
Brewpub............................. (10,691) (93,972) (97,939) (178,461)
---------- --------- ---------- ----------
Total....................... $ (559,760) $ (101,994) $ (260,789) $ (270,930)
========== ========= ========== ==========
Depreciation and amortization:
Brewery............................. $ 112,706 $ 4,391 $ 49,054 $ 2,663
Brewpub............................. 85,484 101,908 112,271 91,296
---------- --------- ---------- ----------
Total....................... $ 198,190 $ 106,299 $ 161,325 $ 93,959
========== ========= ========== ==========
Capital expenditures(1):
Brewery............................. $ 10,172 $ 665,593 $ 833,785 $ 31,076
Brewpub............................. 1,258 149,276 143,064 85,184
---------- --------- ---------- ----------
Total....................... $ 11,430 $ 814,869 $ 976,849 $ 116,260
========== ========= ========== ==========
</TABLE>
Identifiable property and equipment, net:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Brewery.................................................... $ 697,325 $ 815,351
Brewpub.................................................... 631,097 695,200
---------- ----------
Total............................................ $ 1,328,422 $1,510,551
========== ==========
</TABLE>
- ---------------
(1) Includes equipment acquired under capital lease obligation with a related
party (see Note 7). For the nine months ended September 30, 1996, the
brewery returned certain capital lease equipment totaling $20,758.
Accordingly, such returns are excluded from brewery capital expenditures.
NOTE 11 -- SUBSEQUENT EVENTS
Exchange Agreement With BWI
On September 11, 1996, the Company entered into a stock-for-stock exchange,
as amended on January 7, 1997, with Beverage Works, Inc., a California
corporation. Pursuant to the Exchange Agreement, BWI is to issue 141,063 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 155,000 additional shares of BWI common stock may be
issued, if the Company reaches certain production
F-94
<PAGE> 162
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)
levels, as defined. Pursuant to the Exchange Agreement , the exchange is to
occur concurrently with the consummation (the "Closing Date") of the BWI
proposed IPO. If for any reason the proposed IPO does not occur on or before
March 31, 1997 or the proposed 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 (up to a maximum deficit of $7,500 per quarter). The
Management Agreement can be terminated by mutual written consent or in the event
of a breach, as defined.
See Note 7 for discussion of a management agreement, currently in effect,
entered into in anticipation of the consummation of the Exchange Agreement.
Consulting Agreement
In connection with the Exchange Agreement, BWI will enter into a two-year
consulting agreement with a significant stockholder of the Company. The
agreement requires the stockholder to provide brewery advisory services and
assistance with the acquisition and disposition of equipment. For such services,
BWI will issue 5,000 shares of its common stock at the end of each twelve-month
period commencing on the Closing Date.
Capital Lease Agreement Amendment
In connection with the Exchange Agreement and concurrent with the Closing
Date, a 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). In
consideration for such modifications, the Company will issue the related party
50,000 shares of common stock. The modifications to the capital lease obligation
are to include a reduction in the effective interest rate to 10%, a provision
that all such leased equipment may be purchased by the Company for $1 upon
expiration of the lease, the inclusion in the lease obligation of all delinquent
lease payments due through December 31, 1995 (see Note 7), and a reduction of
the lease obligation in the amount of $500,000. The dollar amount of the lease
payments are to be unaffected by the aforementioned changes in terms through
December 31, 1997 (monthly lease payments currently total $22,281). Effective
January 1, 1998, all amounts unpaid under the current lease obligation will be
consolidated into one five-year lease and the monthly payments will be revised
accordingly (the anticipated lease payment effective January 1, 1998 totals
$12,151). Lease payments that the lessor was to receive for the period January
1, 1996 through September 30, 1996 (which total $140,488) have been repaid
through the issuance of common stock (see Note 9).
F-95
<PAGE> 163
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)
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
$312,552 (unaudited) at September 30, 1996) will be paid to the bank by the
Company. In consideration for assuming a portion of the Company'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, BWI will issue to such stockholders an additional 9,227 shares of
BWI common stock.
Notes Payable To Stockholders
At September 30, 1996, certain of the Company's related party debt totals
$644,000 (unaudited) (consisting of $574,192 (unaudited) in principal and
$69,808 (unaudited) in accrued interest -- Note 6). Upon the consummation of the
proposed 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 proposed 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. At September 30, 1996 (unaudited),
the Company has borrowed $85,000 under such agreement.
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-96
<PAGE> 164
- ------------------------------------------------------
- ------------------------------------------------------
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........................... 7
Capitalization......................... 13
Dilution............................... 15
Use of Proceeds........................ 17
Selected Financial Data................ 19
Management's Discussion and Analysis... 22
Business............................... 32
Management............................. 50
Principal Stockholders................. 56
Description of Securities.............. 58
Underwriting........................... 62
Legal Matters.......................... 64
Experts................................ 64
Additional Information................. 64
Index to Financial Statements.......... F-1
</TABLE>
------------------------
UNTIL , 1997 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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,500,000 SHARES OF COMMON STOCK
1,500,000 CLASS A WARRANTS
BEVERAGE WORKS, INC.
------------------------------
PROSPECTUS
------------------------------
FIRST LONDON SECURITIES CORPORATION
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 165
ALTERNATE PAGE
SUBJECTION TO COMPLETION DATED , 1997
PROSPECTUS
BEVERAGE WORKS, INC.
728,229 SHARES OF COMMON STOCK
892,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF CLASS E WARRANTS
70,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF CLASS B WARRANTS
This Prospectus relates to the offering by certain selling securityholders
(the "Selling Shareholders") of 728,229 shares of Common Stock, no par value,
(the "Shares") of Beverage Works, Inc., a California corporation (the
"Company"). This Prospectus also relates to the offering by certain selling
securityholders (the "Selling Class E Warrantholders") of 892,000 shares of
Common Stock issuable upon exercise of 892,000 Class E Warrants ("Class E
Warrant Shares"). This Prospectus also relates to the offering by certain
selling securityholders (the "Selling Class B Warrantholders") of 70,000 shares
of Common Stock issuable upon exercise of 70,000 Class B Warrants ("Class B
Warrant Shares"). (The Selling Shareholders, the Selling Class E Warrantholders
and, the Selling Class B Warrantholders are collectively referred to as Selling
Securityholders.) The Shares, Class E Warrant Shares and Class B Warrant Shares
offered hereby may be sold from time to time by the Selling Securityholders, or
by transferees, on or after the date of this Prospectus, subject to contractual
restrictions discussed below. The Selling Shareholders may not sell or otherwise
dispose of their Shares for a period ranging from sixty days to thirteen months
after the effective date of the registration statement to which this Prospectus
is a part without the prior written consent of First London Securities
Corporation as representative of the several underwriters of the Company
Offering (the "Representative"). The Selling Class E Warrantholders and Selling
Class B Warrantholders may not sell or otherwise dispose of their Shares for a
period of 180 days after the effective date of the registration statement to
which this Prospectus is a part without the prior written consent of the
Representative. See "Risk Factors -- Shares Available for Future Sale" and
"Description of Securities,"
No underwriting arrangements have been entered into by the Selling
Securityholders. The distribution of the Shares, Class E Warrant Shares and
Class B Warrant Shares (collectively the "Selling Securities") by the Selling
Securityholders 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 Selling Securities, 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 Securityholders may effect such transactions by the sale of
the Selling Securities to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholders and/or the purchasers of the Selling Securities 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 Securityholders in connection with sales
of the Selling Securities.
The Selling Securityholders and intermediaries through whom the Selling
Securities 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 Class E Warrants and Class B Warrants, the Company will not
receive any proceeds from sales of the Selling Securities.
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 1,500,000 shares of Common Stock and
1,500,000 Class A Warrants plus up to 225,000 shares of Common Stock and 225,000
Class A Warrants which may be offered by the Company pursuant to the exercise of
the Underwriters' over-allotment option (the "Company Offering"). See
"Concurrent Sales By Company."
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> 166
ALTERNATE PAGE
THE OFFERING
Securities Offered......... 728,229 shares of Common Stock, no par value;
892,000 shares of Common Stock issuable upon
exercise of the Class E Warrants; 70,000 shares of
Common Stock issuable upon exercise of the Class B
Warrants. See "Risk Factors -- Shares Available for
Future Sale" and "Description of Securities." No
underwriting arrangements have been entered into by
the Selling Securityholders.
Common Stock Outstanding
after the Company
Offering (1)(2)............ 4,132,453 shares
Shares of Common Stock to
be
Outstanding After this
Offering(1)(2)............. 4,132,453 shares
Use of Proceeds............ Other than the exercise price payable upon exercise
of the Class E Warrants and Class B Warrants, the
Company will not receive any proceeds from the sale
of the Selling Securities. See "Use of Proceeds."
Nasdaq Common Stock Trading
Symbol................... .
- ---------------
(1) Does not include (i) 1,500,000 shares of Common Stock issuable at $6.00 per
share upon exercise of the 1,500,000 Class A Warrants offered by the Company
in its initial public offering, plus 225,000 Class A Warrants which may be
offered pursuant to the underwriter's over-allotment option, (ii) 2,433,500
shares of Common Stock issuable upon exercise of outstanding options granted
under the Company's stock option plans, (iii) the 300,000 shares of Common
Stock upon exercise of the Representative's Purchase Option (iv) 80,583
shares of Common Stock issuable upon exercise of other outstanding options
and warrants and (v) 100,000 shares of Common Stock issuable upon exercise
of the Directors' warrants. See "Description of Securities". Includes
141,063 shares of Common Stock which are to be issued to the former OEBC
shareholders in accordance with the Share Purchase Agreement, 27,618 shares
of Common Stock to be issued to certain former OEBC shareholders for
assuming a portion of OEBC bank debt. 24,125 shares of Common Stock to be
issued to the OEBC debtholders in accordance with the Debt Exchange
Agreement, 10,000 shares of Common Stock to be issued pursuant to the
Brewpub Management Agreement, 60,000 shares of Common Stock to be issued to
Brewery Leasing Company pursuant to the amendment to the equipment lease
agreement and the brewery equipment consulting agreement. Excludes 155,000
shares of Common Stock which may be issued to the former OEBC shareholders
pursuant to the earnout provisions of the Share Purchase Agreement. See
"Business -- Breweries -- Riverside Brewing Company". Includes 30,000 shares
of Common Stock to be issued to Tankin Capital Partners pursuant to the
tentative settlement agreement. See "Business -- Legal Proceedings".
(2) Assumes exercise of the 892,000 Class E Warrants and exercise of the 70,000
Class B Warrants.
<PAGE> 167
ALTERNATE PAGE
CONCURRENT SALES BY COMPANY
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
1,500,000 shares of Common Stock and 1,500,000 Class A Warrants, plus 225,000
shares of Common Stock and 225,000 Class A Warrants which may be offered
pursuant to exercise of the Underwriters' over-allotment option. Concurrent
sales of securities by the Company would likely have an adverse effect on the
market price of the Common Stock. The Selling Securities 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> 168
ALTERNATE PAGE
SELLING SECURITYHOLDERS
The following table sets forth the name of each person who is a Selling
Securityholder, 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. 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 Securityholder, the figure in each column represents number and
percentage ownership of the total number of shares of Common Stock owned
assuming all Class B Warrants and Class E Warrants are exercised.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
--------------------------- ------------------------------
NAME SHARES(1) PERCENTAGE(2) SHARES(3) PERCENTAGE(2)(4)
- --------------------------------------- --------- ------------- --------- ----------------
<S> <C> <C> <C> <C>
Kathleen Burke(5)...................... 62,758 2.38% 58,758 1.52%
c/o Beverage Works, Inc.
9800 S. Sepulveda Blvd. Ste 720
Los Angeles, CA 90045
Stefdan, Ltd.(6)....................... 83,000 3.15% 0 0
c/o Steven M. Scarano Scarano & Lipton
333 Earle Ovington Blvd. Ste 102
Mitchell Field, NY 11553
Bob Molinaro........................... 666 <1% 0 0
1854 Pt. Taggart
Newport Beach, CA 92660
Kevin McCarthy(7)...................... 6,000 <1% 0 0
209 John Street
Manhattan Beach, CA 90266
Jack Stoner(8)......................... 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.(9).............. 14,000 <1% 0 0
Attn: Charles J. Hecht, Esq.
60 East 42nd Street, Suite 5101
New York, NY 10165
Patrick H. Miller and.................. 600,000 22.79% 0 0
Lee M. Miller(10)
1300 W. Garmon Road, NW
Atlanta, GA 30327
Gerald T. Cochran...................... 100,000 3.80% 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> 169
ALTERNATE PAGE
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
NAME SHARES(1) PERCENTAGE(2) SHARES(3) PERCENTAGE(2)(4)
- --------------------------------------- --------- ------------ --------- ----------------
<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(11)........................ 99,996 3.8% 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
48 Spring Hollow
Roslyn, NY 11576
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(12)................. 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.(13)................. 10,000 <1% 0 0
13214 Allysum Ct.
Cypress, TX 77429
Guy Schebovitz(14)..................... 178,684 6.79% 0 0
931 East 77th, 2nd Flr
Brooklyn, NY 11236
</TABLE>
<PAGE> 170
ALTERNATE PAGE
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
NAME SHARES(1) PERCENTAGE(2) SHARES(3) PERCENTAGE(2)(4)
- --------------------------------------- --------- ------------- --------- ----------------
<S> <C> <C> <C> <C>
Imafina, S.A.(15)...................... 200,000 7.60% 0 0
c/o Mr. Hubert Hendrickx
Administrateur Delegue
4, Route de Beaumont
1700 Fribourg CH Switzerland
Robert E. Reale(16).................... 152,720 5.80% 78,200 1.89%
6501 5th Avenue
Brooklyn, NY 11220
Robert F. Reale(17).................... 63,765 2.42% 34,515 <1%
7312 Ridge Blvd.
Brooklyn, NY 11209
Bradley W. Kabbash(18)................. 70,850 2.69% 38,350 <1%
52 Thunder Mountain Road
Greenwich, CT 06831
Lord Charles Spencer-Churchill(19)..... 15,000 <1% 5,000 <1%
91 Eaton Terrace
London SW1Y4W, England
Alan Miller(20)........................ 11,345 <1% 3,335 <1%
7007 College Blvd. Suite 260
Overland Park, KS 66209
Donald Scott(21)....................... 60,000 <1% 35,000 <1%
58 Peacock Lane
Locust Valley, NY 11560
John DiNobile(22)...................... 9,520 <1% 0 0
420 Sixth Street, Apt. 7-D
Brooklyn, NY 11220
Frederick Friedman(23)................. 90,000 3.42% 20,000 <1%
207 West Old Mill Road
Greenwich, CT 06831
</TABLE>
- ---------------
(1) The figures in the "Shares" column are the total number of Shares, Class E
Warrant Shares and Class B Warrant Shares held by such Selling
Securityholder (assuming all Class E Warrants and Class B Warrants are
exercised by such Selling Securityholder). Unless otherwise indicated by
footnote, each figure in the "Shares" column are Shares. Unless otherwise
indicated by footnote, the Shares are subject to a 13 month lock-up. Unless
otherwise indicated by footnote, the Class E Warrant Shares and Class B
warrant Shares are subject to a 180 day lock-up. See "Selling
Securityholders -- Lock-Up Arrangements."
(2) Assumes exercise of the 892,000 Class E Warrants and 70,000 Class B
Warrants. Includes 141,063 shares of Common Stock which are to be issued to
the former OEBC shareholders in accordance with the Share Purchase
Agreement, 24,125 shares of Common Stock to be issued to the OEBC
debtholders in accordance with the Debt Exchange Agreement, 10,000 shares
of Common Stock to be issued pursuant to the Brewpub Management Agreement,
27,618 shares of Common Stock to be issued to certain former OEBC
shareholders for assuming a portion of OEBC's bank debt, and 60,000 shares
of Common Stock to be issued to Brewery Leasing Company pursuant to the
amendment to the equipment lease agreement and the brewery equipment
consulting agreement. Excludes 155,000 shares of Common Stock which may be
issued to the former OEBC shareholders pursuant to the earnout provisions
of the Share Purchase Agreement. Includes 30,000 shares of Common Stock to
be issued to Tankin Capital
<PAGE> 171
ALTERNATE PAGE
Partners pursuant to the settlement agreement. Does not include (i)
2,433,500 shares of Common Stock issuable upon exercise of authorized
options granted under the Company's stock option plans, or (ii) 180,583
shares of Common Stock issuable upon exercise of other outstanding options
and warrants.
(3) The figures in the "Shares" column are the total number of Shares, Class E
Warrant Shares and Class B Warrant Shares held by such Selling
Securityholder (assuming all Class E Warrants and Class B Warrants are
exercised by such Selling Securityholder) after the offering by the Selling
Securityholders assuming all Shares, Class E Warrant Shares and Class B
Warrant Shares which were registered in this offering were sold by such
Selling Securityholder.
(4) Includes 1,500,000 shares of Common Stock offered by the Company in its
initial public offering. Does not include (i) 1,500,000 shares of Common
Stock issuable upon exercise of the 1,500,000 Class A Warrants offered by
the Company in its initial public offering, (ii) 225,000 shares of Common
Stock pursuant to the Underwriter's over-allotment option, (iii) 225,000
shares of Common Stock issuable upon exercise of the 225,000 Class A
Warrants offered by the Company pursuant to the Underwriter's
over-allotment option, and (iv) 300,000 shares of Common Stock upon
exercise of the Representative's Warrant and underlying Warrants.
(5) 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.
(6) Stefdan, Ltd., a company wholly-owned by Steven Scarano, is the beneficial
owner of 33,000 Shares and 50,000 Class E Warrant Shares offered hereby.
Mr. Scarano was a director of the Company at the time he received the
Shares and Class E Warrants.
(7) Mr. McCarthy is the beneficial owner of 4,000 Shares and 2,000 Class E
Warrant Shares offered hereby.
(8) Mr. Stoner is the father of John Stoner, a director and the Vice President
of New Breweries of the Company.
(9) Hecht & Steckman, P.C. is Company counsel. In addition to 14,000 Shares
offered hereby, beneficial ownership includes 15,583 Class C Warrants.
(10) The Millers are beneficial owners of 100,000 Shares and 500,000 Class E
Warrant Shares offered hereby.
(11) 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.
(12) Ms. Stoner is the wife of John Stoner, a director of the Company and Vice
President of New Breweries of the Company.
(13) The 10,000 Shares offered hereby are subject to a lock-up of 120 days after
the effective date of the registration statement, however, 3,333 Shares are
released from the lock-up in 60 days, and another 3,333 shares are released
from the lock-up in 90 days. Mr. Stephens is also the beneficial owner of
5,000 Class H Warrants.
(14) The 178,684 Shares offered hereby are subject to a lock-up of one year
after the effective date of the registration statement, however, 26,666
Shares are released from the lock-up in 60 days, 26,666 Shares are released
from the lock-up in 90 days, 6,667 Shares are released from the lock-up in
120 days, and 26,200 Shares are released from the lockup in 150 days. Mr.
Schebovitz is also the beneficial owner of 10,000 Class H Warrants.
(15) Imafina, S.A. is the beneficial owner of 200,000 Class E Warrant Shares
offered hereby.
(16) Mr. Reale is the beneficial owner 9,520 Shares and 65,000 Class E Warrants
offered hereby in addition to 76,200 shares of Common Stock. The 9,520
Shares offered hereby are subject to a lock-up of 150 days after the
effective date of the registration statement, however, 4,000 Shares are
released from the lock-up in 60 days and 4,000 Shares are released from the
lock-up in 90 days.
(17) Mr. Reale is the beneficial owner 29,250 Class E Warrants offered hereby in
addition to 34,515 shares of Common Stock.
<PAGE> 172
ALTERNATE PAGE
(18) Mr. Kabbash is the beneficial owner of 32,500 Class E Warrants offered
hereby in addition to 38,350 shares of Common Stock. Mr. Kabbash was a
director of the Company at the time he received the Class E Warrants and
these additional shares.
(19) Lord Spencer-Churchill is the beneficial owner of 10,000 Class E Warrant
Shares offered hereby in addition to 5,000 shares of Common Stock. Lord
Spencer-Churchill was a director of the Company at the time he received the
Class E Warrants and these additional shares.
(20) Mr. Miller is the beneficial owner 4,760 Shares and 3,250 Class E Warrant
Shares offered hereby in addition to 3,335 shares of Common Stock. The
4,760 Shares offered hereby are subject to a lock-up of 150 days after the
effective date of the registration statement, however, 2,000 Shares are
released from the lock-up in 60 days and 2,000 Shares are released from the
lock-up in 90 days.
(21) Mr. Scott is the beneficial owner of 25,000 Shares offered hereby in
addition to 35,000 shares of Common Stock.
(22) The 9,520 Shares offered hereby are subject to a lock-up of 150 days after
the effective date of the registration statement, however, 4,000 Shares are
released from the lock-up in 60 days and 4,000 Shares are released from the
lock-up in 90 days.
(23) Mr. Friedman is the beneficial owner of 70,000 Class B Warrant Shares
offered hereby in addition to 20,000 shares of Common Stock.
<PAGE> 173
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 ranging from ninety days to thirteen months after the
effective date of the registration statement without the prior written consent
of First London Securities Corporation, as representative of the several
Underwriters ("Representative"). The Selling Class E Warrantholders and Selling
Class E 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 Class E Warrant Shares and Class B
Warrant Shares which are being registered on their behalf by the registration
statement of which this Prospectus forms a part, for a period of 180 days after
the effective date of the registration statement without the prior written
consent of the Representative. See "Risk Factors -- Shares Available for Future
Sale" and "Description of Securities."
PLAN OF DISTRIBUTION
The distribution of the Selling Securities by the Selling Securityholders
may be effected from time to time in transactions on Nasdaq, in negotiated
transactions, through the writing of options on the Selling Securities, 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 Securityholders
may effect such transactions by the sale of the Selling Securities to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Selling Securities 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
Securityholders in connection with sales of the Selling Securities. No
underwriting arrangements have been entered into by the Selling Securityholders.
The Selling Securityholders and intermediaries through whom the Selling
Securities 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> 174
ALTERNATE PAGE
- ------------------------------------------------------
- ------------------------------------------------------
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.....................
Risk Factors...........................
Capitalization.........................
Dilution...............................
Use of Proceeds........................
Selected Financial Data................
Management's Discussion and Analysis...
Business...............................
Management.............................
Principal Stockholders and Selling
Securityholders......................
Description of Securities..............
Concurrent Sales by Company............
Legal Matters..........................
Experts................................
Additional Information.................
Index to Financial Statements..........
</TABLE>
------------------------
UNTIL , 1997 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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
728,229 SHARES OF COMMON STOCK
892,000 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF
CLASS E WARRANTS
70,000 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF
CLASS B WARRANTS
BEVERAGE WORKS, INC.
------------------------------
PROSPECTUS
------------------------------
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 175
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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<PAGE> 176
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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<PAGE> 177
(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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<PAGE> 178
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> 179
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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<PAGE> 180
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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<PAGE> 181
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...................................... 167,000
Legal Fees and Expenses........................................... 120,000
Printing, Design and Advertising.................................. 100,000
Underwriters' Non-Accountable Expense Allowance................... 276,750
Miscellaneous..................................................... 50,000
--------
Total........................................................... 756,002
========
</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.
The shares were issued in reliance on the exemption from registration under
Section 4(2) of the 1933 Act.
On October 6, 1995, the Company authorized the issuance of 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. The Company authorized the issuance of 1,342,700 shares of its
common stock to Adam Wachtel. The gross proceeds realized from the sale was
$67,135. On November 22, 1996, Mr. Wachtel sold 182,484 shares to a third party
in reliance on Sections 4(1) and 4(2) of the 1933 Act. Mr. Wachtel returned
1,160,216 shares to the Company and such shares were retired. 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 March 31, 1997. 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-
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<PAGE> 182
formation stages in the total amount of $57,034. On January , 1997, the
Company authorized the issuance of 2,000 $8.25 warrants to Kevin McCarthy which
was to have been issued November 15, 1995. The issuance was made in reliance on
the exemption from registration under Section 4(2) of the 1933 Act.
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 December , 1996, the Company issued 20,000 shares of Common
Stock to Mr. Friedman as consideration for extending the maturity date of the
note to April 15, 1997. The Company also issued the additional 35,000 Class B
Warrants as provided under the note. The Company received no cash or other
property for the issuance of the shares or additional Class B Warrants. The
Common Stock issuable upon exercise of the Class B Warrants are being registered
in this offering subject to a 180 day lock-up. The issuance 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 11, 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, as
amended by the Amendment Agreement dated January 7, 1997, the Company will issue
up to 141,063 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 155,000 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
II-8
<PAGE> 183
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.
On December 10, 1996, the Company sold a $250,000 unsecured promissory note
to Patrick Miller, a shareholder of the Company. The note, which pays simple
interest at 12% per annum, matures 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) September 1, 1997. Interest is payable at maturity. The sale
was made in reliance on the exemption from registration afforded by Section 4(2)
of the 1933 Act.
On December 28, 1996, the Company issued 60,000 shares of its Common Stock
to Donald Scott under the terms of a consulting agreement with Mr. Scott. The
Company received no cash or property for the shares. The shares were issued in
reliance on the exemption from registration under Section 4(2) of the 1933 Act.
25,000 of the shares are being registered in this offering subject to a 90 day
lock-up. Mr. Scott has been granted demand registration rights for the remaining
35,000 which allow Mr. Scott to demand the Company file a registration statement
within 180 days from the effective date of this Registration Statement and use
reasonable good faith efforts to cause such registration statement become
effective.
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 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(3)
1.2 [Form of] Agreement Among Underwriters(3)
1.3 [Form of] Selected Dealers Agreement(3)
2.1 Agreement and Plan of Reorganization dated November 8, 1995 between the
Company and Heritage Brewing Company, a California corporation, and
exhibits thereto(1)(4)
2.2 Agreement of Partnership and Contribution Agreement dated December 17,
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(1)(4)
2.3 Share Purchase Agreement dated September 10, 1996, and the Amendment
Agreement dated January 7, 1997, between Orange Empire Brewing Company,
Inc., a California corporation and the Company and exhibits thereto(1)(4)
2.4 Debt Exchange Agreement Orange Empire Brewing Company, et al, and the
Company dated September 11, 1996.(1)
3.1 Amended and Restated Articles of Incorporation of the Company(1)
3.2 By-Laws of the Company(1)
4.1 Specimen of Common Stock Certificate*
4.2 Warrant Agreement(3)
4.3 Class B Warrant Agreement(1)
4.4 [No Exhibit]
4.5 [No Exhibit]
4.6 [No Exhibit]
4.7 [No Exhibit]
4.8 [No Exhibit]
</TABLE>
II-9
<PAGE> 184
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
4.9 $500,000 Note Agreement and Promissory Note dated May 7, 1996 between the
Company and Frederick Friedman(1)
4.10 Owens Financial Note(1)
4.11 Class E Warrant Agreement(3)
4.12 Registration Rights Agreement -- Class E Warrants(3)
4.13 Registration Rights Agreement -- Class B Warrants(3)
4.14 $500,000 Note Exchange Agreement and Revised Promissory Note dated
December 19, 1996(3)
4.15 Representative's Warrant Agreement(3)
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(3)
10.2 Equipment Lease Agreement dated December 20, 1993, as amended, between
Riverside Brewing Company and Brewery Leasing Company(3)
10.3 Ground Lease Agreement dated June 6, 1988 between Randall and Susan Steele
and Stanislaus Brewing Company, Inc., as amended(3)
10.4 Riverside Brewing Company Brewery Lease with Hunsaker-Hunter dated April
1, 1995(1)
10.5 Riverside Brewing Company Brewery Lease with Hunsaker-Hunter dated
December 6, 1995(1)
10.6 Riverside Brewing Company Brewpub Lease with Kowashoji USA, Inc. dated
March 31, 1993(1)
10.7 Lease between Heritage Brewing Company and Central Business Park
Investors -- 89 dated November 3, 1993(1)(4)
10.8 Employment Agreement between the Company and Frederik G.M. Rodenhuis dated
December 31, 1996(1)(4)
10.9 Employment Agreement between the Company and Lyle R. Maul dated December
31, 1996(1)(4)
10.10 Employment Agreement between the Company and John Stoner(1)
10.11 Employment Agreement between the Company and Kathy Burke(1)
10.12 Employment Agreement between the Company and Garith Helm(1)
10.13 Distributorship Agreement dated August 20, 1996 between the Company and
Southern Wine and Spirits(1)
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.(1)
10.16 1996 Nonqualified Stock Option Plan(1)
10.17 1996 Incentive Stock Option Plan(1)
10.18 Incentive Compensation Plan(3)
10.19 Hussong's License Agreement dated February 3, 1996 between Heritage
Brewing Company and C.A. Wittwer & Associates(1)
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(1)
10.22 [No Exhibit]
</TABLE>
II-10
<PAGE> 185
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
10.23 Keg Management Agreement dated December 2, 1996 between Heritage Brewing
Company and MicroStar Keg Management, L.L.C.(3)
10.24 Office Lease dated November 22, 1996 between Edwards Theatres Circuit,
Inc. and Beverage Works, Inc.(3)
10.25 Sublease Agreement dated January 1, 1997 between The Deretin Group and
Beverage Works, Inc.(3)
10.26 Non-Employee Director Compensation Plan and Directors' Warrant
Agreement(3)
11. Computation of Earnings (Loss) Per Share(3)
21.1 List of Subsidiaries(1)
23.1 Consent of Hecht & Steckman, P.C.*
23.2 Consent of Corbin & Wertz(3)
23.3 Consent of Corbin & Wertz(3)
23.4 Consent of Corbin & Wertz(3)
27.1 Financial Data Schedule(3)
</TABLE>
- ---------------
* To be filed by amendment.
(1) Filed as part of the original filing of the registration statement on
September 11, 1996.
(2) Filed as part of this Amendment No. 1 to the registration statement on
September 12, 1996.
(3) Filed as part of this Amendment No. 2 to the registration statement on
January 13, 1997.
(4) Exhibit previously filed amended in Amendment No. 2 to the registration
statement filed January 13, 1997.
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.
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.
II-11
<PAGE> 186
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-12
<PAGE> 187
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 Amendment No.
2 to this registration statement to be signed on its behalf by the undersigned,
in the City of Los Angeles, State of California, on January 10, 1997.
BEVERAGE WORKS, INC.,
a California corporation
By: /s/ LYLE R. MAUL
------------------------------------
Lyle R. Maul
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to 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/ LYLE R. MAUL Chief Executive Officer, President January 10, 1997
- ------------------------------------- and Director
Lyle R. Maul
/s/ FREDERIK G.M. RODENHUIS Executive Vice President, Acting January 10, 1997
- ------------------------------------- Chief Financial Officer and Director
Frederik G.M. Rodenhuis
</TABLE>
II-13
<PAGE> 188
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
1.1 [Form of] Underwriting Agreement(3)
1.2 [Form of] Agreement Among Underwriters(3)
1.3 [Form of] Selected Dealers Agreement(3)
2.1 Agreement and Plan of Reorganization dated November 8, 1995 between the
Company and Heritage Brewing Company, a California corporation, and
exhibits thereto(1)(4)
2.2 Agreement of Partnership and Contribution Agreement dated December 17,
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(1)(4)
2.3 Share Purchase Agreement dated September 10, 1996 between Orange Empire
Brewing Company, Inc., a California corporation and the Company, the
Amendment Agreement dated January 7, 1997, and exhibits thereto(1)(4)
2.4 Debt Exchange Agreement Orange Empire Brewing Company, et al, and the
Company dated September 11, 1996.(1)
3.1 Amended and Restated Articles of Incorporation of the Company(1)
3.2 By-Laws of the Company(1)
4.1 Specimen of Common Stock Certificate*
4.2 Warrant Agreement(3)
4.3 Class B Warrant Agreement(1)
4.4 [No Exhibit]
4.5 [No Exhibit]
4.6 [No Exhibit]
4.7 [No Exhibit]
4.8 [No Exhibit]
4.9 $500,000 Note Agreement and Promissory Note dated May 7, 1996 between the
Company and Frederick Friedman(1)
4.10 Owens Financial Note(1)
4.11 Class E Warrant Agreement(3)
4.12 Registration Rights Agreement -- Class E Warrants(3)
4.13 Registration Rights Agreement -- Class B Warrants(3)
4.14 $500,000 Note Exchange Agreement and Revised Promissory Note dated
December 19, 1996(3)
4.15 Representative's Warrant Agreement(3)
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(3)
10.2 Equipment Lease Agreement dated December 20, 1993, as amended, between
Riverside Brewing Company and Brewery Leasing Company(3)
10.3 Ground Lease Agreement dated June 6, 1988 between Randall and Susan Steele
and Stanislaus Brewing Company, Inc., as amended(3)
10.4 Riverside Brewing Company Brewery Lease with Hunsaker-Hunter dated April
1, 1995(1)
</TABLE>
<PAGE> 189
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
10.5 Riverside Brewing Company Brewery Lease with Hunsaker-Hunter dated
December 6, 1995(1)
10.6 Riverside Brewing Company Brewpub Lease with Kowashoji USA, Inc. dated
March 31, 1993(1)
10.7 Lease between Heritage Brewing Company and Central Business Park
Investors -- 89 dated November 3, 1993(1)(4)
10.8 Employment Agreement between the Company and Frederik G.M. Rodenhuis dated
December 31, 1996(1)(4)
10.9 Employment Agreement between the Company and Lyle R. Maul dated December
31, 1996(1)(4)
10.10 Employment Agreement between the Company and John Stoner(1)
10.11 Employment Agreement between the Company and Kathy Burke(1)
10.12 Employment Agreement between the Company and Garith Helm(1)
10.13 Distributorship Agreement dated August 20, 1996 between the Company and
Southern Wine and Spirits(1)
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.(1)
10.16 1996 Nonqualified Stock Option Plan(1)
10.17 1996 Incentive Stock Option Plan(1)
10.18 Incentive Compensation Plan(3)
10.19 Hussong's License Agreement dated February 3, 1996 between Heritage
Brewing Company and C.A. Wittwer & Associates(1)
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(1)
10.22 [No Exhibit]
10.23 Keg Management Agreement dated December 2, 1996 between Heritage Brewing
Company and MicroStar Keg Management, L.L.C.(3)
10.24 Office Lease dated November 22, 1996 between Edwards Theatres Circuit,
Inc. and Beverage Works, Inc.(3)
10.25 Sublease Agreement dated January 1, 1997 between The Deretin Group and
Beverage Works, Inc.(3)
10.26 Non-Employee Director Compensation Plan and Directors' Warrant
Agreement(3)
11. Computation of Earnings (Loss) Per Share(3)
21.1 List of Subsidiaries(1)
</TABLE>
<PAGE> 190
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
23.1 Consent of Hecht & Steckman, P.C.*
23.2 Consent of Corbin & Wertz(3)
23.3 Consent of Corbin & Wertz(3)
23.4 Consent of Corbin & Wertz(3)
27.1 Financial Data Schedule(3)
</TABLE>
- ---------------
* To be filed by amendment.
(1) Filed as part of the original filing of the registration statement on
September 11, 1996.
(2) Filed as part of Amendment No. 1 to the registration statement on September
12, 1996.
(3) Filed as part of this Amendment No. 2 to the registration statement on
January 13, 1997.
(4) Exhibit previously filed amended in Amendment No. 2 to the registration
statement filed January 13, 1997.
<PAGE> 1
Exhibit 1.1
BEVERAGE WORKS, INC.
1,500,000 SHARES OF COMMON STOCK AND
1,500,000 REDEEMABLE CLASS A COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
Dallas, Texas
_________ , 1997
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Gentlemen:
BEVERAGE WORKS, INC. (the "Company"), on the basis of the
representations, warranties, covenants and conditions contained herein, hereby
proposes to issue and sell to such Underwriters as named in Schedule A (the
"Underwriters") to this Underwriting Agreement (the "Agreement"), for whom First
London Securities Corporation is acting as the representative (the
"Representative"), pursuant to the terms of this Agreement, on a "firm
commitment" basis, 1,500,000 shares of Common Stock (the "Shares") at $____ per
Share and 1,500,000 Redeemable Class A Common Stock Purchase Warrants (the
"Warrants") at $____ per Warrant. The Shares and the Warrants are collectively
referred to as the "Securities". Each Warrant is exercisable to purchase one (1)
share of Common Stock (the "Common Stock") at the Initial Public Offering Price
per share at any time during the period between the Effective Date and five (5)
years from the Effective Date. The date upon which the Securities and Exchange
Commission ("Commission") shall declare the registration statement of the
Company effective shall be the "Effective Date". The Warrants are subject to
redemption under certain circumstances. In addition, the Company proposes to
grant to the Underwriters (or, at the option of the Representative, to the
Representative, individually) the option referred to in Section 2(b) to purchase
all or any part of an aggregate of 225,000 additional Shares and/or 225,000
additional Warrants (the "Option Securities").
You have advised the Company that you and the other Underwriters desire
to purchase, severally, the Securities, and that you have been authorized by the
Underwriters to execute this Agreement on their behalf. The Company confirms the
agreements made by it with respect to the purchase of the Securities by the
several Underwriters on whose behalf you are signing this Agreement, as follows:
1
<PAGE> 2
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with each of the
Underwriters as of the Effective Date (as defined above), the Closing Date (as
hereinafter defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No. 333-11789) on Form SB-2
relating to the public offering of the Securities, including a preliminary form
of the prospectus, copies of which have heretofore been delivered to you, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Commission thereunder, and has been filed
with the Commission under the Act. The Company has prepared in the same manner
and proposes to file, prior to the Effective Date of such registration
statement, an additional amendment or amendments to such registration statement,
including a final form of Prospectus, copies of which shall be delivered to you.
"Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules
and Regulations under the Act prior to the Effective Date. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the "Prospectus",
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from said prospectus as then
amended, the term "Prospectus" shall mean the prospectus first filed pursuant to
Rule 424(b), and (ii) if such registration statement or prospectus is amended or
such prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined) , the
terms "Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to
the Option Closing Date, if any, and during such longer period as the Prospectus
may be required to be delivered in connection with sales by the Underwriters or
Selected Dealers: (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
the Company makes no representations, warranties or agreement as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriters specifically for use in the preparation thereof. It
is understood that the statements set forth in the Prospectus with respect to
stabilization, under the heading "Underwriting" and regarding the identity of
counsel to the Underwriters under the heading "Legal Matters" constitute the
only information furnished in writing by the Underwriters for inclusion in the
Prospectus.
2
<PAGE> 3
(c) Each of the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign corporation and is
in good standing in all other jurisdictions in which the nature of its business
or the character or location of its properties requires such qualification,
except where failure to so qualify will not materially affect the Company's
business, properties or financial condition.
(d) The authorized, issued and outstanding securities of the Company
as of the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the Company
have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respects with applicable
Federal and state securities laws; the holders thereof have no rights of
rescission against the Company with respect thereto, and are not subject to
personal liability by reason of being such holders; none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company; except as set
forth in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any securities of the Company have been granted or
entered into by the Company; and all of the securities of the Company, issued
and to be issued as set forth in the Registration Statement, conform to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and
paid for pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights of any security
holder of the Company. Neither the filing of the Registration Statement nor the
offering or sale of the Securities as contemplated in this Agreement gives rise
to any rights, other than those which have been waived or satisfied, for or
relating to the registration of any securities of the Company, except as
described in the Registration Statement and Prospectus.
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock issuable
upon exercise of the Warrants have been reserved for issuance and when issued in
accordance with the terms of the Warrants and Warrant Agreement, will be duly
and validly authorized, validly issued, fully paid and non-assessable, free of
preemptive rights and no personal liability will attach to the ownership
thereof. The Warrant exercise period and the Warrant exercise price may not be
changed or revised by the Company without the prior written consent of the
Representative. The Warrant Agreement has been duly authorized and, when
executed and
3
<PAGE> 4
delivered pursuant to this Agreement will constitute the valid and legally
binding obligation of the Company enforceable in accordance with its terms.
The Common Stock Representative Warrants, the Warrant Representative
Warrants, the Underlying Warrants, the shares of Common Stock issuable upon
exercise of the Common Stock Representative Warrants, and the shares of Common
Stock issuable upon exercise of the Underlying Warrants (all as defined in the
Representative's Warrant Agreement described in Section 12 herein), have been
duly authorized and, when issued, delivered and paid for, will be validly
issued, fully paid, non-assessable, free of preemptive rights and no personal
liability will attach to the ownership thereof, and will constitute valid and
legally binding obligations of the Company enforceable in accordance with their
terms and entitled to the benefits provided by the Representative's Warrant
Agreement.
(f) This Agreement, the Warrant Agreement, the Merger and Acquisition
Agreement (the "M/A Agreement") and the Representative's Warrant Agreement have
been duly and validly authorized, executed and delivered by the Company, and
assuming due execution of this Agreement by the other party hereto, constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the rights of creditors
generally. The Company has full power and lawful authority to authorize, issue
and sell the Securities to be sold by it hereunder on the terms and conditions
set forth herein, and no consent, approval, authorization or other order of any
third party or any governmental authority is required in connection with such
authorization, execution and delivery or with the authorization, issuance and
sale of the Securities or the securities to be issued pursuant to the
Representative's Warrant Agreement, except such as may be required under the Act
or state securities laws, or as otherwise have been obtained.
(g) Except as described in the Prospectus, neither the Company nor any
subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or assets of the
Company or each subsidiary or any of the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or each subsidiary is a party or by which the Company or each
subsidiary may be bound or to which any of the property or assets of the Company
or each subsidiary is subject, nor will such action result in any material
violation of the provisions of the articles of incorporation or bylaws as
amended of the Company or each subsidiary, or any statute or any order, rule or
regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
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<PAGE> 5
(h) Subject to the qualifications stated in the Prospectus, the
Company and each subsidiary have good and marketable title to all properties and
assets described in the Prospectus as owned by each of them, free and clear of
all liens, charges, encumbrances or restrictions, except such as are not
materially significant or important in relation to its business; all of the
material leases and subleases under which the Company or each subsidiary is the
lessor or sublessor of properties or assets or under which the Company or each
subsidiary holds properties or assets as lessee or sublessee as described in the
Prospectus are in full force and effect, and, except as described in the
Prospectus, neither the Company nor each subsidiary is in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone, adverse to rights
of the Company or each subsidiary as lessor, sublessor, lessee, or sublessee
under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company or each subsidiary to continued possession
of the leased or subleased premises or assets under any such lease or sublease
except as described or referred to in the Prospectus; and the Company and each
subsidiary owns or leases all such properties described in the Prospectus as are
necessary to its operations as now conducted and, except as otherwise stated in
the Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) CORBIN & WERTZ, who have given their report on certain financial
statements filed and to be filed with the Commission as part of the Registration
Statement, and which are included in the Prospectus, are with respect to the
Company, independent public accountants as required by the Act and the Rules and
Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration Statement present fairly
the financial position and results of operations and changes in financial
position of the Company on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they apply. Said
statements and related notes and schedules have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved. The Company's internal accounting controls and
procedures are sufficient to cause the Company and each subsidiary to prepare
financial statements which comply in all material respects with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved. During the preceding five (5) year period, nothing has been
brought to the attention of the Company's management that would result in any
reportable condition relating to the Company's internal accounting procedures,
weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
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<PAGE> 6
debt by, the Company or any subsidiary; (iv) neither the Company nor any
subsidiary has issued any options, warrants or other rights to purchase the
capital stock of the Company or any subsidiary; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company or any subsidiary, or in the
book value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(1) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and
each subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against the Company or any subsidiary that has not been provided for in
the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and
each subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use all
material patents, patent applications, trademarks, service marks, trade-names,
trademark registrations, service mark registrations, copyrights, and licenses
necessary for the conduct of such business and has not received any notice of
conflict, with the asserted rights of others in respect thereof. To the best of
the Company's knowledge, none of the activities or business of the Company or
any subsidiary are in violation of, or cause the Company or any subsidiary to
violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution, in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments or contributions required or allowed by
applicable law.
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<PAGE> 7
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Securities to the several Underwriters
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
(r) Except as described in the Registration Statement and Prospectus,
no holders of Common Stock or of any other securities of the Company have the
right to include such Common Stock or other securities in the Registration
Statement and Prospectus.
(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor any subsidiary has any
material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in
the Registration Statement and Prospectus, nor has it any equity interest in any
partnership, joint venture, association or other entity except as disclosed in
the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending
the use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriters against any losses, claims, damages
or liabilities, joint or several, which shall include, but not be limited to,
all costs to defend against any such claim, so long as such claim arises out of
agreements made or allegedly
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<PAGE> 8
made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or five percent (5%) or greater stockholder of the Company or
any subsidiary has any direct or indirect affiliation or association with any
member of the National Association of Securities Dealers, Inc. ("NASD"), except
as disclosed to the Representative in writing, and no beneficial owner of the
Company's unregistered securities has any direct or indirect affiliation or
association with any NASD member except as disclosed to the Representative in
writing. The Company will advise the Representative and the NASD if any five
percent (5%) or greater share-holder of the Company or any subsidiary is or
becomes an affiliate or associated person of an NASD member participating in the
distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no pending
investigations involving the Company or any subsidiary by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company or any subsidiary pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the knowledge of the Company, threatened
against or involving the Company or any subsidiary or any predecessor entity. No
question concerning representation exists respecting the employees of the
Company or any subsidiary and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company or any subsidiary. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company or any subsidiary, if any.
(aa) Neither the Company nor any subsidiary maintains, sponsors nor
contributes to, nor is it required to contribute to, any program or arrangement
that is an "employee pension benefit plan" an "employee welfare benefit plan",
or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(i) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). Neither the Company nor any subsidiary
maintained or contributed to a defined benefit plan, as defined in Section 3(35)
of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of the
Company or any subsidiary have been:
(1) Subject of a petition under the Federal bankruptcy laws
or any state insolvency law filed by or against them, or by a receiver,
fiscal agent or similar officer appointed by a court for their business
or property, or any partnership in which either or them was a general
partner at or within two years before the time of such filing, or any
corporation or business association of which either of them was an
executive officer at or within two years before the time of
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<PAGE> 9
such filing;
(2) Convicted in a criminal proceeding or a named subject of
a pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining either of them from,
or otherwise limiting, any of the following activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant, any
other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the foregoing,
or as an investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee
of any investment company, bank, savings and loan association
or insurance company, or engaging in or continuing any conduct
or practice in connection with any such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection
with any violation of Federal or State securities law or
Federal Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or State
authority barring, suspending or otherwise limiting for more than sixty
(60) days either of their right to engage in any activity described in
paragraph (3)(i) above, or be associated with persons engaged in any
such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have violated
any Federal or State securities law, and the judgment in such civil
action or finding by the Commission has not been subsequently reversed,
suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated
any Federal Commodities Law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated.
(ac) Based upon written representations received from the officers and
directors of the
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<PAGE> 10
Company, each of the officers and directors of the Company has reviewed the
sections in the Prospectus relating to their biographical data and equity
ownership position in the Company, and all information contained therein is true
and accurate.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement and upon the
basis of the representations, warranties and agreements herein contained, the
Company hereby agrees to issue and sell to the Underwriters an aggregate of
1,500,000 Shares at $____ per Share and 1,500,000 Warrants at $____ per Warrant,
(the public offering price less ten percent (10%)), at the place and time
hereinafter specified, in accordance with the number of Shares and/or Warrants
set forth opposite the names of the Underwriters in Schedule A attached hereto
plus any additional Securities which such Underwriters may become obligated to
purchase pursuant to the provisions of Section 9 hereof. The Securities shall
consist of 1,500,000 Shares and 1,500,000 Warrants to be purchased from the
Company, and the price at which the Underwriters shall sell the Securities to
the public shall be $__.00 per Share and $____ per Warrant.
Delivery of the Securities against payment therefor shall take place at
the offices of First London Securities Corporation, 2600 State Street, Dallas,
Texas 75204 (or at such other place as may be designated by the Representative)
at 10:00 a.m., Eastern Time, on such date after the Effective date as the
Representative shall designate, but not later than ten (10) business days
(holidays excepted) following the first date that any of the Securities are
released to you, such time and date of payment and delivery for the Securities
being herein called the "Closing Date".
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants the "Option" to the Underwriters
(or, at the option of the Representative, to the Representative, individually)
to purchase all or any part of an aggregate of an additional 225,000 Shares and
225,000 Warrants at the same price per Share and Warrant as the Underwriters
shall pay for the Securities being sold pursuant to the provisions of subsection
(a) of this Section 2 (such additional Securities being referred to herein as
the "Option Securities"). This Option may be exercised within 30 days after the
Effective Date upon notice by the Underwriters (or the Representative,
individually) to the Company advising as to the amount of Option Securities as
to which the Option is being exercised, the names and denominations in which the
certificates for such Option Securities are to be registered and the time and
date when such certificates are to be delivered. Such time and date shall be
determined by the Underwriters (or the Representative, individually) but shall
not be later than ten (10) full business days after the exercise of the Option,
nor in any event prior to the Closing Date, and such time and date is referred
to herein as the "Option Closing Date". Delivery of the Option Securities
against payment therefor shall take place at the offices of the Representative.
The Option granted hereunder may be exercised only to cover over allotments in
the sale by the Underwriters of the Securities referred to in subsection (a)
above. In the event the Company declares or pays a dividend or distribution on
its Common Stock, whether in the form of cash, shares of Common Stock or any
other consideration, prior to the Option Closing Date, such dividend or
distribution shall also be paid on the Option Closing Date.
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<PAGE> 11
(c) The Company will make the certificates for the Securities to be
sold hereunder available to you for inspection at least two (2) full business
days prior to the Closing Date and the Option closing date at the offices of the
Representative, and such certificates shall be registered in such names and
denominations as you may request. Time shall be of the essence and delivery at
the time and place specified in this Agreement is a further condition to the
obligations of the Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company or
by wire transfer in New York Clearing House funds.
In addition, in the event the Underwriters (or the Representative,
individually) exercises the Option to purchase from the Company all or any
portion of the Option Securities pursuant to the provisions of subsection (b)
above, payment for such Securities shall be made payable in New York Clearing
House funds at the offices of the Representative, or by wire transfer, at the
time and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities by
the Representative for the respective accounts of the several Underwriters
registered in such names and in such denominations as the Representative may
request.
It is understood that the Representative, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Securities to be purchased by such
Underwriter or Underwriters. Any such payment by the Representative shall not
relieve any such Underwriter or Underwriters of any of its or their obligations
hereunder. It is also understood that the Representative individually, rather
than all of the Underwriters, may (but shall not be obligated to) purchase the
Option Securities referred to in subsection (b) of this Section 2, but only to
cover over allotments.
It is understood that the several Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement is
declared effective by the Commission.
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<PAGE> 12
3. Covenants of the Company. The Company covenants and agrees with
the several Underwriters that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (i) the completion by the Underwriters of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary or advisable in connection with the distribution of the Securities
and as mutually agreed by the Company and the Representative.
After the Effective Date and as soon as the Company is advised thereof,
the Company will advise you, and confirm the advice in writing, of the receipt
of any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus and Definitive Prospectus, and the Company has consented
and hereby consents to the use of such copies for the purposes permitted by the
Act. The Company authorizes the Underwriters and Selected Dealers to use the
Prospectus in connection with the sale of the Securities for such period as in
the opinion of counsel to the Underwriters the use thereof is required to comply
with the applicable provisions of the Act and the Rules and Regulations. In case
of the happening, at any time within such period as a Prospectus is required
under the Act to be delivered in connection with sales by the Underwriters or
Selected Dealers, of any event of which the Company has knowledge and which
materially affects the Company or the securities of the Company, or which in the
opinion of counsel for the Company or counsel for the Underwriters, should be
set forth in an amendment to the Registration Statement or a supplement to the
Prospectus, in order to make the statements therein not then misleading, in
light of the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Securities, or in case it shall be necessary to
amend or supplement the Prospectus to comply with law or with the Act and the
Rules and Regulations, the Company will notify you promptly and forthwith
prepare and furnish to you copies of such amended Prospectus or of such
supplement
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<PAGE> 13
to be attached to the Prospectus, in such quantities as you may reasonably
request, in order that the Prospectus, as so amended or supplemented, will not
contain any untrue statement of a material fact or omit to state any material
facts necessary in order to make the statements in the Prospectus, in the light
of the circumstances under which they are made, not misleading. The preparation
and furnishing of any such amendment or supplement to the Registration Statement
or amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriters.
The Company will comply with the Act, the Rules and Regulations
thereunder, the Securities Exchange Act of 1934 (the "1934 Act"), and the
rules and regulations thereunder in connection with the offering and issuance of
the Securities.
(b) The Company will act in good faith and use its best efforts and
cooperate with you and your counsel to qualify to register the Securities for
sale under the securities or "blue sky" laws of such jurisdictions as the
Representative may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent to service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the Securities. The Company will, from time to time, prepare and file
such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriters may reasonably
request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not limited
to, all such expenses itemized in Section 8(a) and 8(c) hereof, and the
out-of-pocket expenses of the Representative, if the offering for any reason is
terminated. For the purposes of this sub-paragraph, the Representative shall be
deemed to have assumed such expenses when they are billed or incurred,
regardless of whether such expenses have been paid. The Representative shall not
be responsible for any expenses of the Company or others, or for any charges or
claims relative to the proposed public offering whether or not consummated.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the several Underwriters, from time
to time until the Effective Date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the Effective
Date of the Registration Statement as the Underwriters may reasonably request.
The Company will deliver to the Underwriters on the Effective Date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented as the several
Underwriters may from time to time reasonably request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15
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of the 1934 Act, the Company, at its expense, will furnish to the Representative
during the period ending five (5) years from the Effective Date, (i) as soon as
practicable after the end of each fiscal year, a balance sheet of the Company
and any of its subsidiaries as at the end of such fiscal year, together with
statements of income, surplus and cash flow of the Company and any subsidiaries
for such fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent accountants; (ii) as soon as they
are available, a copy of all reports (financial or other) mailed to security
holders; (iii) as soon as they are available, a copy of all non-confidential
documents, including annual reports, periodic reports and financial statements,
furnished to or filed with the Commission under the Act and the 1934 Act; (iv)
copies of each press release, news item and article with respect to the
Company's affairs released by the Company; and (v) such other information as you
may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will make generally available to its stockholders and
to the registered holders of its Warrants and deliver to you as soon as it is
practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary
action to become a reporting company under Section 12 of the 1934 Act, and the
Company will make all filings required to, and will have obtained approval for,
the listing of the Shares and Warrants on The NASDAQ Small Cap Market, and will
use its best efforts to maintain such listing for at least seven (7) years from
the date of this Agreement.
(i) For such period as the Company's securities are registered under
the 1934 Act, the Company will hold an annual meeting of stockholders for the
election of Directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by Rule 14a-3 under
the 1934 Act and shall be included in an annual report pursuant to the
requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption "Use
of Proceeds" in the Prospectus, and will file such reports with the Commission
with respect to the sale of the Securities and the application of the proceeds
therefrom as may be required by Sections 12, 13 and/or 15 of the 1934 Act and
pursuant to Rule 463 under the Act.
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<PAGE> 15
(k) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of counsel to the Underwriters and the Company may be
reasonably necessary or advisable in connection with the distribution of the
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(l) On the Closing Date the Company shall execute and deliver to you
the Representative's Warrant Agreement. The Representative's Warrant Agreement
and Warrant Certificates will be substantially in the form of the
Representative's Warrant Agreement and warrant certificates filed, as an exhibit
to the Registration Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable upon
exercise of the Representative's Warrants outstanding from time to time.
(n) Except as otherwise provided in the alternate Prospectus pages in
the Registration Statement, all beneficial owners of the Company's securities
who are officers or directors of the Company (including Warrants, Options and
Common Stock of the Company), as of the Effective Date, shall agree in writing,
in a form satisfactory to the Representative, not to sell, transfer or otherwise
dispose of any of such securities or underlying securities for a period of
twenty-four (24) months from the Effective Date, or any longer period required
by any State, without the prior written consent of the Representative. All sales
of the Company's securities by officers and/or directors of the Company shall be
effected through the Representative.
(o) The Company shall pay to the Representative a fee of five (5%)
percent of the aggregate exercise price of each Class A Warrant exercised
commencing one year after the Effective Date, 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 Class A Warrant was not in violation of Rule 10b-6 of the Securities
Exchange Act of 1934. The Company will obtain, on or before the Closing Date,
key person life insurance on the life of Lyle Maul in an amount of not less than
$1,000,000, and will use its best efforts to maintain such insurance for a
period of at least five (5) years from the Effective Date.
(p) Prior to the Closing Date, the Company shall at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and such
other manuals as the Representative may designate, such listings to contain the
information required by such manuals and the Uniform Securities Act. The Company
hereby agrees to use its best efforts to maintain such listing for a period of
not less than five (5) years. The Company shall take such action as may be
reasonably requested by the Representative to obtain a secondary market trading
exemption in such states as may be reasonably requested by the Representative.
(q) During the one hundred eighty (180) day period commencing on the
Closing Date, the Company will not, without the prior written consent of the
Representative, grant options or warrants to purchase the Company's Common Stock
at a price less than the initial per share public offering price.
(r) During the twelve month period commencing on the closing Date, the
Company
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<PAGE> 16
will not, without the prior written consent of the Representative, issue any
additional securities of the Company.
(s) Prior to the Closing Date, neither the Company nor any subsidiary
will issue, directly or indirectly, without your prior consent, any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering of the Securities other than routine
customary advertising of the Company's products and services, and except as
required by any applicable law or the directives of any relevant regulatory
authority in any relevant jurisdiction.
(t) [Reserved]
(u) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the financial
statements to be included in any registration statement or similar disclosure
document to be filed by the Company hereunder, or any amendment or supplement
thereto. For a period of five (5) years from the Effective Date, the Company, at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's quarterly report
and the filing of quarterly financial information to stockholders.
(v) The Company shall retain American Stock Transfer & Trust Company
as the transfer agent for the securities of the Company, or such other transfer
agent as you may agree to in writing. In addition, the Company shall direct such
transfer agent to furnish the Representative with daily transfer sheets as to
each of the Company's securities as prepared by the Company's transfer agent and
copies of lists of stockholders and warrantholders as reasonably requested by
the Underwriter, for a five (5) year period commencing from the Closing Date.
(w) The Company shall cause the Depository Trust Company, or such
other depository of the Company's securities, to deliver a "special security
position report" to the Representative on a daily and weekly basis at the
expense of the Company, for a five (5) year period from the Effective Date.
(w) Following the Effective Date, the Company shall, at its sole cost
and expense, prepare and file such Blue Sky applications with such jurisdictions
as the Representative shall designate and the Company may reasonably agree.
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<PAGE> 17
(x) The Representative shall have a right of first refusal to
represent the Company in any public or private offering of the Company's
securities for a full year period commencing on the closing Date.
(y) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of five
(5) persons, two (2) of whom shall be independent and not otherwise affiliated
with the Company or associated with any of the Company's affiliates. The
Representative shall have the right to nominate one member of the Board of
Directors. The Representative shall have the opportunity to invite an observer
to attend Board of Directors meetings of the Company at the expense of the
Company.
(z) On the Closing Date, the Company shall execute and deliver to you
a non-exclusive M/A Agreement with the Representative in a form satisfactory to
the Representative, providing:
(1) that the Representative will be paid a finder's fee, of from
five percent (5%) of the first $1,000,000 ranging in $1,000,000
increments down to one percent (1%) of the excess, if any, over
$4,000,000 of the consideration involved in any transaction introduced
in writing by the Representative (including mergers, acquisitions,
joint ventures, and any other business for the Company introduced by
the Representative) consummated by the Company, as an "Introduced,
Consummated Transaction", by which the Representative introduced the
other party to the Company during a period ending five (5) years from
the date of the M/A Agreement; and
(2) that any such finder's fee due to the Representative will be
paid in cash or stock as mutually agreed at the closing of the
particular Introduced, Consummated Transaction for which the finder's
fee is due.
(z) After the Closing Date, the Company shall prepare and publish
"tombstone" advertisements of at least 5 x 5 inches in publications to be
designated by the Representative at a total cost not to exceed $20,000.
(aa) For such period as any Warrants are outstanding, the Company shall
use its best efforts to cause post-effective amendments to the Registration
Statement or a new Registration Statement to become effective in compliance with
the Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish to each of
the Underwriters and each dealer as many copies of each such Prospectus as such
Underwriter or such dealer may reasonably request. Such post-effective
amendments or new Registration Statements shall also register the
Representative's Warrants and all the securities underlying the Representative's
Warrants. The Company shall not call for redemption of any of the Warrants
unless a Registration Statement covering the securities underlying the Warrants
or Representative Warrants has been declared effective by the Commission and
remains current at least until the date fixed for redemption. In addition, the
Warrants or Representative Warrants shall not be
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<PAGE> 18
redeemable during the first year after the Effective Date without the written
consent of the Representative.
(ab) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange or the American Stock Exchange, the
Company shall engage the Company's legal counsel to deliver to the
Representative a written opinion detailing those states in which the Shares and
Warrants of the Company may be traded in non-issuer transactions under the Blue
Sky laws of the fifty states ("Secondary Market Trading Opinion"). The initial
Secondary Market Trading opinion shall be delivered to the Representative on the
Effective Date, and the Company shall continue to update such opinion and
deliver same to the Representative on a timely basis, but in any event at the
beginning of each fiscal quarter, for a five (5) year period, if required.
(ac) As promptly as practicable after the Closing Date, the Company
will prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute such volumes to the individuals designated by the
Representative or counsel to the Representative.
4. Conditions of Underwriters, Obligations. The obligations of the
several Underwriters to purchase and pay for the Securities which they have
agreed to purchase hereunder from the Company are subject, as of the date hereof
and as of the Closing Date and the Option Closing Date, to the continuing
accuracy of, and compliance with, the representations and warranties of the
Company herein, to the accuracy of statements of officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) (i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such
later time or on such later date as you may agree to in writing; (ii) at or
prior to the Closing Date or Option Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and no proceeding for that purpose shall have been initiated or
pending, or shall be threatened, or to the knowledge of the Company,
contemplated by the Commission; (iii) no stop order suspending the effectiveness
of the qualification or registration of the Securities under the securities or
"blue sky" laws of any jurisdiction (whether or not a jurisdiction which you
shall have specified) shall be threatened or to the knowledge of the Company
contemplated by the authorities of any such jurisdiction or shall have been
issued and in effect; (iv) any request for additional information on the part of
the Commission or any such authorities shall have been complied with to the
satisfaction of the Commission and any such authorities, and to the satisfaction
of counsel to the Underwriters; and (v) after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have been filed
unless a copy thereof was first submitted to the Underwriters and the
Underwriters did not object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any subsidiary except as set
18
<PAGE> 19
forth in or contemplated by the Registration Statement, (ii) there shall not
have been any material adverse change in the general affairs, business,
properties, condition (financial or otherwise), management, or results of
operations of the Company or any subsidiary, whether or not arising from
transactions in the ordinary course of business, in each case other than as set
forth in or contemplated by the Registration Statement or Prospectus; (iii)
neither the Company nor any subsidiary shall have sustained any material
interference with its business or properties from fire, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor dispute
or any court or legislative or other governmental action, order or decree, which
is not set forth in the Registration Statement and Prospectus; and (iv) the
Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all material
respects conform to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstance under which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(d) Each of the representations and warranties of the Company
contained herein shall be true and correct as of this date and at the Closing
Date as if made at the Closing Date, and all covenants and agreements herein
contained to be performed on the part of the Company and all conditions herein
contained to be fulfilled or complied with by the Company at or prior to the
Closing Date and Option Closing Date shall have been duly performed, fulfilled
or complied with.
(e) At each Closing Date, you shall have received the opinion,
together with copies of such opinion for each of the other several Underwriters,
dated as of each Closing Date, from Hecht & Steckman, P.C., counsel for the
Company, in form and substance satisfactory to counsel for the Underwriters, to
the effect that:
(i) the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full corporate power
and authority to own its properties and conduct its business as
described in the Registration Statement and Prospectus and is duly
qualified or licensed to do business as a foreign corporation and is in
good standing in each other jurisdiction in which the ownership or
leasing of its properties or conduct of its business requires such
qualification except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company and
each subsidiary as a
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<PAGE> 20
whole;
(ii) the authorized capitalization of the Company is as set
forth under "Capitalization" in the Prospectus; all shares of the
Company's outstanding stock and other securities requiring
authorization for issuance by the Company's Board of Directors have
been duly authorized, validly issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock of the Company and other securities
have not been issued in violation of the preemptive rights of any
shareholder and the shareholders of the Company do not have any
preemptive rights or, to such counsel's knowledge, other rights to
subscribe for or to purchase securities of the Company, nor, to such
counsel's knowledge, are there any restrictions upon the voting or
transfer of any of the securities of the Company, except as disclosed
in the Prospectus; the Common Stock, the Shares, the Warrants, and the
securities contained in the Representative's Warrant Agreement conform
to the respective descriptions thereof contained in the Prospectus; the
Common Stock, the Shares, the Warrants, the shares of Common Stock to
be issued upon exercise of the Warrants and the securities contained in
the Representative's Warrant Agreement, have been duly authorized and,
when issued, delivered and paid for, will be duly authorized, validly
issued, fully paid, non-assessable, free of preemptive rights and no
personal liability will attach to the ownership thereof; all prior
sales by the Company of the Company's securities have been made in
compliance with or under an exemption from registration under the Act
and applicable state securities laws and no shareholders of the Company
have any rescission rights against the Company with respect to the
Company's securities; a sufficient number of shares of Common Stock has
been reserved for issuance upon exercise of the Warrants and the
Representative's Warrants, and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering or
sale of the Securities as contemplated by this Agreement gives rise to
any registration rights or other rights, other than those which have
been waived or satisfied or described in the Registration Statement;
(iii) this Agreement, the Representative's Warrant Agreement, the
Warrant Agreement, and the M/A Agreement have been duly and validly
authorized, executed and delivered by the Company and, assuming the due
authorization, execution and delivery of this Agreement by the
Representative, are the valid and legally binding obligations of the
Company, enforceable in accordance with their terms, except (a) as such
enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws from time to time in effect
which effect creditors, rights generally; and (b) no opinion is
expressed as to the enforceability of the indemnity provisions or the
contribution provisions contained in this Agreement;
(iv) the certificates evidencing the outstanding securities of
the Company, the Shares, the Common Stock and the Warrants are in valid
and proper legal form;
(v) to the best of such counsel's knowledge, except as set
forth in the Prospectus, there is not pending or, to the knowledge of
the Company, threatened, any
20
<PAGE> 21
material action, suit, proceeding, inquiry, arbitration or
investigation against the Company or any subsidiary or any of the
officers of directors of the Company or any subsidiary, nor any
material action, suit, proceeding, inquiry, arbitration, or
investigation, which might materially and adversely affect the
condition (financial or otherwise), business prospects, net worth, or
properties of the Company or any subsidiary;
(vi) the execution and delivery of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement and the M/A
Agreement, and the incurrence of the obligations herein and therein set
forth and the consummation of the transactions herein or therein
contemplated, will not result in a violation of, or constitute a
default under (a) the Articles of Incorporation or By-Laws of the
Company and each subsidiary; (b) to the best of such counsel's
knowledge, any material obligations, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement,
lease, joint venture or other agreement or instrument to which the
Company or any subsidiary is a party or by which it or any of its
properties is bound; or (c) to the best of such counsel's knowledge,
any material order, rule, regulation, writ, injunction, or decree of
any government, governmental instrumentality or court, domestic or
foreign;
(vii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Securities by the Company, in connection with the execution,
delivery and performance of this Agreement by the Company or in
connection with the taking of any action contemplated herein, or the
issuance of the Representative's Warrants or the Securities underlying
the Representative's Warrants, other than registrations or
qualifications of the Securities under applicable state or foreign
securities or Blue Sky laws and registration under the Act.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law, upon opinions of counsel
satisfactory to you and counsel to the Underwriters. The opinion of such counsel
to the Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and that the Representative and they are justified
in relying thereon.
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<PAGE> 22
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment thereto
at the time it became effective contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make
statements therein, in light of the circumstances under which they are made, not
misleading (except, in the case of both the Registration Statement and any
amendment thereto and the Prospectus and any supplement thereto, for the
financial statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need express no
opinion).
(f) You and the several Underwriters shall have received on each
Closing Date a certificate dated as of each Closing Date, signed by the Chief
Executive Officer and the Chief Financial officer of the Company and such other
officers of the Company as the Underwriters may request, certifying that:
(i) No Order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities in effect
and no proceedings for such purpose are pending or are, to their
knowledge, threatened by the Commission;
(ii) They do not know of any litigation instituted or, to their
knowledge, threatened against the Company or any subsidiary or any
officer or director of the Company or any subsidiary of a character
required to be disclosed in the Registration Statement which is not
disclosed therein; they do not know of any contracts which are required
to be summarized in the Prospectus which are not so summarized; and
they do not know of any material contracts required to be filed as
exhibits to the Registration Statement which are not so filed;
(iii) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge,
neither the Registration Statement nor the Prospectus nor any amendment
or supplement to either of the foregoing contains an untrue statement
of any material fact or omits to state any material fact required to be
stated therein or necessary to make the statement therein, in light of
the circumstances under which they are made, not misleading; and since
the Effective Date, to the best of their knowledge, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth;
(iv) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been
any material adverse change in the condition of the Company or any
subsidiary, financial or otherwise, or in
22
<PAGE> 23
the results of its operations, except as reflected in or contemplated
by the Registration Statement and the Prospectus and except as so
reflected or contemplated since such date, there has not been any
material transaction entered into by the Company or any subsidiary;
(v) The representations and warranties set forth in this
Agreement are true and correct in all material respects and the Company
has complied with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in the
filing of any federal, state and municipal tax return or the payment of
any federal, state or municipal taxes; they know of no proposed
re-determination or reassessment of taxes, adverse to the Company or
any subsidiary, and the Company and each subsidiary has paid or
provided by adequate reserves for all known tax liabilities;
(vii) They know of no material obligation or liability of the
Company or any subsidiary, contingent or otherwise, not disclosed in
the Registration Statement and Prospectus;
(viii) This Agreement, the Representative's Warrant Agreement, the
Warrant Agreement, and the M/A Agreement, the consummation of the
transactions herein of therein contemplated, and the fulfillment of the
terms hereof or thereof, will not result in a breach by the Company of
any terms of, or constitute a default under, its Articles of
Incorporation or By-Laws, any indenture, mortgage, lease, deed or
trust, bank loan or credit agreement or any other material agreement or
undertaking of the Company or any subsidiary including, by way of
specification but not by way of limitation, any agreement or instrument
to which the Company or any subsidiary is now a party or pursuant to
which the Company or any subsidiary has acquired any right and/or
obligations by succession or otherwise;
(ix) The financial statements and schedules filed with and as
part of the Registration Statement present fairly the financial
position of the Company as of the dates thereof all in conformity with
generally accepted principles of accounting applied on a consistent
basis throughout the periods involved. Since the respective dates of
such financial statements, there have been no material adverse change
in the condition or general affairs of the Company, financial or
otherwise, other than as referred to in the Prospectus;
(x) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as may
otherwise be indicated therein, neither the Company nor any subsidiary
has, prior to the Closing Date, either (i) issued any securities or
incurred any material liability or obligation, direct or contingent,
for borrowed money, or (ii) entered into any material transaction other
than in the ordinary course of business. The Company has not declared,
paid or made any dividend or distribution of any kind on its capital
stock;
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<PAGE> 24
(xi) Based upon written representation from the officers and
directors of the Company and each subsidiary they have reviewed the
sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained
therein is true and accurate; and
(xii) Based upon written representation from the officers and
directors of the Company and each subsidiary except as disclosed in the
Prospectus, during the past five years, they have not been:
(1) Subject of a petition under the Federal bankruptcy
laws or any state insolvency law filed by or against them, or by a
receiver, fiscal agent or similar officer appointed by a court for
their business or property, or any partnership in which either or
them was a general partner at or within two years before the time
of such filing, or any corporation or business association of
which either of them was an executive officer at or within two
years before the time of such filing;
(2) Convicted in a criminal proceeding or a named subject
of a pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
either of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity
pool operator, floor broker, leverage transaction merchant,
any other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter, broker
or dealer in securities, or as an affiliated person,
director or employee of any investment company, bank,
savings and loan association or insurance company, or
engaging in or continuing any conduct or practice in
connection with any such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in
connection with any violation of Federal or State
securities law or Federal Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or
State authority barring,
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<PAGE> 25
suspending or otherwise limiting for more than sixty (60) days
either of their right to engage in any activity described in
paragraph (3) (i) above, or be associated with persons engaged
in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to have
violated any Federal or State securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have
violated any Federal Commodities Law, and the judgment in such
civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(g) The Underwriters shall have received from CORBIN & WERTZ,
independent auditors to the Company, certificates or letters, one dated and
delivered on the Effective Date and one dated and delivered on the Closing Date,
in form and substance satisfactory to the Underwriters, stating, that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
(ii) the financial statements and the schedules included in the
Registration Statement and the Prospectus were examined by them and, in
their opinion, comply as to form in all material respects with the
applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted
auditing standards) , including a reading of the latest available
unaudited interim financial statements or other financial information
of the Company (with an indication of the date of the latest available
unaudited interim financial statements), inquiries of officers of the
Company who have responsibility for financial and accounting matters,
review of minutes of all meetings of the shareholders and the Board of
Directors of the Company and other specified inquiries and procedures,
nothing has come to their attention as a result of the foregoing
inquiries and procedures that causes them to believe that:
(a) during the period from (and including) the date of the
financial statements in the Registration Statement and the
Prospectus to a specified date not more than five days prior to
the date of such letters, there has been any change in the Common
Stock, long-term debt or other securities of the Company (except
as specifically contemplated in the Registration Statement and
Prospectus) or any material decreases in net current assets, net
assets, shareholder's equity, working
25
<PAGE> 26
capital or in any other item appearing in the Company's financial
statements as to which the Underwriters may request advice, in
each case as compared with amounts shown in the balance sheet as
of the date of the financial statement in the Prospectus, except
in each case for changes, increases or decreases which the
Prospectus discloses have occurred or will occur;
(b) during the period from (and including) the date of the
financial statements in the Registration Statement and the
Prospectus to such specified date there was any material decrease
in revenues or in the total or per share amounts of income or loss
before extraordinary items or net income or loss, or any other
material change in such other items appearing in the Company's
financial statements as to which the Underwriters may request
advice, in each case as compared with the fiscal period ended as
of the date of the financial statement in the Prospectus, except
in each case for increases, changes or decreases which the
Prospectus discloses have occurred or will occur;
(c) the unaudited interim financial statements of the
Company appearing in the Registration Statement and the Prospectus
(if any) do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the Rules
and Regulations or are not fairly presented in conformity with
generally accepted accounting principles and practices on a basis
substantially consistent with the audited financial statements
included in the Registration Statements or the Prospectus.
(iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letter and found them to be in agreement; and
(v) they have not during the immediately preceding five (5)
year period brought to the attention of the Company's management any
reportable condition related to the Company's internal accounting
procedures, weaknesses and/or controls.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriters. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the several
Underwriters, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure of
the Company to comply with the conditions of the obligations to the several
Underwriters hereunder.
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<PAGE> 27
(h) Upon exercise of the Option provided for in Section 2(b) hereof,
the obligation of the several Underwriters (or, at its option, the
Representative, individually) to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
satisfaction of counsel to the Underwriters.
(ii) At the Option Closing Date, there shall have been delivered
to you the signed opinion from Hecht & Steckman, P.C., counsel for the
Company, dated as of the Option Closing Date, in form and substance
satisfactory to counsel to the Underwriters, which opinion shall be
substantially the same in scope and substance as the opinion furnished
to you at the Closing Date pursuant to Section 4 (e) hereof, except
that such opinion, where appropriate, shall cover the Option
Securities.
(iii) At the Option Closing Date, there shall have been delivered
to you a certificate of the Chief Executive Officer and Chief Financial
Officer of the Company, dated the Option Closing Date, in form and
substance satisfactory to counsel to the Underwriters, substantially
the same in scope and substance as the certificate furnished to you at
the Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been delivered
to you a letter in form and substance satisfactory to you from CORBIN &
WERTZ, independent auditors to the Company, dated the Option Closing
Date and addressed to the several Underwriters confirming the
information in their letter referred to in Section 4(g) hereof and
stating that nothing has come to their attention during the period from
the ending date of their review referred to in said letter to a date
not more than five business days prior to the Option Closing Date,
which would require any change in said letter if it were required to be
dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be satisfactory in form and substance to the Underwriters, and
the Underwriters and counsel to the Underwriters shall have been
furnished with all such documents, certificates, and opinions as you
may request in connection with this transaction in order to evidence
the accuracy and completeness of any of the representations, warranties
or statements of the Company or its compliance with any of the
covenants or conditions contained herein.
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<PAGE> 28
(i) No action shall have been taken by the Commission or the NASD, the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Common Stock and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the several Underwriters
or the Company, shall be contemplated by the Commission or the NASD. The Company
represents that at the date hereof it has no knowledge that any such action is
in fact contemplated by the Commission or the NASD. The Company shall advise the
Representative of any NASD affiliations of any of its officers, directors, or
stockholders or their affiliates in accordance with paragraph 1(y) of this
Agreement.
(j) At the Effective Date, you shall have received from counsel to the
Company, dated as of the Effective Date, in form and substance satisfactory to
counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Shares and Warrants may be traded in
non-issuer transactions under the Blue Sky laws of the fifty (50) states after
the Effective Date, in accordance with paragraph 3(ab) of this Agreement.
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the several Underwriters, and such counsel shall be furnished with such
documents, certificates and opinions as they may reasonably request to enable
them to pass upon the matters referred to in this sub-paragraph.
(l) Prior to the Effective Date, the Representative shall have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Representative, as described in the Registration Statement.
(m) If any of the conditions herein provided for in this Section shall
not have been fulfilled as of the date indicated, this Agreement and all
obligations of the several Underwriters under this Agreement may be canceled at,
or at any time prior to, the Closing Date and/or the Option Closing Date by the
Representative and/or the Underwriters notifying the Company of such
cancellation in writing or by telegram at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the several
Underwriters to the Company.
5. Conditions of the Obligations of the Company. The obligation of
the Company to sell and deliver the Securities is subject to the following
conditions:
(i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or
on such later time or date as the Company and the Representative may
agree in writing; and
(ii) At the Closing Date and the Option Closing Date, no stop
orders suspending the effectiveness of the Registration Statement shall
have been issued under the Act or any proceedings therefore initiated
or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been
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<PAGE> 29
fulfilled on the Closing Date but are not fulfilled after the Closing Date and
prior to the Option Closing Date, then only the obligation of the Company to
sell and deliver the Securities on exercise of the Option provided for in
Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds harmless
each Underwriter and each person, if any, who controls the Underwriter within
the meaning of the Act against any losses, claims, damages or liabilities, joint
or several (which shall, for all purposes of this Agreement, include but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, (ii) any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such cases to the extent, but only to the
extent, that any such losses, claim, damages or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. Notwithstanding the foregoing, the Company shall have no
liability under this section if such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus and the Prospectus is not
delivered to the person or persons alleging the liability upon which
indemnification is being sought. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter, severally, but not jointly, indemnifies and
holds harmless the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of the Act, against any losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees) to which the
Company or any such director, nominee, officer or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements
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<PAGE> 30
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statements or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by you or by any
Underwriter through you specifically for use in the preparation thereof.
Notwithstanding the foregoing, the Underwriters shall have no liability under
this Section if such untrue statement or omission made in a Preliminary
Prospectus is cured in the Prospectus and the Prospectus is not delivered to the
person or persons alleging the liability upon which indemnification is being
sought through no fault of the Underwriter. This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section . In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the reasonable judgment of
the Representative, it is advisable for the Representative or such Underwriters
or controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Underwriter or such controlling person, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all such Underwriters and controlling persons, which firm shall be
designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnifying party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnifying party.
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<PAGE> 31
7. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) each Underwriter makes claim
for indemnification pursuant to Section 6 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 6 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys, fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per Share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company, or the Underwriter and the parties, relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters and their
controlling persons in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section; and
(b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of
Securities purchased by such Underwriter to the number of Securities purchased
by all contributing Underwriters) of the portion of such losses, claims, damages
or liabilities for which the Underwriters are responsible. No person ultimately
determined to be guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
is nor ultimately determined to be guilty of such fraudulent misrepresentation.
As used in this paragraph, the term "Underwriter" includes any officer,
director, or other person who controls the Underwriter within the meaning of
Section 15 of the Act, and the word "Company" includes any officer, director, or
person who controls the Company within the meaning of Section 15 of the Act. If
the full amount of the contribution specified in this paragraph is not permitted
by law, then the Underwriter and each person who controls the Underwriter shall
be entitled to contribution from the Company, its officers, directors and
controlling persons to the full extent permitted by law. This foregoing
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriter. No contribution shall be requested with regard to the settlement of
any matter from any party who did not consent to the
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<PAGE> 32
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
8. Costs and Expenses. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriters is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
counsel to the Company and of the Company's accountants; the costs and expenses
incident to the preparation, printing, filing and distribution under the Act of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented; the fee of the NASD in connection with the filing
required by the NASD relating to the offering of the Securities contemplated
hereby; all state filing fees, expenses and disbursements and legal fees of
counsel to the Company who shall serve as Blue Sky counsel to the Company in
connection with the filing of applications to register the Securities under the
state securities or blue sky laws; the cost of printing and furnishing to the
several Underwriters copies of the Registration Statement, each Preliminary
Prospectus, the Prospectus, this Agreement, the Selected Dealers Agreement, the
Agreement Among Underwriters, Underwriters Questionnaire, Underwriters Power of
Attorney and the Blue Sky Memorandum; the cost of printing the certificates
evidencing the securities comprising the Securities; the cost of preparing and
delivering to the Underwriters and its counsel bound volumes containing copies
of all documents and appropriate correspondence filed with or received from the
Commission and the NASD and all closing documents; and the fees and
disbursements of the transfer agent for the Company's securities. The Company
shall pay any and all taxes (including any original issue, transfer, franchise,
capital stock or other tax imposed by any jurisdiction) on sales to the
Underwriters hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus. The Company shall also engage the Company's counsel
to provide the Representative with a written Secondary Market Trading Opinion in
accordance with paragraphs 3(ab) and 4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Representative a non-accountable expense allowance equal
to three percent (3%) of the gross proceeds received from the sale of the
Securities, of which an advance of $10,000 has been paid to date. In the event
the over allotment option is exercised, the Company shall pay to the
Representative at the Option Closing Date an additional amount equal to three
percent (3%) of the gross proceeds received upon exercise of the over allotment
option.
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(c) Other than as disclosed in the Registration Statement, no person
is entitled either directly or indirectly to compensation from the Company, from
the Representative or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Representative and the other Underwriters against any losses,
claims, damages or liabilities, joint or several which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys, fees, to which the Representative or such other
Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the.
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Substitution of Underwriters. If any of the Underwriters shall for
any reason not permitted hereunder cancel their obligations to purchase the
Securities hereunder, or shall fail to take up and pay for the number of
Securities set forth opposite their respective names in Schedule A hereto upon
tender of such Securities in accordance with the terms hereof, then:
(a) If the aggregate number of Securities which such Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of Securities, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Securities which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed
number of Securities with respect to which such default or defaults occurs is
more than ten percent (10%) of the total number of Securities, the remaining
Underwriters shall have the right to take up and pay for (in such proportion as
may be agreed upon among them) the Securities which the defaulting Underwriter
or Underwriters agreed but failed to purchase. If such remaining Underwriters do
not, at the Closing Date, take up and pay for the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the time
for delivery of the Securities shall be extended to the next business day to
allow the several Underwriters the privilege of substituting within twenty-four
hours (including non-business hours) another Underwriter or Underwriters
satisfactory to the Company. If no such Underwriter or Underwriters shall have
been substituted as aforesaid, within such twenty-four period, the time of
delivery of the Securities may, at the option of the Company, be again extended
to the next following business day, if necessary, to allow the Company the
privilege of finding within twenty-four hours (including non-business hours)
another Underwriter or Underwriters to purchase the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the Securities of the defaulting Underwriter or Underwriters as provided
in this Section, (i) the Company or the Representative shall have the right to
postpone the time of delivery for a period of not more than seven (7) business
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary; and (ii) the respective numbers of
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<PAGE> 34
Securities to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken at the basis of the underwriting obligation for all
purposes of this Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Securities agreed
to be purchased by the defaulting Underwriters or substitute another Underwriter
or Underwriters as aforesaid, and the Company shall not find or shall not elect
to seek another Underwriter or Underwriters for such Securities as aforesaid,
then this Agreement shall terminate.
If, following exercise of the Option provided in Section 2(b) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Securities at the Option Closing
Date, or shall fail to take up and pay for the number of Option Securities,
which they become obligated to purchase at the Option Closing Date upon tender
of such Option Securities in accordance with the terms hereof, then the
remaining Underwriters or substituted Underwriters may take up and pay for the
Option Securities of the defaulting Underwriters in the manner provided in
Section 9(b) hereof. If the remaining Underwriters or substituted Underwriters
shall not take up and pay for all Option Securities, the Underwriters shall be
entitled to purchase the number of Option Securities for which there is no
default or, at their election, the option shall terminate, the exercise thereof
shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. Effective Date. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the effective
date of the Registration Statement, or at such earlier time after the effective
date of the Registration Statement as you in your discretion shall first
commence the public offering by the Underwriters of any of the Securities. The
time of the public offering shall mean the time after the effectiveness of the
Registration Statement when the Securities are first generally offered by you to
the other Underwriters and Selected Dealers. This Agreement may be terminated by
you at any time before it becomes effective as provided above, except that
Sections 3(c), 6, 7, 8, 13, 14, 15, 16, 17 and 18 shall remain in effect
notwithstanding such termination.
11. Termination. (a) This Agreement, except for Sections 3(c), 6, 7,
8, 13, 14, 15 i 16 f 17, and 18 hereof, may be terminated at any time prior to
the Closing Date, and the Option referred to in Section 2(b) hereof, if
exercised, may be canceled at any time prior to the Option Closing Date, by you
if in your judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriters for the resale of the Securities agreed to be
purchased hereunder by reason of: (i) the Company having sustained a material
adverse loss, whether or not insured, by reason of fire, earthquake, flood,
accident or other calamity, or from any labor dispute or court or government
action, order or decree; (ii) trading in securities on the New
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<PAGE> 35
York Stock Exchange or the American Stock Exchange having been suspended or
limited; (iii) material governmental restrictions having been imposed on trading
in securities generally (not in force and effect on the date hereof); (iv) a
banking moratorium having been declared by Federal or New York or Florida state
authorities; (v) an outbreak of major international hostilities or other
national or international calamity having occurred; (vi) the passage by the
Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
the Representative to have a material adverse impact on the business, financial
condition or financial statements of the Company or the market for the
securities offered hereby; (vii) any material adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement; (viii) any material adverse change having occurred,
since the respective dates as of which information is given in the Registration
Statement and Prospectus, in the earnings, business prospects or general
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business; (ix) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business, or a
notification having been received by the Company of the threat of any such
proceeding or action, which could, in the reasonable judgment of the
Representative, materially adversely affect the Company; (x) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
or (xi) the Company shall not have complied in all material respects with any
term, condition or provisions on their part to be performed, complied with or
fulfilled (including but not limited to those set forth in this Agreement)
within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
12. Representative's Warrant Agreement. At the Closing Date, the
Company will issue to the Representative and/or persons related to the
Representative, for an aggregate purchase price of $100, and upon the terms and
conditions set forth in the form of Representative's Warrant Agreement annexed
as an exhibit to the Registration Statement, Representative Warrants to purchase
up to an aggregate of 150,000 Shares and 150,000 Warrants, in such denominations
as the Representative shall designate. In the event of conflict in the terms of
this Agreement and the Representative's Warrant Agreement, the language of the
form of Representative's Warrant Agreement shall control.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and the
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriters, the Company or any of its officers or directors or any controlling
person and will survive delivery of and payment for the Securities and the
termination of this Agreement.
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<PAGE> 36
14. Notice. All communications hereunder will be in writing and,
except as otherwise expressly provided herein, will be mailed, delivered or
telegraphed and confirmed:
If to the Underwriters: Douglas Nichols, President
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Copy to: Richard F. Dahlson
Jackson & Walker, LLP
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
If to the Company: Lyle Maul, President
BEVERAGE WORKS, INC.
9800 South Sepulveda Blvd., Suite 720
Los Angeles, CA 90045
Copy to: Charles Hecht
Hecht & Steckman, P.C.
60 East 42nd Street, Suite 5101
New York, NY 10165-5101
15. Parties in Interest. This Agreement herein set forth is made
solely for the benefit of the several Underwriters, the Company and, to the
extent expressed, any person controlling the Company or of the Underwriters, and
directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of the Securities, as
such purchaser, from the several Underwriters. All of the obligations of the
Underwriters hereunder are several and not joint.
16. Applicable Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Texas applicable to contracts made and
to be performed entirely within the State of Texas. The parties agree that any
action brought by any party against another party in connection with any rights
or obligations arising out of this Agreement shall be instituted properly in a
federal or state court of competent jurisdiction with venue only in the State
District Court of Dallas County, Texas or the United States District Court for
the Northern District of Texas. A party to this Agreement named as a Defendant
in any action brought in connection with this Agreement in any court outside of
the above named designated county or district shall have the right to have the
venue of said action changed to the above designated county or district or, if
necessary, have the case dismissed, requiring the other party to refile such
action in an appropriate court in the above designated county or federal
district.
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<PAGE> 37
17. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counter-parts shall together constitute but one and the
same instrument.
18. Entire Agreement. This Agreement and the agreements referred to
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreement, understanding, negotiations and discussions,
whether written or oral, of the parties hereto.
19. Representative as Underwriter. In the event the Representative
acts as the sole Underwriter ("Underwriter") in connection with the underwriting
of the securities being offered pursuant to the Registration Statement, all
references to the Representative in this Agreement shall be replaced by
reference to the "Underwriter", and (i) any consents required to be obtained
from the Representative shall be required to be obtained solely from the
Underwriter; (ii) all compensation to be received by the Representative shall
instead be received by the Underwriter; and (iii) the provisions of section nine
(9) of this Agreement shall not apply.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
BEVERAGE WORKS, INC.
BY:___________________________________________
Lyle Maul, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
FIRST LONDON SECURITIES CORPORATION
BY:___________________________________________
Douglas Nichols, President
For itself and as Representative of the
several Underwriters
37
<PAGE> 38
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
<TABLE>
<CAPTION>
UNDERWRITER SHARES
- ----------- ------
<S> <C>
First London Securities Corporation.............................
---------
1,500,000
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITER WARRANTS
- ----------- --------
<S> <C>
First London Securities Corporation.............................
1,500,000
---------
</TABLE>
38
<PAGE> 1
Exhibit 1.2
BEVERAGE WORKS, INC.
1,500,000 Shares of Common Stock and
1,500,000 Common Stock Purchase Warrants
AGREEMENT AMONG UNDERWRITERS
Dallas, Texas
___________, 1997
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Dear Sirs:
1. Underwriting Agreement. We understand that BEVERAGE WORKS, INC. (the
"Company"), proposes to enter into an underwriting agreement attached hereto as
Exhibit A (the "Underwriting Agreement") with First London Securities
Corporation (the "Representative") and the other underwriters named in Schedule
A to the Underwriting Agreement (the "Underwriters"), acting severally and not
jointly, with respect to the purchase of an aggregate of 1,500,000 Shares of
Common Stock (the "Shares") and 1,500,000 Redeemable Class A Common Stock
Purchase Warrants (the "Warrants"). The Shares and Warrants are hereinafter also
referred to collectively as the "Securities". The Securities and the terms under
which they are to be offered for sale by the several Underwriters are more
particularly described in the Registration Statement, Underwriting Agreement and
Prospectus.
Unless the context indicates otherwise, the term Securities shall also
include an additional 225,000 Shares and an additional 225,000 Warrants (the
"Option Securities"), all or any part of which the Representative and/or the
Underwriters are entitled to purchase from the Company upon exercise of the
Representative's over-allotment option referred to in Section 2(b) of the
Underwriting Agreement.
This is to confirm that we agree to purchase, in accordance with the
terms hereof and of the Underwriting Agreement, the number of Securities set
forth opposite our name in Schedule A, plus such number of Securities, if any,
which we may become obligated to purchase pursuant to Section 2(b) of the
Underwriting Agreement and Section 4 hereof ("our Securities"). The ratio which
the number of our Securities bears to the total number of Securities purchased
pursuant to the Underwriting Agreement is herein called "our underwriting
proportion".
2. Registration Statement and Prospectus. We have heretofore received
and examined a copy of the registration statement, as amended to the date
hereof, and the related
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<PAGE> 2
prospectus in respect of the Securities, as filed with the Securities and
Exchange Commission. The registration statement as amended at the time it
becomes effective, including financial statements and exhibits, is hereafter
referred to as the "Registration Statement", and the prospectus in the form
first filed with the Securities and Exchange Commission pursuant to its Rule
424(b) after the Registration Statement becomes effective is referred to as the
"Prospectus".
We confirm that the information furnished to you by us for use in the
Registration Statement and in the Prospectus is correct and is not misleading
insofar as it relates to us. We consent to being named as an Underwriter in such
Registration Statement and we are willing to accept our responsibilities under
the Securities Act of 1933 (the "Act"), as a result thereof. We confirm that we
have authorized you to advise the Company on our behalf (a) as to the statements
to be included in any preliminary prospectus and in the Prospectus under the
heading "Underwriting" insofar as they relate to us and (b) that there is no
other information about us required to be stated in the Registration Statement
or Prospectus. We further confirm that, upon request by you as Representative,
we have furnished a copy of any amended preliminary prospectus to each person to
whom we have furnished a copy of any previous prospectus, and we confirm that we
have delivered, and we agree that we will deliver, all preliminary and final
Prospectuses required for compliance with the provisions of Rule 15c2-8 under
the Securities Exchange Act of 1934 (the "1934 Act").
3. Authority of the Representative. We authorize you, acting as
Representative of the Underwriters, to execute and deliver on our behalf, the
Underwriting Agreement, and to agree to any variation of its terms (except as to
the purchase price and the number of our Securities) which, in your judgment, is
not a variation which materially and adversely affects our rights and
obligations. We also authorize you, in your discretion and on our behalf, with
approval of counsel for the Underwriters, to approve the Prospectus and to
approve of, or object to, any further amendments to the Registration Statement,
or amendments or supplements to the Prospectus. We further authorize you to
exercise all the authority and discretion vested in the Underwriters and in you
by the provisions of the Underwriting Agreement and to take all such action as
you in your discretion may believe desirable to carry out the provisions of the
Underwriting Agreement and of this Agreement including the extension of any date
specified in the Underwriting Agreement, the exercise of any right of
cancellation or termination and to determine all matters relating to the public
advertisement of the Securities; provided, however, that, except with the
consent of Underwriters who shall have agreed to purchase in the aggregate 50%
or more of the Securities, no extension of the time by which the Registration
Statement is to become effective as provided in the Underwriting Agreement shall
be for a period in excess of two business days. We authorize you to take such
action as in your discretion may be necessary or desirable to effect the sale
and distribution of the Securities, including, without limiting the generality
of the foregoing, the right to determine the terms of any proposed offering, the
concession to Selected Dealers (as hereinafter defined) and the reallowance, if
any, to other dealers and the right to make the judgments provided for in the
Underwriting Agreement.
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<PAGE> 3
4. Authority of Representative as to Defaulting Underwriters. Until the
termination of this Agreement, we authorize you to arrange for the purchase by
other persons, who may include you or any of the other Underwriters, of any
Securities not taken up by any defaulting Underwriter. In the event that such
arrangements are made, the respective amounts of the Securities to be purchased
by the non-defaulting Underwriters and by such other person or persons, if any,
shall be taken as the basis for all rights and obligations hereunder; but this
shall not in any way affect the liability of any defaulting Underwriter to the
other Underwriters for damages resulting from its default, nor shall any such
default relieve any other Underwriter of any of its obligations hereunder or
under the Underwriting Agreement except as herein or therein provided.
In the event of default by one or more Underwriters in respect of their
obligations (a) under the Underwriting Agreement to purchase the Securities
agreed to be purchased by them thereunder, (b) under this Agreement to take up
and pay for any Securities purchased or (c) to deliver any Securities sold or
over-allotted by you for the respective accounts of the Underwriters pursuant to
this Agreement, or to bear their respective share of expenses or liabilities
pursuant to this Agreement, and to the extent that arrangements shall not have
been made by you for any persons to assume the obligations of such defaulting
Underwriter or Underwriters, we agree to assume our proportionate share of the
obligations of each defaulting Underwriter (subject in the case of clause (a)
above to the limitations contained in the Underwriting Agreement) without
relieving any such defaulting Underwriter of its liability therefor.
5. Offering of Securities. We understand that you will notify us when
the public offering of the Securities is to be made and of the initial public
offering price. We hereby authorize you to fix the concession to dealers and the
reallowance to dealers and in your sole discretion after the public offering to
change the public offering price, the concession and the reallowance. The
offering price at any time in effect is hereinafter referred to as the "public
offering price". We agree that we will not offer any of the Securities for sale
at a price other than the public offering price or allow any discount therefrom
except as herein otherwise specifically provided.
We agree that public advertisement of the offering shall be made by you
on behalf of the Underwriters on such date as you shall determine. We have not
advertised the offering and will not do so until after such date. We understand
that any advertisement we may then make will be on our own responsibility and at
our own expense.
We authorize you to reserve and offer for sale to institutions and
other retail purchasers and to dealers (the "Selected Dealers") to be selected
by you (such dealers may include any Underwriter ) such of our Securities as you
in your sole discretion shall determine. Any such offering to Selected Dealers
may be made pursuant to a Selling Agreement, in the form attached hereto as
Exhibits, or otherwise, as you may determine. The form of Selling Agreement
attached hereto as Exhibit B is satisfactory to us.
We authorize you to make purchases and sales of the Securities from or
to any Selected
3
<PAGE> 4
Dealers or Underwriters at the public offering price less all or any part of the
concession and, with your consent, any Underwriter may make purchases or sales
of the Securities from or to any Selected Dealer or Underwriter at the public
offering price less all or any of the concession.
We understand that you will notify each Underwriter promptly upon the
release of the Securities for public offering as to the amount of Securities
reserved for sale to Selected Dealers and retail purchasers. Securities not so
reserved may be sold by each Underwriter for its own account, except that from
time to time you may, in your discretion, add to the Securities reserved for
sale to Selected Dealers and retail Purchasers any an Underwriter remaining
unsold. We agree to notify you from time to time upon request of the amount of
our Securities retained by us remaining unsold. If all the Securities reserved
for offering to Selected Dealers and retail Purchasers are not promptly sold by
you, any Underwriter may from time to time, with your consent, obtain a release
of all or any Securities of such Underwriter then remaining unsold and
Securities so released shall thereafter be deemed not to have been reserved.
Securities of any Underwriter so reserved which remain unsold, or, if sold, have
not been paid for at any time prior to the termination of this Agreement may, in
your discretion or upon the request of such Underwriter, be delivered to such
Underwriter for carrying purposes only, but such Securities shall remain subject
to redelivery to you upon demand for disposition by you until this Agreement is
terminated.
We agree that in connection with sales and offers to sell the
Securities, if any, made by us outside the United States or its territories or
possessions, (a) we will furnish to each person to whom any such offer or sale
is made such Prospectus, advertisement or other offering document containing
information relating to the Securities or the Company as may be required under
the laws, of the jurisdiction in which such offer or sale is made and (b) we
will furnish to each person to whom any such offer is made a copy of the then
current Preliminary Prospectus and to each person to whom any such sale is made
a copy of the Prospectus referred to in the Underwriting Agreement (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto). Any Prospectus, advertisement or other offering document
(other than any such preliminary prospectus or Prospectus) furnished by us to
any person in accordance with the preceding sentence and all such additional
offering material, if any, as we may furnish to any person (i) shall comply in
all respects with the laws of the jurisdiction in which it is so furnished, (ii)
shall be prepared and so furnished at our sole risk and expense, and, (iii)
shall not contain information relating to the Securities or the Company which is
inconsistent in any respect with information contained in the then current
preliminary prospectus or in the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) as the
case may be.
We recognize the importance of a broad distribution of the Securities
among bona fide investors and we agree to use our best efforts to obtain such
broad distribution and to that end, to the extent we deem practicable, to give
priority to small orders.
We agree that we will not sell to any account over which we exercised
discretionary authority any of the Securities which we have agreed to purchase
pursuant to the Underwriting Agreement.
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<PAGE> 5
6. Compensation to Representative. We authorize you to charge to our
account, as compensation for your services as Representative in connection with
this offering, including the purchase from the Company of the Securities and the
management the offering, an amount equal to ____ per Share and/or $ ____ per
Warrant in respect to each of our Securities.
7. Payment and Delivery. At or about 9:00 a.m., Eastern Time, on the
Closing Dates (including the first Closing Date and any Option Closing Date, as
defined in the Underwriting Agreement), we agree to deliver to you at your
office by wire transfer to the account of the Representative or by a certified
or official bank check payable in New York Clearing House funds to your order in
an amount equal to the initial public offering price, less the concession to the
Selected Dealers in respect of that portion of our Securities which has been
retained by or released to us for direct sales.
In the event that our funds are not received by you when required, you
are authorized, in your discretion, but shall not be obligated, to make payment
for our account pursuant to the Underwriting Agreement by advancing your own
funds. Any such payment by you shall not relieve us from any of our obligations
hereunder or under the Underwriting Agreement.
We authorize you to hold and deliver against payment any of our
Securities which have been sold or reserved for sale to Selected Dealers or
retail purchasers. Any of our Securities not sold or reserved by you as
aforesaid, will be available for delivery to us at your office as soon as
practicable after such Securities have been delivered to you.
Upon the termination of this Agreement, or prior thereto at your
discretion, you will deliver to us any of our Securities reserved by you for
sale to Selected Dealers or retail purchasers but not sold and paid for against
payment by us of an amount equal to the initial public offering price of such
Securities, less the concession to the Selected Dealers in respect thereof.
8. Authority to Borrow. We authorize you to arrange loans for our
account and to execute and deliver any notes or other instruments in connection
therewith, and to pledge as security therefor all or any part of our Securities,
as you may deem necessary or advisable to carry out the purchase, carrying and
distribution of the Securities, and to advance your own funds, charging current
interest rates.
9. Over-allotment; Stabilization. We authorize you, for the account of
each Underwriter, prior to the termination of this Agreement, and for such
longer period as may be necessary to cover any short position incurred for the
accounts of the several Underwriters pursuant to this Agreement, (a) to
over-allot in arranging for sales of Securities to Selected Dealers and others
and, if necessary, to purchase Securities (whether pursuant to exercise of the
option set forth in Section 2(b) of the Underwriting Agreement or otherwise) at
such prices as you may determine for the purpose of covering such
over-allotments, and (b) for the purpose of stabilizing the market in the
Securities, to make purchases and sales of Securities on the open market or
otherwise, for long or short account, on a when-issued basis or otherwise, at
such
5
<PAGE> 6
prices, in such amounts and in such manner as you may determine provided,
however, that at no time shall our net commitment, either for long or short
account, under this Section exceed 15% of the amount of our Securities. Such
purchases, sales and over-allotments shall be made for the respective accounts
of the several Underwriters as nearly as practicable to their respective
underwriting proportions. We agree to take up on demand at cost any Securities
so purchased for our account and deliver on demand any Securities so sold or
over-allotted for our account. We authorize you to sell for the account of the
Underwriters any Securities purchased pursuant to this Section, upon such terms
as you may deem advisable, and any Underwriter, including yourselves, may
purchase such Securities. You are authorized to charge the respective accounts
of the Underwriters with broker's commissions or dealer's mark-up on purchases
and sales effected by you.
If pursuant to the provisions of the preceding paragraph and prior to
the termination of this Agreement (or prior to such earlier date as you may have
determined) you purchase or contract to purchase for the account of any
Underwriter in the open market or otherwise any Securities which were retained
by, or released to, us for direct sale, or any Securities which may have been
issued in exchange for such Securities, we authorize you either to charge our
account with an amount equal to the concession to Selected Dealers with respect
thereto, which amount shall be credited against the cost of such Securities, or
to require us to repurchase such Securities at a price equal to the total cost
of such purchase, including transfer taxes and broker's commissions or dealer's
markup, if any. In lieu of such action you may, in your discretion, sell for our
account the Securities so purchased and debit or credit our account for the loss
or profit resulting from such sale.
You will notify us promptly if and when you engage in any stabilization
transaction pursuant to this Section or otherwise and will notify us of the date
of termination of stabilization. We agree to file with you any reports required
of us including "Not as Manager" reports pursuant to Rule 17a-2 under the 1934
Act not later than five business days following the date u-con which
stabilization was terminated, and we authorize you to file on our behalf with
the Securities and Exchange Commission any reports required by such Rule.
10. Limitation on Transactions by Underwriters. Except as permitted by
you, we will not during the term of this Agreement bid for, purchase, sell or
attempt to induce others to purchase or sell, directly or indirectly, any
Securities other than (i) as provided in the Underwriting Agreement and in this
agreement, (ii) purchases from or sales to dealers of the Securities at the
public offering price less all or any part of the reallowance to dealers or
(iii) purchases or sales by us of any Securities as broker or unsolicited orders
for the account of others.
We represent that we have not participated in any transaction
prohibited by the preceding paragraph and that we have at all times complied
with the provisions of Rule 10b-6 and Rule 10b-6A under the 1934 Act applicable
to this offering.
We may, with your prior consent, make purchases of the Securities from
and sales to other Underwriters at the public offering price, less all or any
part of the concession to dealers.
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<PAGE> 7
11. Allocation and Payment of Expenses. We understand that all expenses
of a general nature incurred by you, as Representative, in connection with the
purchase, carrying, marketing and sale of the Securities shall be borne by the
Underwriters in accordance with their respective share of the underwriting
obligations. We authorize you to charge our account with our share, based on our
underwriting obligation, of the aforesaid expenses including all transfer taxes
paid of our behalf on sales or transfers made for our account.
As promptly as possible after the termination of this Agreement, the
accounts arising pursuant hereto shall be settled and paid. Your ascertainment
of all expenses and the apportionment thereof shall be conclusive.
Notwithstanding any settlement or settlements hereunder, we will remain liable
for our share of all expenses and liabilities which may be incurred by or the
accounts of the Underwriters, including any expenses and liabilities referred to
in Sections 13 and 14 hereof, which shall be determined as provided in this
Section.
12. Termination. Unless this Agreement or any provision hereof is
earlier terminated by you and except for provisions herein that contemplate
obligations surviving the termination hereof as noted in the next paragraph,
this Agreement will terminate at the close of business on the 45th day after the
date hereof, but in your discretion may be extended by you for a further period
not exceeding 30 days with the consent of the Underwriters who have agreed to
purchase in the aggregate 50% or more of the Securities. No termination or
suspension pursuant to this Section shall affect your authority to cover any
short position under this Agreement.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder shall cease, except (i) the mutual obligations to settle
accounts under Section 11, our obligation to pay any transfer taxes which may be
assessed and paid on account of any sales thereunder for our account, (ii) our
obligation with respect to purchases which may be made by you from time to time
thereafter to cover any short position incurred under this Agreement, (iv) the
provisions of Sections 13 and 14 and (v) the obligations of any defaulting
Underwriter, all of which shall continue until fully discharged.
13. Liability of Representative and Underwriters. Neither as
Representative nor individually shall you be under any liability whatsoever to
any other Underwriter nor shall you be under any liability in respect of any
matters connected herewith or action taken by you pursuant hereto, except for
the obligations expressly assumed by you in this Agreement. You shall be under
no liability for or in respect of the value for the Securities or the of the
form thereof, the Registration Statement, the Prospectus, or agreements or other
instruments executed by the Company or others; or for or in respect of the
delivery of the Securities; or for the performance by the Company or others of
any agreement on its or their part.
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<PAGE> 8
Nothing herein contained shall constitute the several Underwriters an
association, or partners with us or with each other, or, except as herein
expressly provided, render any Underwriter liable for the obligation of any
other Underwriter. The rights, obligations and liabilities of each of the
Underwriters are several, in accordance with their respective obligations, and
not joint. Notwithstanding any settlement of accounts under this Agreement, we
agree to pay our underwriting proportion of the amount of any claim demand or
liability which may be asserted against and discharged by the Underwriters or
any of them, based on the claim that the Underwriters constitute an association,
unincorporated business or other entity, and also to pay our underwriting
proportion of expenses approved by you incurred by the Underwriters, or any of
them, in contesting any such claims, demands or liabilities. If the Underwriters
shall be deemed to constitute a partnership for income tax purposes, it is the
intent of each Underwriter to be excluded from the application of Subchapter K,
Chapter 1, Subtitle A of the Internal Revenue Code of 1954, as amended. Each
Underwriter elects to be so excluded and agrees not to take any position
inconsistent with such election. Each Underwriter authorizes you, in your
discretion, to execute and file on behalf of the Underwriters such evidence of
election as may be required by the Internal Revenue Service.
14. Indemnification and Future Claims.
(a) We agree to indemnify and hold harmless you and each other
Underwriter, and each person, if any, who controls you and such other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, and
to reimburse their expenses, to the extent and upon the terms that we agree to
indemnify and hold harmless the Company and to reimburse expenses as set forth
in the Underwriting Agreement. Our indemnity agreement set forth in this Section
remain in full force and effect regardless of any investigation made by or on
behalf of such other Underwriter or controlling person and shall survive the
delivery of and payment for the Securities and the termination of this
Agreement.
(b) In the event that at any time any claim or claims shall be asserted
against you, as Representative, or otherwise involving the Underwriters
generally, relating to the Registration Statement or any Preliminary Prospectus
or the Prospectus, as such may be from time to time amended or supplemented, the
public offering of the Securities or any of the transactions contemplated by
this Agreement, we authorize you to take such other action as you shall deem
necessary or desirable under the circumstances, including settlement of any such
claim or claims if such course of action shall be recommended by counsel
retained by you. We agree to pay to you on request, our underwriting proportion
of all expenses incurred by you (including, but not limited to, disbursements
and fees of counsel so retained) in investigating and defending against such
claim or claims and cur underwriting proportion of any liability incurred by you
in respect of such claim or claims, whether such liability shall be the result
of a judgment or as a result of any such settlement.
15. Title to Securities. The Securities purchased by, or on behalf of,
the respective Underwriters shall remain the property of such Underwriters until
sold, and title to any such Securities shall not in any event pass to the
Representative by virtue of any of the provisions of this Agreement.
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<PAGE> 9
16. Blue Sky Matters. It is understood that you assume no
responsibility with respect to the right of any Underwriter or other person to
offer or to sell Securities in any jurisdiction, not withstanding any
information which you may furnish as to the jurisdictions under the securities
laws of which it is believed the Securities may be sold.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Texas.
18. Capital Requirements. We confirm that the incurrence by us of our
obligation under this Agreement and under the Underwriting Agreement will not
place us in violation of the net capital requirements of Rule 15c3-1 under the
1934 Act or of any applicable rules relating to capital requirements of any
securities exchange to which we are subject.
19. Miscellaneous. Any notice from you to us shall be deemed to have
been duly given if telefaxed, telephoned or telegraphed, and confirmed by mail
to us at the address set forth in the Underwriters Questionnaire furnished by us
to you. Any notice from us to you shall be deemed to have been duly given if
telefaxed or telegraphed, and confirmed by mail to you at 2600 State Street,
Dallas, Texas 75204.
We understand that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD") We hereby confirm that we are
actually engaged in the investment banking or securities business and are either
(i) a member in good standing of the NASD or (ii) a dealer with its principal
place of business located outside the United States, its territories and its
possession and not registered as a broker or dealer under the 1934 Act who
agrees not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein (except
that we may participate in sales to Selected Dealers and others under Section 5
of this Agreement). We hereby agree that if we are members of the NASD, we will
comply with all of the provisions of the NASD Conduct Rules. If we are a foreign
dealer, we agree to comply with Rule 2740 of the NASD Conduct Rules. If we are a
foreign dealer and not a member of the NASD, we agree to comply with the NASD's
interpretation with respect to free-riding and withholding, as though we were a
member of the NASD, with the provisions of Rules 2730 and 2750 of the NASD
Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules as that
applies to a non-member foreign dealer. In connection with sales and offers to
sell Securities made by us outside the United States, its territories and
possessions (i) we will either furnish to each person to whom any such sale or
offer is made a copy of the then current Preliminary Prospectus or the
Prospectus, as the case may be, or inform such person that such Preliminary
Prospectus or Prospectus will be available upon request, and (ii) we will
furnish to each person to whom any such sale or offer is made such Prospectus,
advertisement or other offering document containing information relating to the
Securities or the Company as may be required under the law of the jurisdiction
in which such sale or offer is made. Any Prospectus, advertisement or other
offering document furnished by us to any person in accordance with the preceding
sentence and any such additional offering material as we may furnish to any
person (i) shall comply in all respects with the law of the jurisdiction in
which it is so furnished, (ii) shall be prepared and so furnished at our sole
risk and
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<PAGE> 10
expenses and (iii) shall not contain information relating to the Securities or
the Company which is inconsistent in any respect with the information contained
in the then current preliminary Prospectus or in the Prospectus, as the case may
be.
We understand that, in consideration of your services in connection
with the public offering of the Securities, the Company has agreed with you
individually, and not as Representative of the Underwriters (a) to sell to you
the Representative's Warrants referred to in the Underwriting Agreement for the
sum of $100; (b) to pay to you a non-accountable expense allowance referred to
in the Underwriting Agreement; (c) to pay you a financial advisory fee referred
to in the Underwriting Agreement; and (d) to enter into the Merger and
Acquisition Agreement (the "M/A Agreement") referred to in the Underwriting
Agreement. In addition, you may, at your sole discretion, elect to exercise the
over-allotment option individually. We confirm to you that we shall make no
claim to the Representative's Warrants (or any offering of the Company's
securities related thereto, or any right to participate in any capacity in any
offering resulting therefrom), any rights related thereto, the Company's
securities underlying the Representative's Warrants, the non-accountable expense
allowance, the financial advisory fee, or, to the over-allotment option to the
extent you elect to exercise such option individually, or the M/A Agreement. You
confirm to us that we shall have no obligation or liabilities with respect to
the purchase of the Representative's Warrants, the exercise thereof, the
Company's securities underlying the Representative's Warrants (or any offering
of the Company's securities related thereto, unless we shall subsequently agree
to become an underwriter for, or otherwise participate in any such offering) or
the non-accountable expense allowance, the financial advisory agreement, the M/A
Agreement, or, the over-allotment option, to the extent you elect to exercise
such option individually.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
By:
-------------------------------
(Attorney-in-fact for each of
the several Underwriters named
in Schedule A to the attached
Underwriting Agreement.)
Confirmed as of the date first
above written:
FIRST LONDON SECURITIES CORPORATION
By:
--------------------------------------
Douglas Nichols, President
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<PAGE> 11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
irrevocably constitute and appoint Douglas Nichols and/or First London
Securities Corporation, the true and lawful agent and attorney-in-fact of the
undersigned with respect to all matters arising in connection with the
undersigned's acting as one of the Underwriters of the proposed offering of an
aggregate of
1,500,000 Shares of Common Stock and
1,500,000 Common Stock Purchase Warrants
of
BEVERAGE WORKS, INC.
(such securities being more fully described in the Registration Statement No.
333-11789 filed by BEVERAGE WORKS, INC. pursuant to the Securities Act of 1933)
with full power and authority to execute and deliver for and on behalf of the
undersigned all such agreements, consents and documents in connection therewith
as said agent and attorney-in-fact may deem advisable. The undersigned hereby
gives to said agent and attorney-in-fact full power and authority to act in the
premises, including, but not limited to, the power an authority to execute and
deliver an Agreement Among Underwriters relating to such financing, to agree to
increase or decrease the size of the offering to an amount as shall be approved
by First London Securities Corporation, as Representative of the Underwriters,
and to appoint a substitute or substitutes to act hereunder with the same power
and authority as said agent and attorney-in-fact would have if personally
acting. The undersigned hereby ratifies and confirms all that said agent and
attorney-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof at _________________________________
______________________________________________________________________________
(Street) (City)
this _______ day of ___________________ , 1997.
_____________________________
Firm Name
BY: _________________________
Witness Partner, Officer or
Sole Proprietor
(indicate which)
11
<PAGE> 12
CORPORATE ACKNOWLEDGEMENT
STATE OF )
) ss.:
COUNTY OF )
On this _______ day of _______________, 1996, before me personally came
________________________, to me know, who being by me duly sworn, deposes and
say that he resides at No. _____________________: that he is the ___________ of
____________, the aforementioned corporation, which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; and that it was so affixed by order the
Board of Directors of said corporation; and that he signed his name thereto by
like order.
______________________
Notary Public
PARTNERSHIP ACKNOWLEDGEMENT
STATE OF )
) ss.:
COUNTY OF )
On this _______ day of ___________, 1996, before me personally
personally came _________________________________, one of the members of the
firm of _____________________________________________, to me known and known to
me to be the individual who executed the foregoing instrument and acknowledged
that he executed, and was duly authorized to execute, the same as and for the
act and deed of said firm.
______________________
Notary Public
______________________
Unless prior to 5:00 p.m. Eastern Time, on the date immediately
preceding the proposed public offering date, the Syndicate Department of First
London Securities Corporation, 2600 State Street, Dallas, Texas 75204 receives a
telegram or letter from you revoking the Power of Attorney, the power and
authority granted by such Power of Attorney may be exercised in accordance with
the terms thereof.
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<PAGE> 1
Exhibit 1.3.
BEVERAGE WORKS, INC.
1,500,000 Shares of Common Stock and
1,500,000 Common Stock Purchase Warrants
SELECTED DEALER AGREEMENT
Dallas, Texas
_______________1997
Gentlemen:
1. First London Securities Corporation (the "Representative,,) and the
other Underwriters named in the Prospectus (collectively the "Underwriters") ,
acting through us as the Representative, are severally offering for sale an
aggregate of 1,500,000 Shares of Common Stock (the "Shares") and 1,500,000
Warrants (the "Warrants") (collectively the "Firm Securities") of BEVERAGE
WORKS, INC. (the "Company") , which we have agreed to purchase from the Company,
and which are more particularly described in the Registration Statement,
Underwriting Agreement and Prospectus. In addition, the several Underwriters
have been granted an option to purchase from the Company up to an additional
225,000 Shares and an additional 225,000 Warrants (the "Option Securities") to
cover over-allotments in connection with the sale of the Firm Securities. The
Firm Securities and any Option Securities purchased are herein called the
"Securities". The Securities and the terms under which they are to be offered
for sale by the several Underwriters are more particularly described in the
Prospectus.
2. The Securities are to be offered to the public by the several
Underwriters at the price per Share and price per Warrant set forth on the cover
page of the Prospectus (the "Public Offering Price" 11) , in accordance with the
terms of offering set forth in the Prospectus.
3. Some or all of the several Underwriters are severally offering,
subject to the terms and conditions hereof, a portion of the Securities for sale
to certain dealers who are actually engaged in the investment banking or
securities business and who are either (a) members in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"), or (b) dealers
with their principal places of business located outside the United States, its
territories and its possessions and not registered as brokers or dealers under
the Securities Exchange Act of 1934, as amended (the "111934 Act"), who have
agreed not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein (such
dealers who shall agree to sell Securities hereunder being herein called
"Selected
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<PAGE> 2
Dealers") at the public offering price, less a selling concession
(which may be changed) of not in excess of $_______ per Share and/or $________
per Warrant payable as hereinafter provided, out of which concession an amount
not exceeding $_________ per Share and/or $__________ per Warrant may be
reallowed by Selected Dealers to members of the NASD or foreign dealers
qualified as aforesaid. The Selected Dealers who are members of the NASD agree
to comply with all of the provisions of the NASD Conduct Rules. Foreign Selected
Dealers agree to comply with the provisions of Rule 2740 of the NASD Conduct
Rules, and, if any such dealer is a foreign dealer and not a member of the NASD,
such Selected Dealer also agrees to comply with the NASD's Interpretation with
Respect to Free-Riding and Withholding, and to comply, as though it were a
member of the NASD, with the provisions of Rules 2730 and 2750 of the NASD
Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules as that
Rule applies to non-member foreign dealers. Some or all of the Underwriters may
be included among the Selected Dealers. Each of the Underwriters has agreed
that, during the term of this Agreement, it will be governed by the terms and
conditions hereof whether or not such Underwriter is included among the Selected
Dealers.
4. First London Securities Corporation shall act as Representative on
behalf of the Underwriters and shall have full authority to take such action as
we may deem advisable in respect to all matters pertaining to the public
offering of the Securities.
5. If you desire to act as a Selected Dealer, and purchase any of the
Securities, your application should reach us promptly by telefax or telegraph at
the offices of First London Securities Corporation, 2600 State Street, Dallas,
Texas 75204. We reserve the right to reject subscriptions in whole or in part,
to make allotments, and to close the subscription books at any time without
notice. The Securities allotted to you will be confirmed, subject to the terms
and conditions of this Agreement.
6. The privilege of subscribing for the Securities is extended to you
only on behalf of such of the Underwriters, if any, as may lawfully sell the
Securities to Selected Dealers in your state or other applicable jurisdiction.
7. Any Securities to be purchased by you under the terms of this
Agreement may be immediately reoffered to the public in accordance with the
terms of offering as set forth herein and in the Prospectus, subject to the
securities or Blue Sky laws of the various states or other jurisdictions.
You agree to pay us on demand for the accounts of the several
Underwriters an amount equal to the Selected Dealer concession as to any
Securities purchased by you hereunder which, prior to the completion of the
public offering as defined in paragraph 8 below, we may purchase or contract to
purchase for the account of any Underwriter and, in addition, we may charge you
with any broker's commission and transfer tax paid in connection with such
purchase or contract to purchase. Certificates for Securities delivered on such
repurchases need not be the identical certificates originally purchased.
You agree to advise us from time to time, upon request, of the number
of Securities
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<PAGE> 3
purchased by you hereunder and remaining unsold at the time of
such request, and, if in our opinion any such Securities shall be needed to make
delivery of the Securities sold or over-allotted for the account of one or more
of the Underwriters, you will, forthwith upon our request, grant to us for the
account or accounts of such Underwriter or Underwriters the right, exercisable
promptly after receipt of notice from you that such right has been granted, to
purchase, at the Public Offering Price less the selling concession or such part
thereof as we shall determine, such number of Securities owned by you as shall
have been specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer
tax, if payable, upon the sale of the Securities by the respective Underwriters
to you will be paid when such Securities are delivered to you. However, you
shall pay any transfer tax on sales of Securities by you and you shall pay your
proportionate share of any transfer tax (other than the single transfer tax
described above) in the event that any such tax shall from time to time be
assessed against you and other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Securities other than as contained in the Prospectus.
8. The first three paragraphs of Section 7 hereof will terminate when
we shall have determined that the public offering of the Securities has been
completed and upon telefax notice to you of such termination, but, if not
theretofore terminated, they will terminate at the close of business on the 30th
full business day after the date hereof; provided, however, that we shall have
the right to extend such provisions for a further period or periods, not
exceeding an additional 30 days in the aggregate upon telefax notice to you.
9. For the purpose of stabilizing the market in the Securities, we have
been authorized to make purchases and sales of the Securities of the Company, in
the open market or otherwise, for long or short account, and, in arranging for
sales, to over-allot.
10. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "111933 Act"), and the 1934 Act. You
confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to
the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and will
comply therewith.
We hereby confirm that we will make available to you such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act, or the
rules and regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are qualified
for sale under the respective securities or Blue Sky laws of such states and
other jurisdictions, but neither we nor any of the Underwriters assume any
obligation or responsibility as to the right of any Selected Dealer to sell
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<PAGE> 4
the Securities in any state or other jurisdiction or as to the eligibility of
the Securities for sale therein. We will, if requested, file a Further State
Notice in respect of the Securities pursuant to Article 23-A of the General
Business Law of the State of New York.
12. No Selected Dealer is authorized to act as our agent or as agent
for the Underwriters, or otherwise to act on our behalf or on behalf of the
Underwriters, in offering or selling the Securities to the public or otherwise
or to furnish any information or make any representation except as contained in
the Prospectus.
13. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with the Underwriters, or with each other, but
you will be responsible for your share of any liability or expense based on any
claim to the contrary. We and the several Underwriters shall not be under any
liability for or in respect of value, validity or form of the Securities, or the
delivery of the certificates for the Securities, or the performance by anyone of
any agreement on its part, or the qualification of the Securities for sale under
the laws of any jurisdiction, or for or in respect of any other matter relating
to this Agreement, except for lack of good faith and for obligations expressly
assumed by us or by the Underwriters in this Agreement and no obligation on our
part shall be implied herefrom. The foregoing provisions shall not be deemed a
waiver of any liability imposed under the 1933 Act.
14. Payment for the Securities sold to you hereunder is to be made at
the Public Offering Price less the above-mentioned selling concession on such
time and date as we may advise, at the office of First London Securities
Corporation, 2600 State Street, Dallas, Texas 75204, by wire transfer to the
account of the Representative or by a certified or official bank check in
current New York Clearing House funds, payable to the order of First London
Securities Corporation, as Representative, against delivery of certificates for
the Securities so purchased. If such payment is not made at such time, you agree
to pay us interest on such funds at the prevailing broker's loan rate.
15. Notices to us should be addressed to us at the offices of First
London Securities Corporation, 2600 State Street, Dallas, Texas 75204,
Attention: Douglas Nichols. Notices to you shall be deemed to have been duly
given if telephoned, telefaxed, telegraphed or mailed to you at the address to
which this letter is addressed.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida without giving effect to the choice of law
or conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a Selected
Dealer, please confirm your application by signing and returning to us your
confirmation on the duplicate copy of this letter enclosed herewith, even though
you may have previously advised us thereof by telephone or telegraph. Our
signature hereon may be by facsimile.
Very truly yours,
4
<PAGE> 5
FIRST LONDON SECURITIES CORPORATION
As Representative of the Several
Underwriters
BY:
---------------------------------------
Authorized Officer
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<PAGE> 6
Douglas Nichols, President
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
We hereby subscribe for _____________ Shares and/or __________ Warrants
of BEVERAGE WORKS, INC. in accordance with the terms and conditions stated in
the foregoing Selected Dealers Agreement and letter. We hereby acknowledge
receipt of the Prospectus referred to in the Selected Dealers Agreement and
letter. We further state that in purchasing said Shares and/or Warrants we have
relied upon said Prospectus and upon no other statement whatsoever, whether
written or oral. We confirm that we are a dealer actually engaged in the
investment banking or securities business and that we are either (i) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
or (ii) a dealer with its principal place of business located outside the United
States, its territories and its possessions and not registered as a broker or
dealer under the Securities Exchange Act of 1934, as amended, who hereby agrees
not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein. As a
member of the NASD, we hereby agree to comply with all of the provisions of NASD
Conduct Rules. If we are a foreign Selected Dealer, we agree to comply with the
provisions of Rule 2740 of the Conduct Rules, and if we are a foreign dealer and
not a member of the NASD, we agree to comply with the NASD's interpretation with
respect to free-riding and withholding, and agree to comply, as though we were a
member of the NASD, with provisions of Rules 2730 and 2750 of such Conduct
Rules, and to comply with Rule 2420 thereof, as that Rule applies to non-member
foreign dealers.
Firm: __________________________
By: ______________________
(Name and Position)
Address: _________________________________
_________________________________
Telephone No.: _________________________________
Dated: _____________, 1997
6
<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
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<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.
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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
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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
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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.
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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.
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<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: /s/ FREDERIK G.M. RODENHUIS
----------------------------
Frederik G.M. Rodenhuis
President
HERITAGE BREWING COMPANY, INC.
By: /s/ JOHN STONER
----------------------------
John Stoner
President
SELLING SHAREHOLDERS:
Number of Heritage
Name Address Shares Owned
/s/ MARK B. MERICLE 82,508
- --------------------------- ----------------------- ---------------------
Mark B. Mericle
9
<PAGE> 10
/s/ JOHN G. STONER 115,512
- ----------------------------- --------------------- ---------------------
John G. Stoner
/s/ JACK STONER 30,000
- ----------------------------- --------------------- ---------------------
Jack Stoner
/s/ PATRICIA STONER
- ----------------------------- --------------------- ---------------------
Patricia Stoner
/s/ JOHN LANGHAS 38,000
- ----------------------------- --------------------- ---------------------
John Langhas
/s/ TERRI LANGHAS
- ----------------------------- --------------------- ---------------------
Terri Langhas
/s/ J. LELAND MOTHERSHEAD III 10,000
- ----------------------------- --------------------- ---------------------
J. Leland Mothershead III
/s/ JOHN L. MOTHERSHEAD IV 7,000
- ----------------------------- --------------------- ---------------------
John L. Mothershead IV
/s/ BENJAMIN HO 10,000
- ----------------------------- --------------------- ---------------------
Benjamin Ho
/s/ CHARLES NOFFLETT 5,000
- ----------------------------- --------------------- ---------------------
Charles Nofflett
/s/ CHARLES NOFFLETT 5,000
- ----------------------------- --------------------- ---------------------
Adam Nofflett
/s/ STEVEN LEWKOWITZ 5,000
- ----------------------------- --------------------- ---------------------
Steven Lewkowitz
- ----------------------------- --------------------- ---------------------
Hein Vinh Phan
/s/ DONALD LEA 5,000
- ----------------------------- --------------------- ---------------------
Donald Lea
/s/ FAY LEA
- ----------------------------- --------------------- ---------------------
Fay Lea
- ----------------------------- --------------------- ---------------------
Jeff S. Mericle
/s/ ANDREW S. MEYER 5,000
- ----------------------------- --------------------- ---------------------
Andrew S. Meyer
- ----------------------------- --------------------- ---------------------
Gordon J. Kuhlman
10
<PAGE> 11
/s/ GEORGE A. SEDIA 5,000
- ----------------------------- --------------------- ---------------------
George A. Sedia
/s/ ARTHUR R. CATHEY 5,000
- ----------------------------- --------------------- ---------------------
Arthur R. Cathey
/s/ DANIEL D. ALUSTIZA 5,000
- ----------------------------- --------------------- ---------------------
Daniel D. Alustiza
/s/ MARK WILLBURGER 4,000
- ----------------------------- --------------------- ---------------------
Mark Willburger
/s/ KATHRYN WILLBURGER
- ----------------------------- --------------------- ---------------------
Kathryn Willburger
- ----------------------------- --------------------- ---------------------
Edward D. Sybesma, Jr.;
APC Employees Pension Plan Trust
/s/ DAVID WALSER 31,000
- ----------------------------- --------------------- ---------------------
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: /s/ FREDERIK G.M. RODENHUIS
---------------------------
Frederik G.M. Rodenhuis
President
CONTROLLING SHAREHOLDERS
By: /s/ JOHN G. STONER
---------------------------
John G. Stoner
By: /s/ MARK B. MERICLE
---------------------------
Mark B. Mericle
-2-
<PAGE> 1
EXHIBIT 2.2
AGREEMENT OF PARTNERSHIP
OF
BWI-PROST PARTNERS,
A CALIFORNIA PARTNERSHIP
<PAGE> 2
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
i
<PAGE> 3
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
<PAGE> 4
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
<PAGE> 5
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> 6
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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<PAGE> 7
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.
3 of 40
<PAGE> 8
(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.
4 of 40
<PAGE> 9
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
5 of 40
<PAGE> 10
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,
6 of 40
<PAGE> 11
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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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> 13
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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<PAGE> 14
(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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<PAGE> 15
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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<PAGE> 16
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 with each principal payment pursuant to the terms and
schedule of 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 further pay down the Periodic Capital Contribution
within 30 days of the Contribution Date equal to 10% of the gross proceeds
raised in excess of $10,000,000 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 not be 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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<PAGE> 18
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 further paying down the
Periodic Distribution within 45 days of the Contribution Date equal to 10% of
the gross proceeds raised in excess of $10,000,000 in such public offering 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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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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(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 the "Gross Appraised Value" less all
accrued Partnership liabilities (as determined under U.S. Generally Accepted
Accounting Principles) or such other wording that clarifies the fact that the
appraisal will be at Gross Fair Market Value as defined in the Agreement.
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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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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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 December 17, 1996.
PROST PARTNERS, L.P. BWI-ST. STAN'S, INC.
By: /s/ GARITH HELM By: /s/ FREDERIK G.M. RODENHUIS
------------------------------ -----------------------------------
Garith Helm, President of Frederik G.M. Rodenhuis, President and
Stanislaus Brewing Company, Inc., Chief Executive Officer
General Partner
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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> 46
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
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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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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. The parties hereby agree that the
Prost's Capital Account should be $4.5 million less the Assumed Liabilities as
of the Contribution Date and less changes and adjustments, if any, required
pursuant to the terms of the Agreement of Partnership of BWI/Prost Partners and
the Contribution Agreement and Exhibits.
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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<PAGE> 79
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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<PAGE> 80
(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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<PAGE> 81
(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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<PAGE> 82
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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<PAGE> 83
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 December 17, 1996.
PROST PARTNERS, L.P. BWI-ST. STAN'S, INC.
By: /s/ GARITH HELM By: /s/ FREDERIK G.M. RODENHUIS
------------------------------ ------------------------------
Garith Helm, President of Frederik G.M. Rodenhuis, President and
Stanislaus Brewing Company, Inc., Chief Executive Officer
General Partner
<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>
- i -
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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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<PAGE> 4
<TABLE>
<CAPTION>
Page
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<S> <C>
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>
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<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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<PAGE> 7
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) One Hundred Forty-One Thousand Sixty-Three (141,063)
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 Fifty-Five Thousand (155,000) 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 Seven Thousand (7,000) 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 Twenty Thousand (120,000) 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 Thousand (40,000) or more barrels of beer in the Measurement Period,
then the Shareholders shall be entitled to receive as a bonus an additional
Thirty-Five Thousand (35,000) Earn-Out Shares;
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<PAGE> 8
(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, however, in the case where
Riverside does not brew the beer and only fills kegs, the total number of
barrels produced shall be multiplied by .333 to determine the number of barrels
that will be credited towards the earn-out, (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 but only to the extent of
their respective percentages of liability specified on Schedule 1 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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<PAGE> 11
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); 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 31,
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,
- 6 -
<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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<PAGE> 13
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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<PAGE> 14
(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 Brewery Leasing identified on Schedule 7A, covenants and agrees to
(i) reduce the effective interest rate of such lease(s) to ten percent (10%),
(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 only,
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.
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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<PAGE> 18
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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<PAGE> 19
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 acceptable to Buyer's Shareholders' and Company's respective legal
counsel 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),
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).
- 26 -
<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.
- 27 -
<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
- 28 -
<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:
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> 42
AMENDMENT AGREEMENT
This Amendment Agreement (the "Amendment Agreement") is made and
entered into as of the 7th day of January, 1997 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 of the Share Purchase Agreement (the "Agreement"), dated as of
September 10, 1996 by and among the Buyer, the Company and the Shareholders (as
such term is defined in the Agreement), on the other hand.
RECITALS
WHEREAS, the parties desire to amend the Agreement to provide for the
changes and modifications set forth herein.
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:
AGREEMENT
1. Purchase Price
(i) Section 1.3(i) if the Agreement is hereby amended by deleting
the words "Two Hundred Forty-Seven Thousand Four Hundred Seventy-Nine
(247,479)" and replacing them with the following: "One Hundred Forty-One
Thousand Sixty-Three (141,063)".
(ii) Section 1.3(ii) of the Agreement is hereby amended by
deleting the words "One Hundred Thirty Thousand (130,000)" and replacing them
with the following: "One Hundred Fifty-Five Thousand (155,000)".
(iii) Section 1.3(ii)(a)(i) of the Agreement is hereby amended by
deleting the words "Twelve Thousand (12,000)" and replacing them with "Seven
Thousand (7,000)" and by deleting the words "One Hundred Thousand (100,000)"
and replacing them with "One Hundred Twenty Thousand (120,000)".
(iv) Section 1.3(ii)(a)(ii) of the Agreement is hereby amended by
deleting the words "Forty-Five Thousand (45,000)" and replacing them with
"Forty Thousand (40,000)" and by
-1-
<PAGE> 43
deleting the words "Thirty Thousand (30,000)" and replacing them with
"Thirty-Five Thousand (35,000)".
(v) Section 1.3(ii)(a)(iii) of the Agreement is hereby amended by
adding the following at the end of subsection (b) thereof "...provided,
however, in the case where Riverside does not brew the beer and only fills the
kegs, the total number of barrels produced shall be multiple by .333 to
determine the number of barrels that will be credited hereunder,".
2. Post-Closing Adjustments.
(i) Section 1.4(iv)(a) of the Agreement is hereby amended by
deleting "$ x plus $350,000" and replacing it with "$(911,542) minus $500,000".
(ii) Section 1.4(iv)(b) of the Agreement is hereby amended by
deleting "$ x minus $350,000" and replacing it with "$(911,542) minus $500,000".
(iii) Section 1.4(iv)(b) of the Agreement is hereby amended by
adding the following between the words "provided, further, however that" and
"each Management Shareholder": "(but only to the extent of their respective
percentages of liability specified on Schedule 1)".
3. Closing.
(i) Section 2.1 of the Agreement is hereby amended by deleting
"March 30, 1997" wherever it appears and replacing it with "March 31, 1997".
4. Equipment Leases
(i) Section 5.7 of the Agreement is hereby deleted in its
entirety and replaced with the following:
"5.7 Equipment Leases. Brewery Leasing Company ("BLC"), the holder
of the brewery leases identified on Schedule 5.7, covenants and agrees
to (i) reduce the effective interest rate of such leases to ten percent
(10%), (ii) extend such leases by that number of months which is equal
to the number of months payments on each such lease was 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 Buyer that such
provisions will not be effective until immediately after the Closing."
5. Additional Covenants and Agreements.
The following Sections are hereby added to Article V of the
Agreement.
-2-
<PAGE> 44
(i) "5.12 Registration Rights. The Company covenants and agrees to
provide the Shareholders with the same registration rights as to the shares of
Buyer's Common Stock they will own upon consummation of the transactions
contemplated hereby as may be given to any of the executive officers of the
Buyer in the future with respect to any of Buyer's shares of Common Stock owned
by any such executive officers."
(ii) "5.13 Rule 144. Buyer covenants and agrees to cause the
restrictive legend on any of the shares of Buyer's Common Stock provided to the
Shareholders hereunder to be removed after the period of time required to
elapse under Rule 144(k) as promulgated under the Securities Act of 1933, as
amended (the "Act"), as such Rule may be amended from time to time and provided
further that all other provisions of such Rule have been satisfied."
6. Legal Opinion.
(i) Section 6.13 of the Agreement is hereby amended by deleting
the words "attached hereto as Exhibit V" and replacing them with "reasonably
acceptable to the legal counsel for each of the Company, the Shareholders and
the Buyer".
7. Indemnification.
(i) Section 9.28 of the Agreement is hereby amended by deleting
the words "Schedule 1.1" and replacing them with "Schedule 1".
(ii) Section 9.3 of the Agreement is hereby amended by adding the
following to the end thereof.
"or arising out of or relating to any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (the "Registration Statement") filed by
the Buyer with the Securities and Exchange Commission whereby
the Buyer is registering its securities for sale or the
omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading;
provided however, that the Buyer will not be liable to the
extent that any such claim, liability, loss, damage, cost or
expense arises out of or is based upon information furnished to
the Buyer by or on behalf of the Shareholders that is used in
the preparation of the Registration Statement."
(iii) Section 9.6 of the Agreement is hereby amended by adding the
following to the end thereof:
-3-
<PAGE> 45
"Notwithstanding anything in this Agreement to the
contrary, the parties agree that the liability of
the Shareholders for any matter relating to Bob Kirkland
as set forth in Schedule 11, as amended, shall be
limited to paying up to a maximum of fifty percent (50%)
of the costs of any settlement reached with Mr.
Kirkland, with a cap of $2,500.00, which amount
shall not be subject to the Deductible."
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 BARNICOAT
By:
------------------------------
John Barnicoat
MICHAEL HAGERMAN
By: /s/ MICHAEL HAGERMAN
------------------------------
Michael Hagerman
NORMAN KRETSCHMAR
By: /s/ NORMAN KRETSCHMAR
------------------------------
Norman Kretschmar
KENNETH McMILLIN
By:
------------------------------
Kenneth McMillin
-4-
<PAGE> 46
"NON-MANAGEMENT SHAREHOLDERS"
JOHN C. BARNICOAT, Trustee of the
Barnicoat Living Trust u/d/t/
December 16, 1966
By:
------------------------------
Name:
Title:
SECURITY TRUST COMPANY, a California
corporation, as Trustee of IRA No.
100046-00, FBO John C. Barnicoat
By:
------------------------------
Name:
Title:
MICHAEL R. HAGERMAN, Trustee of the
Michael and Linda Hagerman 1967 Trust
u/d/t/ dated May 26, 1967
By: /s/ MICHAEL HAGERMAN
------------------------------
Name:
Title: Trustee
MLPF&S CUSTFBO NORMAN E. KRETSCHMAR
IRA
By:
------------------------------
Name:
Title:
-5-
<PAGE> 47
KENNETH McMILLIN AND RHONDA McMILLIN
By:
--------------------------------
Kenneth McMillin
By:
--------------------------------
Rhonda McMillin
BREWERY LEASING COMPANY
(as to Section 5.7)
By: /s/ MICHAEL HAGERMAN
------------------------------
Name: Michael Hagerman
Title: President
JOSEPH BENETKA
By:
------------------------------
JOSEPH BENETKA
JOHN M. HENNESSEY AND JOAN HENNESSEY
By:
--------------------------------
John M. Hennessey
By:
--------------------------------
Joan Hennessey
DEAN IRVING
By:
--------------------------------
Dean Irving
-6-
<PAGE> 48
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:
JIMMY SMITH
By:
-------------------------------
Jimmy Smith
STREIT & PETERS, CPA'S, INC., a
corporation, formerly Streit & Peters,
CPA's, a partnership
By:
------------------------------
Name:
Title:
PAUL T. TUCKER
By:
------------------------------
Paul T. Tucker
-7-
<PAGE> 49
WILLIAM E. THOMAS
By:
---------------------------------
William E. Thomas
"COMPANY"
ORANGE EMPIRE BREWING COMPANY,
a California Corporation
By: /s/ NORMAN KRETSCHMAR
----------------------------------
Name: Norman Kretschmar
Title: President
"BUYER"
BEVERAGE WORKS, INC.
a California Corporation
By:
---------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
-8-
<PAGE> 1
EXHIBIT 4.2
WARRANT AGREEMENT
AGREEMENT, dated as of this ____ day of _______ 1997, by and between
Beverage Works, Inc., a California corporation ("Company"), and American Stock
Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with a public offering of up to 1,500,000
shares of the Company's Common Stock, no par value ("Common Stock") and
1,500,000 Class A Redeemable Common Stock Purchase Warrants ("Class A Warrants"
or "Warrants") and an additional 225,000 shares of Common Stock and 225,000
Class A Warrants under the underwriter's overallotment option pursuant to an
underwriting agreement (the "Underwriting Agreement") dated ________________,
1996 between the Company and First London Securities Corporation ("FLSC"), the
Company will issue up to 1,725,000 Class A Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties
hereto agree as follows:
1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the
Company of which at the date hereof consists of 20,000,000 authorized shares,
no par value, and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect to the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution, or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include (i) only shares of such
class designated in the Company's Articles of Incorporation as Common Stock on
the date of the original issue of the Warrants, or (ii) in the case of any
reclassification, change, consolidation, merger, sale, or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities, or
property provided for in such section, or (iii) in the case of any
reclassification or change in the outstanding shares of Common Stock issuable
upon exercise of the Warrants as a result of a subdivision or combination or
consisting of a change in par value, or from par value to no par value, or from
no par value to par value, such
<PAGE> 2
shares of Common Stock as so reclassified or changed.
(b) "Corporate Office" shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date hereof at
40 Wall Street, New York, NY 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the
first business day on which the Warrant Agent shall have received both (a) the
Warrant Certificate representing such Warrant, with the exercise form thereon
duly executed by the Registered Holder thereof or his attorney duly authorized
in writing, and (b) payment in cash, or by official bank or certified check
made payable to the Company, of an amount in lawful money of the United States
of America equal to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean ________,
1997.
(e) "Purchase Price" shall mean the purchase price per
share to be paid upon exercise of each Warrant in accordance with the terms
hereof, which price shall be $________ per share (except as set forth in
paragraph 2(e) hereof), subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof, and subject to the Company's right, in its sole
discretion, to reduce the Purchase Price upon notice to all warrantholders.
(f) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms
hereof, which price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and
as of any particular date, the person in whose name the certificate
representing the Warrant shall be registered on that date on the books
maintained by the Warrant Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New
York time) on _____, 2002, or the Redemption Date as defined in Section 8,
whichever is earlier; provided that if such date shall in the State of New York
be a holiday or a day on which banks are authorized or required to close, then
5:00 P.M. (New York time) on the next following day which in the State of New
York is not a holiday or a day on which banks are authorized or required to
close. Upon notice to all warrantholders the Company shall have the right to
extend the warrant expiration date.
2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered
Holder of the Warrant representing such Warrant to purchase one share of Common
Stock upon the exercise thereof,
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<PAGE> 3
in accordance with the terms hereof, subject to modification and adjustment as
provided in Section 9.
(b) Upon execution of this Agreement, Warrant
Certificates representing the number of Warrants sold pursuant to the
Underwriting Agreement shall be executed by the Company and delivered to the
Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary,
the Warrant Certificates shall be countersigned, issued, and delivered by the
Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date,
the Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 1,725,000 shares
of Common Stock, subject to adjustment as described herein, upon the exercise
of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date,
the Warrant Agent shall countersign and deliver Warrant Certificates in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this Agreement;
provided that no Warrant Certificates shall be issued except (i) those
initially issued hereunder, (ii) those issued on or after the Initial Warrant
Exercise Date, upon the exercise of fewer than all Warrants represented by any
Warrant Certificate, to evidence any unexercised Warrants held by the
exercising Registered Holder, (iii) those issued upon any transfer or exchange
pursuant to Section 6; (iv) those issued in replacement of lost, stolen,
destroyed, or mutilated Warrant Certificates pursuant to Section 7; (v) those
issued pursuant to the Underwriter's Options; and (vi) those issued at the
option of the Company, in such form as may be approved by its Board of
Directors, to reflect any adjustment or change in the Purchase Price, the
number of shares of Common Stock purchasable upon exercise of the Warrants or
the Redemption Price therefor made pursuant to Section 9 hereof.
3. Form and Execution of Warrant Certificates.
(a) The Class A Warrant Certificates shall be
substantially in the form annexed hereto as Exhibit A (the provisions of which
are hereby incorporated herein) and may have such letters, numbers, or other
marks of identification or designation and such legends, summaries, or
endorsements printed, lithographed, or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any law or with any rule or regulation
made pursuant thereto or with any rule or regulation of any stock exchange on
which the Warrants may be listed, or to conform to usage or to the requirements
of Section 2(b). The Warrant Certificates shall be dated the date of issuance
thereof (whether upon initial issuance, transfer, exchange, or in lieu of
mutilated, lost, stolen, or destroyed Warrant Certificates) and issued in
registered form.
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<PAGE> 4
Warrant Certificates shall be numbered serially with the letter W.
(b) Warrant Certificates shall be executed on behalf of
the Company by its Chairman of the Board, President, or any Vice President and
by its Secretary or an Assistant Secretary, by manual signatures or by
facsimile signatures printed thereon, and shall have imprinted thereon a
facsimile of the Company's seal. Warrant Certificates shall be manually
countersigned by the Warrant Agent and shall not be valid for any purpose
unless so countersigned. In case any officer of the Company who shall have
signed any of the Warrant Certificates shall cease to be an officer of the
Company or to hold the particular office referenced in the Warrant Certificate
before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates may nevertheless be countersigned by the Warrant Agent,
issued and delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be an officer of the Company
or to hold such office. After countersignature by the Warrant Agent, Warrant
Certificates shall be delivered by the Warrant Agent to the Registered Holder
without further action by the Company, except as otherwise provided by Section
4 hereof.
4. Exercise.
(a) Each Class A Warrant may be exercised by the
Registered Holder thereof at any time on or after the Initial Warrant Exercise
Date, but not after the Warrant Expiration Date, upon the terms and subject to
the conditions set forth herein and in the applicable Warrant Certificate. A
Warrant shall be deemed to have been exercised immediately prior to the close
of business on the Exercise Date and the person entitled to receive the
securities deliverable upon such exercise shall be treated for all purposes as
the holder of those securities upon the exercise of the Warrant as of the close
of business on the Exercise Date. As soon as practicable on or after the
Exercise Date the Warrant Agent shall deposit the proceeds in an interest
bearing account received from the exercise of a Warrant and shall notify the
Company in writing of the exercise of the Warrants. Promptly following, and in
any event within five days after the date of such notice from the Warrant
Agent, the Warrant Agent, on behalf of the Company, shall cause to be issued
and delivered by the Transfer Agent, to the person or persons entitled to
receive the same, a certificate or certificates for the securities deliverable
upon such exercise (plus a certificate for any remaining unexercised Warrants
of the Registered Holder), unless prior to the date of issuance of such
certificates the Company shall instruct the Warrant Agent to refrain from
causing such issuance of certificates pending clearance of checks received in
payment of the Purchase Price pursuant to such Warrants. Upon the exercise of
any Warrant and clearance of the funds received, the Warrant Agent shall
promptly remit the payment received for the Warrant (the "Warrant Proceeds") to
the Company or as the Company may direct in writing.
(b) If, subsequent to_______ 1998, in respect of the
exercise of any Warrant, (i) the market price of the Company's Common Stock is
greater than the then Purchase Price of the Warrants, (ii) the exercise of the
Warrant was solicited by a member of the National
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<PAGE> 5
Association of Securities Dealers, Inc. ("NASD") and such member was designated
in writing by the holder of such Warrant as having solicited such Warrant,
(iii) the Warrant was not held in a discretionary account, (iv) disclosure of
compensation arrangements was made both at the time of the original offering
and at the time of exercise and (v) the solicitation of the exercise of the
Warrant was not in violation of Rule 10b-6 (as such rule or any successor rule
may be in effect as of such time of exercise) promulgated under the Securities
Exchange Act of 1934, as amended, then the Warrant Agent, simultaneously with
the distribution of proceeds to the Company received upon exercise of the
Warrant(s) so exercised shall, on behalf of the Company, pay from the proceeds
received upon exercise of the Warrant(s), a fee of 5% of the Purchase Price to
FLSC. Within five days after exercise, the Warrant Agent shall send FLSC a
copy of the reverse side of each Warrant exercised. FLSC shall reimburse the
Warrant Agent, upon request, for its reasonable expenses relating to
compliance with this Section. In addition, FLSC and the Company may at any
time during business hours, examine the records of the Warrant Agent, including
its ledger of original Warrant Certificates returned to the Warrant Agent upon
exercise of Warrants. The provisions of this paragraph may not be modified,
amended or deleted without the prior written consent of FLSC.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery, be duly and
validly issued, fully paid, nonassessable, and free from all taxes, liens, and
charges with respect to the issue thereof, (other than those which the Company
shall promptly pay or discharge) and, that upon issuance, such shares shall be
listed on each national securities exchange or eligible for inclusion in each
automated quotation system, if any, on which the other shares of outstanding
Common Stock of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will in good faith and as expeditiously as
reasonably possible, endeavor to secure such registration or approval and will
use its reasonable efforts to obtain appropriate approvals or registrations
under state "blue sky" securities laws, provided, however, that the Company
shall not be required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent of service of process in any
jurisdiction. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp, or
similar taxes and other
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<PAGE> 6
governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to
be exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue, and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with its
regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented
for registration or transfer, or for exchange or exercise, the subscription
form on the reverse thereof shall be duly endorsed, or be accompanied by a
written instrument or instruments of transfer and subscription, in form
satisfactory to the Company and the Warrant Agent, duly executed by the
Registered Holder or his attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed on the Registered
Holder by the Warrant Agent for any exchange or registration of transfer of
Warrant Certificates. In addition, the Company may require payment by such
holder of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or
for exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter
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<PAGE> 7
retained by the Warrant Agent until termination of this Agreement or
resignation as Warrant Agent, or disposed of or destroyed, at the direction of
the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction, or mutilation of any Warrant Certificate and (in case of
loss, theft, or destruction) of indemnity satisfactory to them, and (in the
case of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant Certificate shall
comply with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
8. Redemption.
(a) Subject to the provisions of paragraph 2(e) hereof,
on not less than thirty (30) days notice given at any time after the Initial
Warrant Exercise Date, the Warrants may be redeemed, at the option of the
Company, at a redemption price of $0.05 per Warrant, provided that the Market
Price (defined below) of the Common Stock receivable upon exercise of the Class
A Warrant shall equal or exceed $_____ (the "Target Price"), subject to
adjustment as set forth in Section 8(f) below. Market Price for the purpose of
this Section 8 shall mean (i) the average closing bid price for any ten (10)
consecutive trading days within a period of thirty (30) consecutive trading
days ending within five (5) days prior to the date of the notice of redemption,
which notice shall be mailed no later than five days thereafter, of the Common
Stock as reported by the National Association of Securities Dealers, Inc.
Automatic Quotation System or (ii) the average of the last reported sale price,
for ten (10) consecutive business days, ending within five (5) days of the date
of the notice of redemption, which notice shall be mailed no later than five
days thereafter, on the primary exchange on which the Common Stock is traded,
if the Common Stock is traded on a national securities exchange.
(b) If the conditions set forth in Section 8(a) are met,
and the Company desires to exercise its right to redeem the Class A Warrants,
it shall mail a notice of redemption to each of the Registered Holders of the
Warrants to be redeemed, first class, postage prepaid, not later than the
thirtieth (30th) day before the date fixed for redemption, at their last
address as shall appear on the records maintained pursuant to Section 6(b). Any
notice mailed in the manner
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<PAGE> 8
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the
redemption price, (ii) the date fixed for redemption, (iii) the place where the
Warrant Certificates shall be delivered and the redemption price paid, and (iv)
that the right to exercise the Warrant shall terminate at 5:00 P.M. (New York
time) on the business day immediately preceding the date fixed for redemption.
The date fixed for the redemption of the Class A Warrant shall be the
Redemption Date. No failure to mail such notice nor any defect therein or in
the mailing thereof shall affect the validity of the proceedings for such
redemption except as to a Registered Holder (a) to whom notice was not mailed
or (b) whose notice was defective. An affidavit of the Warrant Agent or of the
Secretary or an Assistant Secretary of the Company that notice of redemption
has been mailed shall be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at
5:00 P.M. (New York time) on the business day immediately preceding the
Redemption Date. On and after the Redemption Date, Holders of the Warrants
shall have no further rights except to receive, upon surrender of the Warrant
prior to the Redemption Date, the Redemption Price.
(e) From and after the Redemption Date specified for, the
Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order of such
Holder a sum in cash equal to the redemption price of each such Warrant. From
and after the Redemption Date and upon the deposit or setting aside by the
Company of a sum sufficient to redeem all the Warrants called for redemption,
such Warrants shall expire and become void and all rights hereunder and under
the Warrant Certificates, except the right to receive payment of the redemption
price, shall cease.
(f) If the shares of the Company's Common Stock are
issued as a dividend or stock split or are subdivided or combined into a
greater or smaller number of shares of Common Stock, the Target Price shall be
proportionally adjusted by the ratio which the total number of shares of Common
Stock outstanding immediately prior to such event bears to the total number of
shares of Common Stock to be outstanding immediately after such event.
9. Adjustment of Exercise Price and
Number of Shares of Common Stock or Warrants.
(a) In the event the Company shall, at any time or from
time to time after the date hereof, issue any shares of Common Stock as a stock
dividend to the holders of Common Stock or subdivide or combine the outstanding
shares of Common Stock into a greater or lesser number of shares (any such
issuance, subdivision, or combination being herein called a "Change of
Shares"), then, and thereafter upon each further Change of Shares, the Purchase
Price in effect immediately prior to such Change of Shares shall be changed to
a price (including any
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<PAGE> 9
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to the
Change of Shares, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the Change of Shares. Such
adjustment shall be made successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of whole shares purchasable at the Purchase Price
in effect immediately prior to such adjustment multiplied by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the
Purchase Price hereunder, to adjust the number of Warrants outstanding, in lieu
of the adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants determined by
multiplying the number one by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to
this Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such
adjustment.
(c) After the date hereof, in case of any
reclassification, capital reorganization, or other change of outstanding shares
of Common Stock, or in case of any consolidation or merger of the Company with
or into another corporation (other than a consolidation or merger in which the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization, or other change of outstanding shares
of Common Stock), (or in case of any sale or conveyance to another corporation
of all or substantially all of the assets of the Company (other than a
sale/leaseback, mortgage, or other financing transaction)), the Company shall
cause effective provision to be made so that each holder of a Warrant then
outstanding shall have the right thereafter, by exercising such Warrant, to
purchase the kind and number of shares of stock or other securities or property
(including cash) receivable upon such reclassification, capital reorganization,
or other change, consolidation, merger, sale, or conveyance by a holder of the
number of shares of Common Stock that might have been
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<PAGE> 10
purchased upon exercise of such Warrant immediately prior to such
reclassification, capital reorganization, or other change, consolidation,
merger, sale, or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The Company shall not effect any
such consolidation, merger, or sale unless prior to or simultaneously with the
consummation thereof, the successor (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing assets or other
appropriate corporation or entity shall assume, by written instrument executed
and delivered to the Warrant Agent, the obligation to deliver to the holder of
each Warrant such shares of stock, securities, or assets as, in accordance with
the foregoing provisions, such holders may be entitled to purchase and the
other obligations under this Agreement. The foregoing provisions shall
similarly apply to successive reclassification, capital reorganizations, and
other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales, or conveyances.
(d) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(d) hereof, continue to express the Purchase
Price per share, the number of shares purchasable thereunder, and the
Redemption Price therefor as the Purchase Price per share, and the number of
shares purchasable and the Redemption Price therefore were expressed in the
Warrant Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant
to this Section 9, the Company will promptly prepare a certificate signed by
the Chairman or President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief summary
thereof to be sent by ordinary first class mail to FLSC and to each registered
holder of Warrants at his last address as it shall appear on the registry books
of the Warrant Agent. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity thereof except as to the
holder to whom the Company failed to mail such notice, or except as to the
holder whose notice was defective and who is prejudiced thereby. The affidavit
of an officer of the Warrant Agent or the Secretary or an Assistant Secretary
of the Company that such notice has been mailed shall be prima facie evidence
of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (i) and (ii) shall also be applicable:
(i) The number of shares of Common Stock
outstanding at any given
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time shall include shares of Common Stock owned or held by or for the account
of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be
made unless such adjustment would require an increase or decrease of at least
$0.10 in such price; provided that any adjustments which by reason of this
subsection (ii) are not required to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require an increase
or decrease of at least $0.10 in the Purchase Price then in effect hereunder.
(g) As used in this Section 9, the term "Common Stock"
shall mean and include the Company's Common Stock authorized on the date of the
original issue of the Warrants and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends and in the distribution of assets upon the voluntary
liquidation, dissolution, or winding up of the Company; provided, however, that
the shares issuable upon exercise of the Warrants shall include only shares of
such class designated in the Company's Articles of Incorporation as Common
Stock on the date of the original issue of the Warrants, or (i) in the case of
any reclassification, change, consolidation, merger, sale, or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities, or
property provided for in such section or, (ii) in the case of any
reclassification or change in the outstanding shares of Common Stock issuable
upon exercise of the Warrants as a result of a subdivision or combination or
consisting of a change in par value, or from par value to no par value, or from
no par value to par value, such shares of Common Stock as so reclassified or
changed.
(h) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable
upon the exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company nevertheless shall not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. With respect to any fraction of a share called for
upon any exercise hereof, the Company shall pay to the Holder an amount in cash
equal to such fraction multiplied by the current market value of such
fractional share, determined as follows:
(i) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq
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System, the current value shall be the last reported sale price of the Common
Stock on such exchange on the last business day prior to the date of exercise
of this Warrant or if no such sale is made on such day, the average of the
closing bid and asked prices for such day on such exchange; or
(ii) If the Common Stock is not listed or admitted
to unlisted trading privileges, the current value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc.
on the last business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon
exercise of such Warrants for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the holder of Warrants, as such,
any of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issue or reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger, or
conveyance or otherwise), or to receive notice of meetings, or to receive
dividends or subscription rights, until such Holder shall have exercised such
Warrants and been issued shares of Common Stock in accordance with the
provisions hereof.
12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by
his acceptance thereof, consents and agrees with the Company, the Warrant Agent
and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry
books of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
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<PAGE> 13
(b) The Company and the Warrant Agent may deem and treat
the person in whose name the Warrant Certificate is registered as the holder
and as the absolute, true, and lawful owner of the Warrants represented thereby
for all purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice or knowledge to the contrary, except as otherwise
expressly provided in Section 7 hereof.
14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cause to be
cancelled Common Stock following exercise of any or all of the Warrants
represented thereby or delivered to it for transfer, split up, combination, or
exchange.
15. Concerning the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value, or
authorization of the Warrant Certificates or the Warrants represented thereby
or of any securities or other property delivered upon exercise of any Warrant
or whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts
contained herein or for any action taken, suffered, or omitted by it in
reliance on any Warrant Certificate or other document or instrument believed by
it in good faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence or
wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order,
or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board, President, any Vice President, its
Secretary, or Assistant Secretary (unless other evidence in respect thereof is
herein specifically prescribed). The Warrant Agent shall not be liable for any
action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order, or demand believed by it to
be genuine.
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<PAGE> 14
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save
it harmless against any and all losses, expenses, and liabilities, including
judgments, costs, and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses, and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or wilful misconduct), after
giving 30 days' prior written notice to the Company. At least 15 days prior to
the date such resignation is to become effective, the Warrant Agent shall cause
a copy of such notice of resignation to be mailed to the Registered Holder of
each Warrant Certificate at the Company's expense. Upon such resignation, or
any inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for
the appointment of a new warrant agent. Any new warrant agent, whether
appointed by the Company or by such a court, shall be a bank or trust company
having a capital and surplus, as shown by its last published report to its
stockholders, of not less than $10,000,000 or a stock transfer company. After
acceptance in writing of such appointment by the new warrant agent is received
by the Company, such new warrant agent shall be vested with the same powers,
rights, duties, and responsibilities as if it had been originally named herein
as the Warrant Agent, without any further assurance, conveyance, act, or deed;
but if for any reason it shall be necessary or expedient to execute and deliver
any further assurance, conveyance, act, or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning warrant
agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further
act, provided that such corporation is eligible for appointment as successor to
the Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed to the Company and to the Registered Holder of each
Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like
-14-
<PAGE> 15
effects as though it were not Warrant Agent. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.
16. Modification of Agreement. The Warrant Agent and the Company
may by supplemental agreement make any changes or corrections in this Agreement
(i) that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented, or altered in any respect except with the consent in writing of
the Registered Holders of Warrant Certificates representing not less than 50%
of the Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any
Warrant, or the Purchase Price therefor, or the acceleration of the Warrant
Expiration Date, shall be made without the consent in writing of the Registered
Holder of the Warrant Certificate representing such Warrant, other than such
changes as are specifically prescribed by this Agreement as originally executed
or are made in compliance with applicable law. In addition, the Company and
FLSC may by supplemental agreement extend the Warrant Expiration Date without
the consent of the Registered Holders.
17. Notices. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at
the address of such holder as shown on the registry books maintained by the
Warrant Agent; if to the Company, 9800 S. Sepulveda Blvd., Suite 720, Los
Angeles, CA 90045, Attention: President, with a copy sent to Hecht & Steckman,
P.A., 60 East 42nd St., Suite 5101, New York, NY 10165, Attention: James G.
Smith, Esq.; or at such other address as may have been furnished to the Warrant
Agent in writing by the Company; and if to the Warrant Agent, at its corporate
office.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
19. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy, or claim, in equity or at law,
or to impose upon any other person any duty, liability, or obligation.
20. Termination. This Agreement shall terminate at the close of
business on the Warrant Expiration Date of all the Warrants or such earlier
date upon which all Warrants have been exercised, except that the Warrant Agent
shall account to the Company for cash held by it and the provisions of Section
15 hereof shall survive such termination.
-15-
<PAGE> 16
21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BEVERAGE WORKS, INC.
By:
----------------------------
Its President
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By:
----------------------------
--------------------------
Its Authorized Officer
-16-
<PAGE> 17
EXHIBIT A
Form of Face of Class A Warrant Certificate
No. W __________ Class A Warrants Void after ______, ____
WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
BEVERAGE WORKS, INC.
This certifies that For Value Received or registered assigns (the
"Registered Holder") is the owner of the number of Class A Redeemable Common
Stock Purchase Warrants ("Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
no par value ("Common Stock"), of Beverage Works, Inc., a California
corporation (the "Company"), at any time between the Initial Warrant Exercise
Date (as herein defined) and the Expiration Date (as hereinafter defined), upon
the presentation and surrender of this Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the corporate office
of AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent, or its successor
(the "Warrant Agent"), accompanied by payment of $_____ ("Purchase Price") in
lawful money of the United States of America in cash or by official bank or
certified check made payable to Beverage Works, Inc.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement") dated _________,
1996, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Initial Warrant Exercise Date" shall mean __________, 1997.
The term "Expiration Date" shall mean 5:00 p.m. (New York time on
______,____, or such earlier date as the Warrants shall be redeemed. If such
date shall in the State of New York be a holiday or a day on which the banks
are authorized to close, then the Expiration Date shall
-17-
<PAGE> 18
mean 5:00 p.m. (New York time) the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. This Warrant shall not be exercisable by a Registered Holder in any
state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with any transfer
fee in addition to any tax or other governmental charge imposed in connection
therewith, for registration of transfer of this Warrant Certificate at such
office, a new Warrant Certificate or Warrant Certificates representing an equal
aggregate number of Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $0.05 per Warrant at any time provided the Market Price (as
defined in the Warrant Agreement) for the securities issuable upon exercise of
such Warrant shall exceed $_____ per share. Notice of redemption shall be
given not later than the thirtieth day before the date fixed for redemption,
all as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to this
Warrant except to receive the $0.05 per Warrant upon surrender of this
Certificate prior to the Redemption Date (as defined in the Warrant Agreement).
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
-18-
<PAGE> 19
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
BEVERAGE WORKS, INC.
By:
------------------------
Its
By:
------------------------
Its
Date:
----------------------------
Seal
Countersigned:
American Stock Transfer & Trust Company
as Warrant Agent
By:
-----------------------------
----------------------------
Its Authorized Officer
-19-
<PAGE> 20
Form of Reverse of Class A Warrant Certificate
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to
exercise _____ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
____________________________________________.
(please insert social security or other identifying number) and be delivered to
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address) and if such number of Warrants shall
not be all the Warrants evidenced by this Warrant Certificate, that a new
Warrant Certificate for the balance of such Warrants be registered in the name
of, and delivered to, the Registered Holder at the address stated below:
____________________________________________
____________________________________________
____________________________________________
(Address)
_________________________________
(Date)
_________________________________
(Taxpayer Identification Number)
_________________________________
(Soliciting Broker)
Signature Guaranteed
-20-
<PAGE> 21
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns, and transfers unto
____________________________________________
(please insert social security or other
identifying number)
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
_________________________________
(Date)
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17AD-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934).
-21-
<PAGE> 1
Exhibit 4.11
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.
BEVERAGE WORKS, INC.
CLASS E WARRANT AGREEMENT
RECITALS. This Class E Warrant Agreement ("Agreement") dated December
18, 1996 certifies that the registered owners ("Holders") of the Class E
Warrants (herein referred to as the "Class E Warrants") to purchase shares of
the common stock, no par value ("Shares"), of Beverage Works, Inc., a California
corporation (herein referred to as the "Company") entitles the Holders to
purchase from the Company, for a five (5) year period commencing on the date
hereof, one fully-paid and nonassessable Share for each Class E Warrant at an
exercise price equal to the lesser of (i) 105% of the offering price per share
of the Company's common stock in the Company's anticipated initial public
offering as stated in the Company's prospectus for such initial public offering,
on the closing of such initial public offering or (ii) $8.25 (the "Exercise
Price"), upon presentation and surrender of the Class E 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.
1. REGISTRATION. The Class E Warrants shall be numbered and shall be
registered in the Class E Warrant Register. The Company shall be entitled to
treat the Holder of any Class E 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 E Warrant on the part of any other person, and shall not
be liable for any registration of transfer of Class E 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 E 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
<PAGE> 2
authority shall be produced. Upon any registration of transfer, the Company
shall countersign and deliver new Class E Warrants to the person entitled
thereto.
3. FORM OF CLASS E WARRANTS. The text of the Class E 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 E Warrants are subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The Class E 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 E Warrants may be manual or facsimile. Class E 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 E Warrants or did not hold such office on the date of
this Agreement. Class E 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 E 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 E Warrant desiring to
exchange Class E Warrant certificates shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, the
certificate or certificates evidencing the Class E Warrant or Class E Warrants
to be so exchanged. Thereupon, the Company shall countersign and deliver to the
person entitled thereto a new Class E Warrant certificate or certificates, as
the case may be, as so requested.
5. TERM OF CLASS E 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 the date of this Agreement until 3:00 P.M. New
York time, on the date five (5) years from the date of this Agreement (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 E Warrants, upon surrender, to the Company at the
principal office of the Company of the certificate or certificates evidencing
the Class E 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 E
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.
<PAGE> 3
Upon such surrender of Class E 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 E Warrants, together with
cash, as provided in Section 15 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 E Warrants and payment of the Exercise Price, as
aforesaid; provided, however, that if, at the date of surrender of such Class E
Warrants and payment of such Exercise Price, the transfer books for the Shares
or other class of stock purchasable upon the exercise of such Class E Warrants
shall be closed, the certificates for the Shares in respect of which such Class
E 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
E 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 E 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 E Warrants, a new certificate evidencing the remaining Class E Warrant or
Class E 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 E 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 E Warrants or certificates for Shares.
8. REDEMPTION.
(a) On not less than thirty (30) days notice given at any time after
the date of this Agreement, the Class E Warrants may be redeemed, at the option
of the Company, at a redemption price of $0.01 per Class E Warrant, provided
that the Market Price (defined below) of the Shares issuable upon exercise of
the Class E Warrant shall equal or exceed 200% of the Exercise Price (the
"Target Price"), subject to adjustment as set forth in Section 8(f) below.
Market Price for the purpose of this Section 8 shall mean (i) the average
closing bid price for any ten (10) consecutive trading days ending within five
(5) days prior to the date of the notice of redemption, which notice shall be
mailed no later than five days thereafter, of the Shares as reported by the
National Association of Securities Dealers, Inc. Automatic Quotation System or
(ii) the
<PAGE> 4
average of the last reported sale price, for ten (10) consecutive business days,
ending within five (5) days of the date of the notice of redemption, which
notice shall be mailed no later than five days thereafter, on the primary
exchange on which the Shares are traded, if the Shares are traded on a national
securities exchange.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Class E Warrants, it shall
mail a notice of redemption to each of the Holders of the Class E Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth (30th) day
before the date fixed for redemption, at their last address as shall appear on
the records of the Company. Any notice mailed in the manner provided herein
shall be conclusively presumed to have been duly given whether or not the Holder
receives such notice.
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Class E Warrant
certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Class E Warrants shall terminate at 5:00 P.M. (New York
time) on the business day immediately preceding the date fixed for redemption.
The date fixed for the redemption of the Class E Warrants shall be the
Redemption Date. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall be
prima facie evidence of the facts stated therein.
(d) Any right to exercise a Class E Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Date, Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Class E Warrant
certificates prior to the Redemption Date, the redemption price.
(e) From and after the Redemption Date specified for, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Holder thereof of one or more
Class E Warrant certificates evidencing Class E Warrants to be redeemed, deliver
or cause to be delivered to or upon the written order of such Holder a sum in
cash equal to the redemption price of each such Class E Warrant. From and after
the Redemption Date and upon the deposit or setting aside by the Company of a
sum sufficient to redeem all the Class E Warrants called for redemption, such
Class E Warrants shall expire and become void and all rights hereunder and under
the Class E Warrant certificates, except the right to receive payment of the
redemption price, shall cease.
<PAGE> 5
(f) If the Company pays a dividend in shares of common stock or
makes a distribution in shares of common stock or if the shares of the Company's
common stock are subdivided or combined into a greater or smaller number of
shares of common stock, the Target Price shall be proportionally adjusted by the
ratio which the total number of shares of common stock outstanding immediately
prior to such event bears to the total number of shares of common stock to be
outstanding immediately after such event.
9. MUTILATED OR MISSING WARRANTS. In case any of the certificates
evidencing the Class E 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 E Warrant
certificate, or in lieu of and substitution for the Class E 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 E Warrant certificate shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company may
prescribe.
10. 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 E 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 E 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 E Warrants surrendered in the exercise of the rights
thereby evidenced shall be cancelled by the Company.
11. 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 E Warrant
immediately prior thereto shall be adjusted so that the Holder of each Class E
Warrant shall be entitled to receive the
<PAGE> 6
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 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 E Warrant is adjusted, as herein provided, the Exercise
Price per Share payable upon exercise of each Class E Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Shares purchasable upon
the exercise of each Class E Warrant immediately prior to such adjustment, and
of which the denominator shall be the number of Shares so purchasable
immediately thereafter. Whenever the number of Shares purchasable upon the
exercise of each Class E Warrant or the Exercise Price is adjusted, as herein
provided, the Company shall promptly mail by first class mail, postage prepaid,
to each Holder of a Class E Warrant or Class E Warrants notice of such
adjustment or adjustments setting forth the number of Shares purchasable upon
the exercise of each Class E Warrant 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.
12. NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 11, no
adjustment in respect of any dividends shall be made during the term of the
Class E Warrants or upon the exercise of the Class E Warrants.
13. 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 E 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 Class E 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 E 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 11. The Company
shall mail by first class mail, postage prepaid, to the Holder of each Class E
Warrant, notice of the execution of any such agreement. The provisions of this
Section 13 shall similarly apply to successive consolidations, mergers, sales,
or conveyances.
14. STATEMENT ON WARRANTS. Irrespective of any adjustments in the
number or kind of Shares purchasable upon the exercise of
<PAGE> 7
the Class E Warrants, Class E Warrants theretofore or thereafter issued may
continue to express the same number and kind of Shares as are stated in the
Class E Warrants initially issuable pursuant to this Agreement.
15. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractional Shares on the exercise of Class E Warrants. If more than one Class E
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 E Warrants so presented. If any fraction of a Share
would, except for the provisions of this Section 15, be issuable on the exercise
of any Class E 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.
16. NO RIGHTS AS STOCKHOLDER. Nothing contained in this Agreement or in
any of the Class E 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.
17. NOTICES. Any notice pursuant to this Agreement by the Company or by
the Holder of any Class E 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 E 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.
18. AMENDMENTS. The Company may from time to time supplement or amend
this Agreement, without the approval of any Holders of Class E 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
<PAGE> 8
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 E Warrants and which shall not materially adversely
affect the interest of the Holders of Class E Warrants.
19. 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.
20. RESTRICTED SECURITIES. The Class E Warrants and the shares of
Common Stock issuable upon exercise of the Class E Warrants have not been
registered under the Securities Act of 1933, as amended, and that the Class E
Warrants and the Shares issuable upon exercise of the Class E 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 E Warrant certificates
and certificates evidencing Shares issuable upon exercise of the Class E
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.
21. APPLICABLE LAW. This Agreement and each Class E 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.
22. 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.
23. 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 E 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 E Warrants.
24. CAPTIONS. The captions of sections and paragraphs of this Agreement
have been inserted for convenience only and shall
<PAGE> 9
have no substantive effect.
25. 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 E 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:
/s/ FREDERIK G.M. RODENHUIS /s/ LYLE R. MAUL
- --------------------------- ----------------
By: Frederik G.M. Rodenhuis, By: Lyle R. Maul,
President Secretary
<PAGE> 10
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.
BEVERAGE WORKS, INC.
CLASS E WARRANT CERTIFICATE
Certificate Number ___ ________ Warrants
This Warrant Certificate certifies that ____________________ is the
registered holder of the number of Warrants indicated above (herein referred to
as the "Warrants") to purchase shares of the Common Stock, no par value
("Shares"), of Beverage Works, Inc., a California corporation (herein referred
to as the "Company"). Each Warrant entitles the holder thereof to purchase from
the Company, for a five (5) year period commencing on _________________, 1996
one fully-paid and nonassessable Share at an exercise price equal to the lesser
of (i) 105% of the offering price of the Company's common stock in the Company's
anticipated initial public offering as stated in the Company's prospectus for
such initial public offering or (ii) $8.25 (the "Exercise Price") upon
presentation and surrender of this 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.
Payment of the Exercise Price shall be made in lawful money of the United States
of America. This Warrant Certificate is subject to terms, provisions and
conditions of the Class E Warrant Agreement, which is incorporated by reference
and to which reference is hereby made for a full description of the rights,
limitations, obligations, duties and immunities hereunder of the Company and the
holder of the Warrant Certificates, including the right of the Company to redeem
the Warrants at $0.01 per Warrant provided the Company's common stock has
achieved a certain trading price. This Warrant Certificate, upon surrender to
the Company, may be exchanged for another Warrant Certificate or Warrant
Certificates evidencing a like aggregate number of Warrants. If this Warrant
Certificate shall be exercised in part, the holder hereof shall be entitled to
receive upon surrender hereof, another Warrant Certificate or Warrant
Certificates evidencing the number of Warrants not exercised.
COMPANY:
BEVERAGE WORKS, INC. Attest:
- ---------------------------- ----------------------------
By: Frederik G.M. Rodenhuis, By: Lyle R. Maul,
President Secretary
<PAGE> 11
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants, with right of
survivorship and not as tenants in common
UNIF GIFT MIN ACT -Uniform Gifts to Minors Act of ______(State)______
Additional abbreviations may also be used thought not in the above list.
ELECTION TO PURCHASE
The undersigned Registered Holder hereby irrevocably elects to exercise _____
Class E Warrants represented by this Class E Warrant certificate, and to
purchase the securities issuable upon the exercise of such Class E Warrants, and
requests that certificates for such securities shall be issued in the name of
and be delivered to:
Name ____________________________________________________
Address ____________________________________________________
Taxpayer I.D. ____________________________________________________
Soliciting Broker ____________________________________________________
and if such number of Class E Warrants shall not be all the Class E Warrants
evidenced by this Class E Warrant certificate, that a new Class E Warrant
Certificate for the balance of such Class E Warrants be registered in the name
of, and delivered to, the Registered Holder at the address stated below:
Name ____________________________________________________
Address ____________________________________________________
Taxpayer I.D. ____________________________________________________
ASSIGNMENT
FOR VALUE RECEIVED __ HEREBY SELL, ASSIGN AND TRANSFER UNTO
Name ____________________________________________________
Address ____________________________________________________
Taxpayer I.D. ____________________________________________________
Class E Warrants represented by the within Certificate and do hereby irrevocably
constitute and appoint _______________________________________________ attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
SIGNATURE
Dated: _____________________________________
Signed: _____________________________________
In presence of
- --------------------------------------------- ---------------------------------
THE SIGNATURE TO THE ELECTION TO PURCHASE OR ASSIGNMENT MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
<PAGE> 1
Exhibit 4.12
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of December 18, 1996, by
and between BEVERAGE WORKS, INC., a California corporation (the "Company"), and
the investors listed on Schedule "A" hereto, each of which is herein referred to
as an "Investor."
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Agreement:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.8 hereof.
(c) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(d) The term "Registrable Securities" means (i) the shares of
common stock issuable or issued upon exercise of the Class E Warrants, and (ii)
any shares of common stock of the Company issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of the shares
referenced in (i) above, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 1 are not assigned.
(e) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 OBLIGATIONS OF THE COMPANY. The Company shall:
(a) Prepare and file with the SEC a registration statement for
the Company's proposed initial public offering ("IPO"), which shall include such
Registrable Securities and use reasonable good faith efforts to cause such
registration statement to become effective, and keep such registration statement
effective for a period of up to one hundred eighty (180) days after the lockup
under Section 1.9 is released or is no longer applicable to the Registrable
Securities.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
<PAGE> 2
(c) Furnish to the Holders such numbers of copies of a final
prospectus, but no preliminary prospectus, in conformity with the requirements
of the Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use reasonable good faith efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the managing underwriter for the proposed IPO.
(e) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(f) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.3 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.4 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registration
pursuant to Section 1.2 for each Holder (which right may be assigned as provided
in Section 1.8), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Holders hereunder; if Company counsel does
not make itself available for this purpose, the Company will pay the reasonable
fees and disbursements of one counsel for the selling Holders selected by
<PAGE> 3
them, but excluding underwriting discounts and commissions relating to
Registrable Securities.
1.5 UNDERWRITING REQUIREMENTS. In connection with the proposed IPO
or any offering involving an underwriting of shares of the Company's capital
stock, the Company shall not be required to include any of the Holders'
securities in such underwriting.
1.6 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or delaying any such registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
1.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, and each person, if any, who controls such Holder
within the meaning of the Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act or any rule or regulation
promulgated under the Act, and the Company will pay to each such Holder or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling
<PAGE> 4
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages, or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection 1.7(b), in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 1.7(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided, that, in no event shall any
indemnity under this subsection 1.7(b) exceed the gross proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.7, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.7.
(d) If the indemnification provided for in this Section 1.7 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party
<PAGE> 5
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.8 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to register
Registrable Securities pursuant to this Section 1 may be assigned (but only with
all related obligations) by a Holder to a transferee or assignee of such
securities, provided: (a) the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.9 below; and
(c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
1.9 "LOCK-UP" AGREEMENT. Each Holder hereby agrees that, during the
period of duration specified by the Company and the managing underwriter for the
proposed IPO, following the effective date of a registration statement of the
Company filed under the Act, it shall not, without the approval of the managing
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period.
The lock-up time period shall not exceed one hundred eighty (180) days. In
<PAGE> 6
order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Investor (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
2. MISCELLANEOUS.
2.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
2.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the internal laws of the State of California.
2.3 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.
2.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail, or
international equivalent, postage prepaid and addressed to the Company at its
principle executive offices and to any Investor at such address as indicated on
the books of the Company, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties.
2.6 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of
<PAGE> 7
any Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
2.8 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
2.9 ENTIRE AGREEMENT. This Agreement (including the Schedules
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
BEVERAGE WORKS, INC.: INVESTOR:
By: /s/ FREDERIK G.M. RODENHUIS By: /s/ FREDERIK G.M. RODENHUIS
--------------------------- ---------------------------
Frederik G.M. Rodenhuis, Frederik G.M. Rodenhuis
President pursuant to a limited power of
9800 S. Sepulveda Blvd., Suite attorney contained in the
720 Warrant Exchange Agreement
Los Angeles, CA 90045 between the Company and
Investor, dated December 18,
1996
<PAGE> 1
Exhibit 4.13
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of December 19, 1996, by
and between Beverage Works, Inc., a California corporation (the "Company"), and
Frederick Friedman ("Investor")
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Agreement:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.9 hereof.
(c) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(d) The term "Registrable Securities" means the Common Stock
issuable or issued upon exercise of the Class B Warrants.
(e) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 OBLIGATIONS OF THE COMPANY. The Company shall:
(a) Prepare and file with the SEC a registration statement for
the Company's proposed initial public offering ("IPO"), which shall include such
Registrable Securities and use its best efforts to cause such registration
statement to become effective, and keep such registration statement effective
for a period of up to one hundred eighty (180) days after the lock-up under
Section 1.10 is released or is no longer applicable to the Registrable
Securities.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a final
prospectus, but no preliminary prospectus, in conformity with the requirements
of the Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
<PAGE> 2
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the managing
underwriter for the proposed IPO.
(e) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(f) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.3 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.4 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registration
pursuant to Section 1.2 for each Holder (which right may be assigned as provided
in Section 1.9), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Holders hereunder; if Company counsel does
not make itself available for this purpose, the Company will pay the reasonable
fees and disbursements of one counsel for the selling Holders selected by them,
but excluding underwriting discounts and commissions relating to Registrable
Securities.
1.5 UNDERWRITING REQUIREMENTS. In connection with the proposed IPO
or any offering involving an underwriting of shares of the Company's capital
stock, the Company shall not be required to
<PAGE> 3
include any of the Holders' securities in such underwriting.
1.6 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or delaying any such registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
1.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, and each person, if any, who controls such Holder
within the meaning of the Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act or any rule or regulation
promulgated under the Act, and the Company will pay to each such Holder or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.8(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are
<PAGE> 4
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection 1.8(b), in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 1.8(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided, that, in no event shall any
indemnity under this subsection 1.8(b) exceed the gross proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.8, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.8.
(d) If the indemnification provided for in this Section 1.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability,
<PAGE> 5
claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.8 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to register
Registrable Securities pursuant to this Section 1 may be assigned (but only with
all related obligations) by a Holder to a transferee or assignee of such
securities, provided: (a) the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.10 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
1.10 "LOCK-UP" AGREEMENT. Each Holder hereby agrees that, during the
period of duration specified by the Company and the managing underwriter for the
proposed IPO, following the effective date of a registration statement of the
Company filed under the Act, it shall not, without the approval of the managing
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period.
The lock-up time period shall not exceed one hundred eighty (180) days. In order
to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Investor (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
<PAGE> 6
2. MISCELLANEOUS.
2.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
2.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
2.3 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.
2.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail, or
international equivalent, postage prepaid and addressed to the Company at its
principle executive offices and to any Investor at such address as indicated on
the books of the Company, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties.
2.6 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
2.8 SEVERABILITY. If one or more provisions of this
<PAGE> 7
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
2.9 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including
the Schedules hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY INVESTOR
BEVERAGE WORKS, INC.
By:/s/ FREDERIK G.M. RODENHUIS By:/s/ FREDERICK FRIEDMAN
--------------------------- ----------------------
Frederik G.M. Rodenhuis, Frederick Friedman
President
<PAGE> 1
Exhibit 4.14
NOTE EXCHANGE AGREEMENT
THIS NOTE EXCHANGE AGREEMENT is made as of December 19, 1996, by and
among Beverage Works, Inc. (the "Company") and Frederick Friedman ("Investor").
RECITALS
WHEREAS, the Company entered into a Note Agreement, as amended, and
Promissory Note dated April 20, 1996, copies of which are annexed hereto as
Exhibit "A", providing for repayment by the Company of a loan provided by
Investor; and
WHEREAS, as an inducement to enter into the Note Agreement, the Company
issued 35,000 Class B Warrants to Investor, a copy of the Class B Warrant
Agreement is annexed hereto as Exhibit "B"; and
WHEREAS, the parties hereto desire to extend the maturity date of the
Promissory Note as provided in the Revised Promissory Note, a copy of which is
annexed hereto as Exhibit "C"; and
WHEREAS, as an inducement to grant the extension of the maturity date,
the Company desires to issue twenty thousand (20,000) shares of its Common
Stock, no par value, to Investor.
NOW THEREFORE, the Parties hereby agree as follows:
1. CONSIDERATION.
1.1 Subject to the terms and conditions of this Agreement and as and
for consideration for Investor executing this Agreement, the Company agrees as
follows:
1.1.1 Shares. The Company agrees to issue at the Closing Twenty
Thousand (20,000) shares of Common Stock, no par value, of the Company
("Shares").
1.1.2 Class B Warrants. The Company agrees to issue at the
Closing thirty-five thousand (35,000) Class B Warrants in addition to the 35,000
Class B Warrants previously issued to Investor.
1.1.3 Registration Rights. The Company agrees to execute at the
Closing the Registration Rights Agreements copies of which are annexed hereto as
Exhibit "D".
1.1.4 Revised Promissory Note. The Company agrees to execute at
the Closing the Revised Promissory Note, a copy of which is annexed hereto as
Exhibit "C". The Revised Promissory Note is to be dated the date of Closing,
with the principal amount equal to $500,000 plus accrued but unpaid interest on
the Original Note at the Closing, to bear interest from such date at the rate of
18% per annum, simple interest, payable on the fifteenth day of each month
(commencing January 15, 1997) and at
<PAGE> 2
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) April 15, 1997,
whichever shall occur earlier. The Revised Promissory Note shall be secured by
all equipment, inventory and accounts receivable of the Company. The Company
shall execute and file with the California Secretary of State a Form UCC-1
containing such appropriate information as reasonably requested by Investor.
1.2 Subject to the terms and conditions of this Agreement and as and
for consideration for the Company executing this Agreement, Investor agrees as
follows:
1.2.1 Registration Rights. Investor agrees to execute the
Registration Rights Agreements, copies of which are annexed hereto as Exhibit
"D".
1.2.2 Terminate April 20, 1996 Note. Investor agrees to
surrender to the Company the Note Agreement and Promissory Note dated April 20,
1996, copies of which are annexed hereto as Exhibit "A", at the Closing.
1.2.3 Issue Revised Note. Investor agrees to accept the Revised
Promissory Note, a copy of which is annexed hereto as Exhibit "C", as
satisfaction in full for the Note Agreement and Promissory Note dated April 20,
1996.
1.3 Closing. The transactions contemplated hereby shall take place
at Hecht & Steckman, P.C., 60 East 42nd St., Suite 5101, New York, NY 10165, at
10:00 a.m., December 18, 1996, or at such other time and place as the Company
and Investor mutually agree upon in writing (which time and place are designated
as the "Closing"). At the Closing the Company shall deliver to Investor (i) a
certificate representing the Shares, (ii) a certificate representing the
additional 35,000 Class B Warrants, (iii) the Revised Promissory Note, and (iv)
the Registration Rights Agreement. At the Closing, Investor shall deliver to the
Company (i) the original Promissory Note dated April 20, 1996, and (ii) the
Registration Rights Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Investor that:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California.
2.2 Shares and Class B Warrants. The Shares and Class B Warrants
when issued, sold and delivered in accordance with the terms of this Agreement
for the consideration expressed herein, will be duly and validly issued, fully
paid, and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Registration Rights
Agreements,
<PAGE> 3
and under applicable state and federal securities laws.
2.3 Authorization. All corporate action on the part of the Company
necessary for the authorization, execution and delivery of this Agreement, the
performance of all obligations of the Company hereunder and thereunder, and the
authorization, issuance, sale and delivery of the Revised Promissory Note,
Shares and Class B Warrants being issued hereunder has been taken or will be
taken prior to the Closing, and this Agreement constitutes a valid and legally
binding obligation of the Company, enforceable in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization, and
other laws of general application affecting enforcement of creditors' rights
generally, and as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
3. REPRESENTATIONS AND WARRANTIES OF INVESTOR. Investor hereby
represents and warrants that:
3.1 Authorization. Investor has full power and authority to enter
into this Agreement and the Agreement constitutes his valid and legally binding
obligation, enforceable in accordance with its terms.
3.2 Purchase Entirely for Own Account. This Agreement is made with
Investor in reliance upon Investor's representation to the Company, which by
Investor's execution of this Agreement, Investor hereby confirms, that the
Revised Promissory Note, Shares and Class B Warrants (collectively the
"Securities") to be acquired by Investor will be acquired solely for investment
and for Investor's own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, and that Investor has no
present intention of selling or otherwise distributing the same. By executing
this Agreement, Investor further represents that Investor does not have any
contract, undertaking, agreement or arrangement with any person or entity to
sell, transfer or grant participations to such person or entity or to any third
person, with respect to any of the Securities.
3.3 Disclosure of Information. Investor represents that he has
received all the information and documentation, financial and otherwise and has
conducted all investigations as to the Company and Securities he considers
necessary or appropriate for deciding whether to execute this Agreement.
Investor acknowledges that the Company has made no other representations except
as provided in Section 2 and that Investor has relied solely on his own
inquiries and investigations with respect to his decision to execute this
Agreement.
3.4 Investment Experience. Investor acknowledges that he is able to
fend for himself, can bear the economic risk of this investment, and has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of the investment in the Securities.
<PAGE> 4
3.5 Accredited Investor. Investor is an "accredited investor" with
respect to the Company within the meaning of Rule 501 of Regulation D,
promulgated under the Securities Act of 1933, as amended (the "Act"), as
presently in effect.
3.6 Restricted Securities. Investor understands that the Securities
he is purchasing are characterized as "restricted securities" under the federal
securities laws and that under such laws and applicable regulations such
securities may be resold without registration under the Act, only in certain
limited circumstances. In this connection, Investor represents that he is
familiar with Rule 144 promulgated under the Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 provided and to the extent this Section is then applicable, and:
3.7.1 There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
3.7.2 Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and if requested by the
Company, Investor shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not require
registration of such Securities under the Act, or applicable Blue Sky law.
3.7.3 The Company shall have no obligation or responsibility
with regards to any subsequent sale or transfer of any of the Securities by
Investor.
3.8 Legends. It is understood that the certificates evidencing the
Securities will bear a legend in substantially the following form, in addition
to any other legend required by applicable state or federal law:
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
<PAGE> 5
UNDER THE ACT AND SUCH STATE LAWS.
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
Investor under Section 1 of this Agreement are subject to the fulfillment on or
before the Closing of each of the following conditions:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by him on or before the Closing.
4.3 Additional Agreements. The Company shall have delivered to
Investor (i) a fully executed Revised Promissory Note in substantially the form
annexed hereto as Exhibit "C", (ii) fully executed Registration Rights
Agreements, in substantially the forms annexed hereto as Exhibit "D" and (iii)
the Class B Warrant Certificate in substantially the form annexed hereto as
Exhibit "E".
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company under Section 1 of this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions:
5.1 Representations and Warranties. The representations and
warranties of Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 Qualifications. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
5.3 Additional Agreements. Investor shall have delivered to the
Company (i) fully executed Registration Rights Agreements in substantially the
forms annexed hereto as Exhibit "D", and (ii) the original Promissory Note dated
April 20, 1996.
6. INDEMNIFICATION.
6.1 Indemnity. Investor hereby agrees to hold harmless, indemnify
and defend the Company, from and against any obligation, liability, encumbrance,
loss, damage, cost, expense, cause of
<PAGE> 6
action, in law or equity, asserted against or incurred by the Company ("Claims")
asserted by any third person, against the Company, resulting from any untrue
statement made in, or breach of, any representation, warranty or covenant by
Investor.
6.2 Prerequisites of Indemnity. This indemnity provision shall cover
the costs and expenses of the Company, including reasonable attorney's fees,
related to claims, actions, suits and/or judgments incident to any matters
covered by such indemnity, except that Investor shall in no event be liable for
costs or expenses incurred by the Company prior to notification as described in
Paragraph 6.3 below, and Investor may, at his option undertake the defense and
indemnification of any Claim by counsel reasonably acceptable to the Company,
following which the Company shall not be entitled to be reimbursed for any costs
or expenses incurred by the Company directly from the defense or settlement of
such Claims.
6.3 Timing of Notice. In connection with a claim by the Company for
indemnification under this Section 6, the Company shall notify, in writing,
Investor, by certified or registered mail or international equivalent, of any
Claim against the Company covered by this Section 6 within a reasonable time
after it has received notice of such Claim so as not to cause Investor to be
prejudiced by a loss of rights. Failure to notify Investor within such period
shall result solely in the Company receiving no indemnity under the terms of
this Agreement only if such failure materially prejudices Investor, and in no
event shall preclude the Company from seeking indemnity without reference to the
terms of this Agreement.
7. MISCELLANEOUS.
7.1 Survival of Warranties. The warranties, representations and
covenants of the Company and Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
7.2 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective heirs, personal representatives, successors and
assigns of the parties (including any transferee of any Shares or Class B
Warrants). Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective heirs, personal
representatives, successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. This Agreement shall not be assignable by either party
without the consent of the other party.
7.3 Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of California.
7.4 Counterparts. This Agreement may be executed in two
<PAGE> 7
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail, or
international equivalent, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other party.
7.7 Finder's Fee. Each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction. The Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of his agents, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless the Investor from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.8 Expenses. Except as provided in Section 7.12, whether or not the
Closing is effected, each party shall pay all costs and expenses that they incur
with respect to the negotiation, execution, delivery and performance of this
Agreement.
7.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the parties.
7.10 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
7.11 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except
<PAGE> 8
as specifically set forth herein or therein.
7.12 Arbitration. Any dispute arising out of this Agreement shall be
submitted to binding arbitration before the American Arbitration Association
located in Los Angeles, California. The prevailing party in any such arbitration
shall be entitled to recover its costs, including reasonable legal fees,
incurred in connection with the arbitration, including confirming any
arbitration award and appeals, if any.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE COMPANY: INVESTOR:
/s/ FREDERIK G.M. RODENHUIS /s/ FREDERICK FRIEDMAN
- --------------------------- ----------------------
Frederik G.M. Rodenhuis, Frederick Friedman
President 207 West Old Mill Road
Beverage Works, Inc. Greenwich, CT 06831
9800 S. Sepulveda Blvd.
Suite 720
Los Angeles, CA 90045
<PAGE> 9
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.
REVISED PROMISSORY NOTE
$500,000
APRIL 15, 1997
1. Beverage Works, Inc., a California corporation (the "Company"), for
value received, hereby promises to pay to Frederick Friedman ("Payee"):
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) April 15, 1997, 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 January 15, 1997).
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. 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.
4. Any term, covenant, agreement or condition herein may be amended or
compliance therewith may be waived, only upon the written consent of the Payee
and the Company. 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
<PAGE> 10
shall extend to or affect any obligation not expressly amended or waived or
impair any right consequent thereon.
5. The Company may prepay this Note at any time prior to Maturity
without penalty.
6. The laws of the State of California shall apply.
BEVERAGE WORKS, INC.
Dated: December 19, 1996 /s/ FREDERIK G.M. RODENHUIS
----------------- ---------------------------
Frederik Rodenhuis
Chief Executive Officer
<PAGE> 1
Exhibit 4.15
REPRESENTATIVE'S WARRANT AGREEMENT (the "Representative's Warrant
Agreement" or "Agreement"), dated as of _______________, 1997, between BEVERAGE
WORKS, INC. (the "Company"), and FIRST LONDON SECURITIES CORPORATION (the
"Representative").
W I T N E S S E T H:
WHEREAS, the Representative has agreed, pursuant to that certain
underwriting agreement dated as of the date hereof by and between the Company
and the Representative (the "Underwriting Agreement"), to act as the
representative of the Underwriters in connection with the Company's proposed
public offering of 1,500,000 shares of the Company's Common Stock at $____ per
share and 1,500,000 Redeemable Class A Warrants ("Public Warrants") at $____ per
warrant (the "Public Offering"); and
WHEREAS, the Company proposes to issue to the Representative and/or
persons related to the Representative as those persons are defined in Rule 2710
of the NASD Conduct Rules (the "Holder"), 150,000 warrants ("Common Stock
Representative Warrants") each Common Stock Representative Warrant entitling the
Holder to purchase one share of the Company's Common stock (the "Shares") and
150,000 warrants ("Warrant Representative Warrants") each Warrant Representative
Warrant entitling the Holder to purchase one Common Stock Purchase Warrant
("Underlying Warrants") exercisable to purchase one share of the Company's
Common Stock. The "Common Stock Representative Warrants" and the "Warrant
Representative Warrants" are collectively referred to as the "Warrants". The
"Shares" and the "Underlying Warrants" are collectively referred to as the
"Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part of
the compensation in connection with, the Representative acting as representative
pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of ONE HUNDRED DOLLARS AND NO CENTS ($100.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant and Period.
The Public Offering has been registered under a Registration Statement
on Form SB-2 (File No. 333-11789) and declared effective by the Securities and
Exchange Commission (the "SEC" or "Commission") on _____________, 1997 (the
"Effective Date"). This Agreement, relating to the purchase of the Warrants, is
entered into pursuant to the Underwriting Agreement between the Company and the
Representative, as representative of the Underwriters, in
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<PAGE> 2
connection with the Public Offering.
Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the period commencing one year
after the Effective Date and expiring five (5) years thereafter (the "Expiration
Time"), up to 150,000 Shares at an initial exercise price (subject to adjustment
as provided in Article 8 hereof) of $____ per share (120% of the public offering
price) and/or 150,000 non-redeemable Underlying Warrants at an initial exercise
price of $____ per warrant (120% of the public offering price) (the "Exercise
Price" or "Purchase Price"), subject to the terms and conditions of this
Agreement. Each Underlying Warrant is exercisable to purchase one (1) share of
Common Stock at $____ per share during the five (5) year period commencing on
the Effective Date.
Except as specifically otherwise provided herein, the Shares and the
Underlying Warrants constituting the Warrant Securities shall bear the same
terms and conditions as such securities described under the caption "Description
of Securities" in the Registration Statement, and as designated in the Company's
Articles of Incorporation and any amendments thereto, and the Underlying
Warrants shall be governed by the terms of the Warrant Agreement executed in
connection with the Company's public offering (the "Warrant Agreement"), except
as provided herein, and the Holders shall have registration rights under the
Securities Act of 1933, as amended (the "Act"), for the Warrants, the Shares,
the Underlying Warrants, and the shares of Common Stock underlying the
Underlying Warrants, as more fully described in paragraph Article 7 of this
Representative's Warrant Agreement. In the event of any extension of the
expiration date or reduction of the exercise price of the Public Warrants, the
same such changes to the Underlying Warrants shall be simultaneously effected,
except that the Underlying Warrants shall expire no later than five (5) years
from the Effective Date.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificate",) delivered and to
be delivered pursuant to this Agreement shall be in the form set forth in the
form of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Full Exercise.
(i) The Holder hereof may effect a cash exercise of the Common
Stock Representative Warrants and/or the Warrant Representative
Warrants and/or the Underlying Warrants by surrendering the Warrant
Certificate, together with a Subscription in the form of Exhibit "A"
attached thereto, duly executed by such Holder to the Company, at any
time prior to the Expiration Time, at the Company's principal office,
accompanied by payment in cash or by certified or official bank check
payable to
2
<PAGE> 3
the order of the Company in the amount of the aggregate purchase price
(the "Aggregate Price"), subject to any adjustments provided for in
this Agreement. The aggregate price hereunder for each Holder shall be
equal to the exercise price as set forth in Article 6 hereof multiplied
by the number of Warrants, Underlying Warrants or Shares that are the
subject of each Holder's Warrant (as adjusted as hereinafter provided).
(ii) The Holder hereof may effect a cashless exercise of the
Common Stock Representative Warrants and/or the Underlying Warrants by
delivering the Warrant Certificate to the Company together with a
Subscription in the form of Exhibit "B" attached thereto, duly executed
by such Holder, in which case no payment of cash will be required. Upon
such cashless exercise, the number of Shares to be purchased by each
Holder hereof shall be determined by dividing: (i) the number obtained
by multiplying the number of Shares that are the subject of each
Holder's Warrant Certificate by the amount, if any, by which the then
Market Value (as hereinafter defined) exceeds the Purchase Price; by
(ii) the per share purchase price. In no event shall the Company be
obligated to issue any fractional securities and, at the time it causes
a certificate or certificates to be issued, it shall pay the Holder in
lieu of any fractional securities or shares to which such Holder would
otherwise be entitled, by Company check, in an amount equal to such
fraction multiplied by the Market Value. The Market Value shall be
determined on a per Share basis as of the close of the business day
preceding the exercise, which determination shall be made as follows:
(a) if the Common Stock is listed for trading on a national or regional
stock exchange or is included on the NASDAQ National Market or
Small-Cap Market, the average closing sale price quoted on such
exchange or the NASDAQ National Market or Small-Cap Market which is
published in The Wall Street Journal for the ten (10) trading days
immediately preceding the date of exercise, or if no trade of the
Common Stock shall have been reported during such period, the last sale
price so quoted for the next day prior thereto on which a trade in the
Common Stock was so reported; or (b) if the Common Stock is not so
listed, admitted to trading or included, the average of the closing
highest reported bid and lowest reported ask price as quoted on the
National Association of Securities Dealer's OTC Bulletin Board or in
the "pink sheets" published by the National Daily Quotation Bureau for
the first day immediately preceding the date of exercise on which the
Common Stock is traded.
3.2 Partial Exercise. The securities referred to in Section 3.1 above
also may be exercised from time to time in part by surrendering the Warrant
Certificate in the manner specified in Section 3.1 hereof, except that with
respect to a cash exercise, the Purchase Price payable shall be equal to the
number of securities being purchased hereunder multiplied by the per security
Purchase Price, subject to any adjustments provided for in this Agreement. Upon
any such partial exercise, the Company, at its expense, will forthwith issue to
the Holder hereof a new Warrant Certificate or Warrants of like tenor calling in
the aggregate for the number of securities (as constituted as of the date
hereof) for which the Warrant Certificate shall not have been exercised, issued
in the name of the Holder hereof or as such Holder (upon payment by
3
<PAGE> 4
such Holder of any applicable transfer taxes) may direct.
4. Issuance of Certificates.
Upon the exercise of the Warrants and/or the Underlying Warrants, the
issuance of certificates for the shares of Common Stock and/or other securities
shall be made forthwith (and in any event within three (3) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Articles 5 and 7 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock and/or other securities shall be executed on behalf of the
Company by the manual or facsimile signature of the then present Chairman or
Vice Chairman of the Board of Directors or President or Vice President of the
Company under its corporate seal reproduced thereon, attested to by the manual
or facsimile signature of the then present Secretary or Assistant Secretary of
the Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants.
The Holder of a Warrant Certificate, by acceptance thereof, covenants
and agrees that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the Effective Date of the Public Offering, except (a) to officers
of the Representative or to officers and partners of the other Underwriters or
Selected Dealers participating in the Public offering; (b) by will; or (c) by
operation of law.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices.
The initial exercise price of each Common Stock Representative Warrant
shall be $____ per share (120% of the public offering price) . The initial
exercise price of each Warrant Representative Warrant shall be $____ per
Underlying Warrant (120% of the public offering price). The initial exercise
price of each Underlying Warrant shall be $____ per share (120% of the public
offering price). The adjusted exercise price shall be the price which shall
result from time to time from any and all adjustments of the initial exercise
price in accordance with the provisions of Article 8 hereof.
4
<PAGE> 5
The Warrant Representative Warrants and the Underlying Warrants are exercisable
during the five (5) year period commencing on the Effective Date.
6.2 Exercise Price.
The term "Exercise Price" herein shall mean the initial exercise price
or the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
The Warrants, the Shares, the Underlying Warrants and the shares of
Common Stock issuable upon exercise of the Underlying Warrants (collectively the
"Registrable Securities") have been registered under the Securities Act of 1933,
as amended (the "Act"). Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares, the Underlying Warrants and/or the shares
of Common Stock issuable upon exercise of the Underlying Warrants shall bear the
following legend in the event there is no current registration statement
effective with the Commission at such time as to such securities:
The securities represented by this certificate may not be offered or
sold except pursuant to (i) an effective registration statement under
the Act, (ii) to the extent applicable, Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of securities),
or (iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act and applicable state securities laws is
available.
7.2 Piggyback Registration.
If, at any time commencing after the Effective Date of the Public
Offering and expiring seven (7) years thereafter, the Company prepares and files
a post-effective amendment to the Registration Statement, or a new Registration
Statement, under the Act, or files a Notification on Form 1-A or otherwise
registers securities under the Act, or files a similar disclosure document with
the Commission (collectively the "Registration Documents") as to any of its
securities under the Act (other than under a Registration Statement pursuant to
Form S-8), it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such Registration Document, to the
Representative and to all other Holders of the Registrable Securities of its
intention to do so. If the Representative and/or other Holders of the
Registrable Securities notify the Company within twenty (20) days after receipt
of any such notice of its or their desire to include any such Registrable
Securities in such proposed Registration Documents, the Company shall afford the
Representative and such Holders of such Registrable Securities the opportunity
to have any Registrable Securities registered under such Registration Documents
or any other available Registration Document.
5
<PAGE> 6
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing one (1) year after the Effective Date of the
Public Offering, and expiring four (4) years thereafter, the Holders of
Registrable Securities representing more than 50% of such securities at that
time outstanding shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission at the
sole expense of the Company, on one occasion, a registration statement and/or
such other documents, including a prospectus, and/or any other appropriate
disclosure document as may be reasonably necessary in the opinion of both
counsel for the Company and counsel for the Representative and Holders, in order
to comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Registrable Securities for nine (9) consecutive months
(or such longer period of time as permitted by the Act) by such Holders and any
other Holders of any of the Registrable Securities who notify the Company within
ten (10) days after being given notice from the Company of such request (Demand
Registration Statement). A Demand Registration shall not be counted as a Demand
Registration hereunder until such Demand Registration has been declared
effective by the SEC and maintained continuously effective for a period of at
least nine months or such shorter period when all Registrable Securities
included therein have been sold in accordance with such Demand Registration,
provided that a Demand Registration shall be counted as a Demand Registration
hereunder if the Company ceases its efforts in respect of such Demand
Registration at the request of the majority Holders making the demand for a
reason other than a material and adverse change in the business, assets,
prospects or condition (financial or otherwise) of the Company and its
subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by the majority of the Holders to
all other registered Holders of any of the Registrable Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3. at any time commencing one (1) year after
the Effective Date of the Public Offering, and expiring four (4) years
thereafter, the Holders of a majority of the Registrable Securities shall have
the right, exercisable by written request to the Company, to have the Company
prepare and file, on one occasion, with the Commission a registration statement
or any other appropriate disclosure document so as to permit a public offering
and sale for nine (9) consecutive months (or such longer period of time as
permitted by the Act) by any such Holder
6
<PAGE> 7
of Registrable Securities; provided, however, that the provisions of Section
7.4(b) hereof shall not apply to any such registration request and registration
and all costs incident thereto shall be at the expense of the Holder or Holders
participating in the offering pro-rata.
(d) Any written request by the Holders made pursuant to this Section
7.3 shall:
(i) specify the number of Registrable Securities which the
Holders intend to offer and sell and the minimum price at which the
Holders intend to offer and sell such securities;
(ii) state the intention of the Holders to offer such
securities for sale;
(iii) describe the intended method of distribution of such
securities; and
(iv) contain an undertaking on the part of the Holders to
provide all such information and materials concerning the Holders and
take all such action as may be reasonably required to permit the
Company to comply with all applicable requirements of the Commission
and to obtain acceleration of the effective date of the registration
statement.
(e) In the event the Company receives from the Holders of any
Registrable Securities representing more than 50% of such securities at that
time outstanding, a request that the Company effect a registration on Form S-3
with respect to the Registrable Securities and if Form S-3 is available for such
offering, the Company shall, as soon as practicable, effect such registration as
would permit or facilitate the sale and distribution of the Registrable
Securities as are specified in the request. All expenses incurred in connection
with a registration requested pursuant to this Section shall be borne by the
Company. Registrations effected pursuant to this Section 7.3 (e) shall not be
counted as registrations pursuant to Section 7.3 (a) and 7.3 (c) hereof.
7.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Section 7.2 or 7.3 hereof,
the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand pursuant to
Section 7.3, and shall use its best efforts to have any such registration
statement declared effective at the earliest practicable time. The Company will
promptly notify each seller of such Registrable Securities and confirm such
advice in writing, (i) when such registration statement becomes effective, (ii)
when any post-effective amendment to such registration statement becomes
effective and (iii) of any request by the SEC for any amendment or supplement to
such registration statement or any prospectus relating thereto or for additional
information.
7
<PAGE> 8
The Company shall furnish to each seller of such Registrable Securities
such number of copies of such registration statement and of each such amendment
and supplement thereto (in each case including each preliminary prospectus and
summary prospectus) in conformity with the requirements of the Act, and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if any,
and fees and expenses of Holder's counsel and the Holder's pro-rata portion of
the selling discount or commissions), fees and expenses in connection with all
registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder will pay all costs, fees and
expenses in connection with any registration statement filed pursuant to Section
7.3(c). If the Company shall fail to comply with the provisions of Section
7.3(a), the Company shall, in addition to any other equitable or other relief
available to the Holder, be liable for any or all special and consequential
damages sustained by the Holder requesting registration of their Registrable
Securities.
(c) The Company shall prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be reasonably necessary to keep such registration statement
effective for at least nine months (or such longer period as permitted by the
Act), and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the seller or
sellers of Registrable Securities set forth in such registration statement. If
at any time the SEC should institute or threaten to institute any proceedings
for the purpose of issuing a stop order suspending the effectiveness of any such
registration statement, the Company will promptly notify each seller of such
Registrable Securities and will use all reasonable efforts to prevent the
issuance of any such stop order or to obtain the withdrawal thereof as soon as
possible. The Company will use its good faith reasonable efforts and take all
reasonably necessary action which may be required in qualifying or registering
the Registrable Securities included in a registration statement for offering and
sale under the securities or blue sky laws of such states as reasonably are
required by the Holder, provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction. The
Company shall use its good faith reasonable efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities of the United States
or any State thereof as may be reasonably necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities.
(d) The Company shall indemnify the Holder of the Registrable
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within
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<PAGE> 9
the meaning of Section 15 of the Act or Section 20 (a) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"). against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from such registration statement but only to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to indemnify
the Representative as contained in the Underwriting Agreement.
(e) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each of the Holder of the
Registrable Securities to be sold pursuant to a registration statement, and
their successors and assigns, shall severally, and not jointly, indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 (a) of the
Exchange Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the Act,
the Exchange Act or otherwise, arising from written information furnished by
such Holder, or their successors or assigns, for specific inclusion in such
registration statement to the same extent and with the same effect as the
provisions contained in the Underwriting Agreement pursuant to which the
Representative has agreed to indemnify the Company, except that the maximum
amount which may be recovered from each Holder pursuant to this paragraph or
otherwise shall be limited to the amount of net proceeds received by the Holder
from the sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder to exercise their Warrants or Underlying Warrants prior to the filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Registrable Securities to be included in any registration statement
filed pursuant to Section 7.3 hereof without the prior written consent of the
Holders of the Registrable Securities representing a majority of such
securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement) , and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial
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<PAGE> 10
statements, as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public offerings
of securities.
(i) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and the
managing underwriter copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder shall reasonably request.
(j) With respect to a registration statement filed pursuant to Section
7.3, the Company, if requested, shall enter into an underwriting agreement with
the managing underwriter, reasonably satisfactory to the Company, selected for
such underwriting by Holders holding a majority of the Registrable Securities
requested to be included in such underwriting. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders, if required by the
underwriter to be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities, may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3 of
this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to paragraph 7.2 or paragraph
7.3 hereof if, within thirty (30) days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder, to the effect that
the entire number of Registrable Securities proposed to be sold by such Holder
may otherwise be sold, in the manner proposed by such Holder, without
registration under the Securities Act, or (ii) the SEC shall have issued a
no-action position, in form and substance satisfactory to counsel for the Holder
requesting registration of such Registrable Securities, to the effect that the
entire number of Registrable Securities proposed to be sold by such Holder may
be sold by it, in the manner proposed by such Holder, without registration under
the Securities Act.
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<PAGE> 11
(l) After completion of the Public Offering, the Company shall not,
directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving corporation
and (b) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would be
entitled to receive in exchange for Registrable Securities under any such
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within the
definition of "Registrable Securities".
8. Adjustments to Exercise Price and Number of Securities.
8.1 Adjustment for Dividends, Subdivisions, Combinations or
Reclassification.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrant Securities in
effect immediately prior to such action shall be adjusted so that the Holder of
this Warrant thereafter upon the exercise hereof shall be entitled to receive
the number and kind of shares of the Company which such Holder would have owned
immediately following such action had this warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this Section, the Holder of this Warrant shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive) shall determine the allocation of the adjusted Exercise Price
between or among shares of such class of capital stock.
Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Holder of Warrant
Certificates (by first class mail, postage prepaid), which notice shall state
the Exercise Price resulting from such adjustment, and any increase or decrease
in the number of Warrant Securities to be acquired upon exercise of the
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
8.2 Adjustment For Reorganization, Merger or Consolidation.
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<PAGE> 12
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such Warrant might have been
exercised immediately prior to such reorganization, consolidation, merger,
conveyance, sale or transfer. Such supplemental Warrant agreement shall provide
for adjustments which shall be identical to the adjustments provided in Section
8.1 and such registration rights and other rights as provided in this Agreement.
The Company shall not effect any such consolidation, merger, or similar
transaction as contemplated by this paragraph, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing, receiving, or leasing such assets or other appropriate corporation
or entity shall assume, by written instrument executed and delivered to the
Holders, the obligation to deliver to the Holders, such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase, and to perform the other obligations of the
Company under this Agreement. The above provision of this Subsection shall
similarly apply to successive consolidations or successively whenever any event
listed above shall occur.
8.3 Dividends and Other Distributions.
In the event that the Company shall at any time prior to the exercise
of all of the Warrants and/or Underlying Warrants distribute to its stockholders
any assets, property, rights, evidences of indebtedness, securities (other than
a distribution made as a cash dividend payable out of earnings or out of any
earned surplus legally available for dividends under the laws of the
jurisdictions of incorporation of the Company), whether issued by the Company or
by another, the Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such distribution as if the Warrants had been exercised
immediately prior to such distribution. At the time of any such distribution,
the Company shall make appropriate reserves to ensure the timely performance of
the provisions of this subsection or an adjustment to the Exercise Price, which
shall be effective as of the day following the record date for such
distribution.
8.4 Adjustment in Number of Securities.
Upon each adjustment of the Exercise Price pursuant to the provisions
of this Article 8,
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<PAGE> 13
the number of securities issuable upon the exercise of each Warrant and/or
Underlying Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of securities issuable upon exercise of the Warrants
and/or the Underlying Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
8.5 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 5 cents ($.05) per Share, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 5 cents ($.05) per Share.
8.6 Accountant's Certificate of Adjustment.
In each case of an adjustment or readjustment of the Exercise Price or
the number of any securities issuable upon exercise of the Warrants and/or
Underlying Warrants, the Company, at its expense, shall cause independent
certified public accountants of recognized standing selected by the Company (who
may be the independent certified public accountants then auditing the books of
the Company) to compute such adjustment or readjustment in accordance herewith
and prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to any Holder of
the Warrants and/or Underlying Warrants at the Holder's address as shown on the
Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based including, but not limited to, a statement of (i) the
Exercise Price at the time in effect, and (ii) the number of additional
securities and the type and amount, if any, of other property which at the time
would be received upon exercise of the Warrants and/or Underlying Warrants.
8.7 Adjustment of Underlying Warrant Exercise Price.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant
exercise price and the number of shares of Common Stock underlying such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement between the Company and the Company's transfer agent, upon
occurrence of any of the events relating to adjustments described therein.
Thereafter, the Underlying Warrants shall be exercisable at such adjusted
Underlying Warrant exercise price for such adjusted number of underlying shares
of Common Stock or other securities, properties or rights.
9. Exchange and Replacement of Warrant Certificates.
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<PAGE> 14
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interest.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrants and/or
Underlying Warrants, nor shall it be required to issue script or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests may be eliminated, at the Company's option, by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights, or in lieu thereof paying cash equal to such
fractional interest multiplied by the current value of a share of Common Stock.
11. Reservation and Listing.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants and the Underlying Warrants, such number of shares of
Common Stock or other securities, properties or rights as shall be issuable upon
the exercise thereof. The Company covenants and agrees that, upon exercise of
the Warrants and/or the Underlying Warrants, and payment of the Exercise Price
therefor, all shares of Common Stock and other securities issuable upon such
exercise shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any stockholder. As long as the Warrants
and/or Underlying Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Warrants and the Underlying Warrants to be listed and quoted (subject to
official notice of issuance) on all securities Exchanges and Systems on which
the Common Stock and/or the Public Warrants may then be listed and/or quoted,
including NASDAQ.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Warrants and/or Underlying Warrants the right to vote or
to consent or to receive notice as a
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<PAGE> 15
stockholder in respect of any meetings of stockholders, for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
the warrants and/or Underlying Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Underlying Warrants.
The form of the certificate representing the Underlying Warrants (and
the form of election to purchase shares of Common Stock upon the exercise of the
Underlying Warrants and the form of assignment printed on the reverse thereof)
shall be substantially as set forth in the exhibits to the Warrant Agreement.
Subject to the terms of this Agreement, one (1) Underlying Warrant shall
evidence the right to initially purchase one (1) fully-paid and non-assessable
share of Common Stock at an initial purchase price of $120% of the public
offering price during the five (5) year period commencing on the Effective Date
of the Registration Statement, at which time the Underlying Warrants, unless the
exercise period has been extended, shall expire. The exercise price of the
Underlying Warrants and the number of shares of Common Stock issuable upon the
exercise of
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<PAGE> 16
the Underlying Warrants are subject to adjustment, whether or not the Warrants
have been exercised and the Underlying Warrants have been issued, in the manner
and upon the occurrence of the events set forth in the Warrant Agreement, which
is hereby incorporated herein by reference and made a part hereof as if set
forth in its entirety herein. Subject to the provisions of this Agreement and
upon issuance of the Underlying Warrants, each registered holder of such
Underlying Warrant shall have the right to purchase from the Company (and the
Company shall issue to such registered holders) up to the number of fully-paid
and non-assessable shares of Common Stock (subject to adjustment as provided in
the Warrant Agreement) set forth in such Warrant Certificate, free and clear of
all preemptive rights of stockholders, provided that such registered Holder
complies with the terms governing exercise of the Underlying Warrant set forth
in the Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the Warrant Agreement. Upon exercise of the
Underlying Warrants, the Company shall forthwith issue to the registered Holder
of any such Underlying Warrant in his name or in such name as may be directed by
him, certificates for the number of shares of Common Stock so purchased. Except
as otherwise provided herein and in this Agreement, the Underlying Warrants
shall be governed in all respects by the terms of the Warrant Agreement. The
Underlying Warrants shall be transferable in the manner provided in the Warrant
Agreement, and upon any such transfer, a new Underlying Warrant certificate
shall be issued promptly to the transferee. The Company covenants to send to
each Holder, irrespective of whether or not the Warrants have been exercised,
any and all notices required by the Warrant Agreement to be sent to holders of
Underlying Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when personally
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the Registrable
Securities, to the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth below or to
such other address as the Company may designate by notice to the
Holders.
Lyle Maul, President
BEVERAGE WORKS, INC.
9800 South Sepulveda, Suite 720
Boca Raton, California 33432
With a copy to: Charles J. Hecht, Esq.
Hecht & Steckman, P.C.
60 East 42nd Street, Suite 5101
New York, NY 10165-5101
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<PAGE> 17
15. Entire Agreement: Modification.
This Agreement (and the Underwriting Agreement and Warrant Agreement to
the extent applicable) contain the entire understanding between the parties
hereto with respect to the subject matter hereof, and the terms and provisions
of this Agreement may not be modified, waived or amended except in a writing
executed by the Company and the Holders of at least a majority of Registrable
Securities (based on underlying numbers of shares of Common Stock). Notice of
any modification, waiver or amendment shall be promptly provided to any Holder
not consenting to such modification, waiver or amendment.
16. Successors.
All the covenants and provisions of this Agreement shall be binding
upon and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
17. Termination.
This Agreement shall terminate at the close of business on
____________, 2002. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination.
18. Governing Law; Submission to Jurisdiction.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Texas and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Representative and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the State District court in Dallas, County,
Texas or the United States District Court for the Northern District of Texas,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Representative and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the Representative
and the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 14 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim.
19. Severability.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such
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<PAGE> 18
invalidity or unenforceability shall not affect any other provision of this
Agreement.
20. Captions.
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be construed
as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Representative and any other
registered Holder of the Warrant Certificates or Registrable Securities 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
Representative and any other Holder of the Warrant Certificates or Registrable
Securities.
22. Counterparts.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
BEVERAGE WORKS, INC.
By: _______________________________
Lyle Maul, President
Attest:
__________________________
_____________ , Secretary
FIRST LONDON SECURITIES CORPORATION
By: _______________________________
Douglas Nichols, President
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<PAGE> 19
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M, EASTERN TIME ON _____________, 2002
NO. W-______
___________ Common Stock ___________ Warrant
Representative Representative
Warrants Warrants
or
___________ Underlying
Warrants
This Warrant Certificate certifies that ___________________, or
registered assigns, is the registered holder of _____________ Common Stock
Representative Warrants and/or ________ Warrant Representative Warrants and/or
_________________ Underlying Warrants of BEVERAGE WORKS, INC. (the "Company").
Each Common Stock Representative Warrant permits the Holder hereof to purchase
initially, at any time from _________, 1997 ("Purchase Date") until 5:30 p.m.
Eastern Time on ____________, 2002 ("Expiration Date"), one (1) share of the
Company's Common Stock at the initial exercise price, subject to adjustment in
certain events (the "Exercise Price"), of $____ per share (___% of the public
offering price). Each Warrant Representative Warrant permits the Holder hereof
to purchase initially, at any time from the Purchase Date until five (5) years
from the Purchase Date, one (1) Underlying Warrant at the Exercise Price of
$____ per Underlying Warrant. Each
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<PAGE> 20
Underlying Warrant permits the Holder thereof to purchase, at any time from the
Purchase Date until five (5) years from the Purchase Date, one (1) share of the
Company's Common Stock at the Exercise Price of $____ per share.
Any exercise of Common Stock Representative Warrants and/or Warrant
Representative Warrants and/or Underlying Warrants shall be effected by
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Representative's Warrant Agreement dated as of _____, 1997, between
the Company and First London Securities Corporation (the "Representative's
Warrant Agreement"). Payment of the Exercise Price shall be made by certified
check or official bank check in New York Clearing House funds payable to the
order of the Company in the event there is no cashless exercise pursuant to
Section 3.1(ii) of the Representative's Warrant Agreement. The Common Stock
Representative Warrants, the Warrant Representative Warrants, and the Underlying
Warrants are collectively referred to as "Warrants".
No Warrant may be exercised after 5:30 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Representative's Warrant
Agreement, which Representative's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the
occurrence of certain events, the Exercise Price and the type and/or number of
the Company's securities issuable thereupon may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the holder,
issue a new Warrant Certificate evidencing the adjustment in the Exercise Price
and the number and/or type of securities issuable upon the exercise of the
Warrants; provided, however, that the failure of the Company to issue such new
Warrant Certificates shall not in any way change, alter, or otherwise impair,
the rights of the holder as set forth in the Representative's Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the
Representative's Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the
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<PAGE> 21
Company shall forthwith issue to the holder hereof a new Warrant Certificate
representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone) , for the purpose of any
exercise hereof, and of any distribution to the Holder hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ____________________, 1997
BEVERAGE WORKS, INC.
By:________________________________________
Lyle Maul, President
(Seal)
Attest:
____________________________
________________ , Secretary
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<PAGE> 22
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: BEVERAGE WORKS, INC.
9800 South Sepulveda, Suite 720
Los Angeles, California 90045
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ______________ Common Stock Representative Warrants
and/or __________ Warrant Representative Warrants and/or _______________
Underlying Warrants of BEVERAGE WORKS, INC. (the "Company"), which Warrant
Certificate is being delivered herewith, hereby irrevocably elects to exercise
the purchase right provided by the Warrant Certificate for, and to purchase
thereunder, _____________ Shares and/or _____________ Underlying Warrants of the
Company, and herewith makes payment of $____________ therefor, and requests that
the certificates for such securities be issued in the name of, and delivered to,
_________________________________________ whose address is
______________________________________, all in accordance with the
Representative's Warrant Agreement and the Warrant Certificate.
Dated:____________________________
__________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
__________________________________
__________________________________
(Address)
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EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: BEVERAGE WORKS, INC.
9800 South Sepulveda, Suite 720
Boca Raton, California 33432
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ___________ Common Stock Representative Warrants and/or
_________________ Underlying Warrants of BEVERAGE WORKS, INC. (the "Company"),
which Warrant is being delivered herewith, hereby irrevocably elects the
cashless exercise of the purchase right provided by the Representative's Warrant
Agreement and the Warrant Certificate for, and to purchase thereunder, Shares of
the Company in accordance with the formula provided at Section three (3) of the
Representative's Warrant Agreement. The undersigned requests that the
certificates for such Shares be issued in the name of, and delivered to, _______
________________________________________________________________________________
____________________ whose address is, _________________________________________
____________________ all in accordance with the Warrant Certificate.
Dated:____________________________
_________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
_________________________________
_________________________________
(Address)
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<PAGE> 24
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ___________________________
________________________________________________ Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, and full
power of substitution.
Dated: Signature:
___________________________ ____________________________________
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
____________________________________
(Insert Social Security or
Other Identifying Number of
Assignee)
24
<PAGE> 1
EXHIBIT 10.1
SBA LOAN NUMBER
CLPGP5975053006SNA
U.S. Small Business Administration
NOTE
DANA Point, CA
(City and State)
445,000.00 (Date) 11/10, 93
For value received, the undersigned promises to pay to the order of
LIBERTY NATIONAL BANK its office in the city of HUNTINGTON BEACH, State of
- ----------------------- -------------------
(Payee)
CALIFORNIA at holder's option, at such other place as may be designated from
- ------------
time to time by the holder **FOUR HUNDRED FORTY FIVE THOUSAND AND 00/100**
--------------------------------------------------
(Write out amount)
dollars, with interest on unpaid principal computed from the date of each
advance to the undersigned at the rate of 8.750 percent per annum, payment to be
made in installments as follows:
Interest on this Note shall be computed on the basis of a 360 day year.
SIX (6) interest installment(s), payable monthly, commencing on the
first day of the month(s) from date of first disbursement followed by 120
installments including principal and interest each in the amount of FIVE
THOUSAND FIVE HUNDRED SEVENTY EIGHT AND 00/100 DOLLARS ($5,578.00), payable
monthly thereafter until TEN (10) years six months from the date of first
disbursement when the full unpaid balance of principal and interest shall
become due and payable. Each installment shall be applied to interest accrued
as of date of receipt and the balance, if any, to principal.
THIS IS A VARIABLE INTEREST RATE NOTE. Interest on unpaid principal
shall accrue at the initial rate of EIGHT AND THREE QUARTERS (8.750%) percent
per annum. Commencing on the first calendar day of the calendar quarter
following first disbursement, and quarterly thereafter, the interest rate shall
increase or decrease to TWO AND THREE QUARTERS (2.750%) percent above the
lowest New York Prime Rate in effect on the first business day of the month, as
published in the Money Rate Section of the West Coast Edition of The Wall
Street Journal.
NOTE: The amount of the monthly payment shown above is based upon
the prime interest rate as of the date of the receipt of the loan application
by SBA of SIX (6.000%) percent plus a spread of TWO AND THREE QUARTERS
(2.750%).
The amount of the monthly installments of principal and interest
required herein shall be increased or decreased, as appropriate, to an amount
necessary to amortize principal remaining unpaid as of the date of change in
the interest rate over the remaining term of this Note.
The Lender shall give the Borrower written notice of any change in the
interest rate of this Note and of any change (either an increase or decrease)
in the amount of the principal and interest installments required herein within
thirty (30) days after the effective date of any such change.
If the Borrower shall be in default in payment due on the indebtedness
herein and the Small Business Administration (SBA) purchases its guaranteed
portion of said indebtedness, the rate of interest on both the guaranteed and
unguaranteed portion herein shall become fixed at the rate in effect as of the
initial date of default. If the Borrower shall not be in default in payment
when SBA purchases its guaranteed and unguaranteed portion shall be fixed at
the rate in effect as of the date of purchase by SBA.
LATE CHARGE: If a payment is more than 10 days late, Borrower will be
charged 5.000% of the unpaid portion of the regularly scheduled payment or
$1.00, whichever is greater.
If this Note contains a fluctuating interest rate, the notice
provision is not a pre-condition for fluctuation (which shall take place
regardless of notice). Payment of any installment of principal or interest
owing on this Note may be made prior to the maturity date hereof without
penalty. Borrower shall provide lender with written notice of intent to prepay
part or all of this loan at least three (3) [days prior?] to the anticipated
prepayment. A prepayment is any payment made ahead of schedule that exceeds
twenty (20) percent of the then outstanding principal balance. If borrower
makes a prepayment and fails to give at least three weeks advance notice of
intent to prepay, then, notwithstanding any other provision to the contrary in
this note or other document, borrower shall be required to pay lender three
weeks interest on the unpaid principal as of the date preceding such
prepayment.
Page 1
<PAGE> 2
The term "indebtedness" as used herein shall mean the indebtedness
evidenced by this Note, including principal, interest, and expenses, whether
contingent, now due or hereafter to become due and whether heretofore or
contemporaneously herewith or hereafter contracted. The term "Collateral" as
used in this Note shall mean any funds, guaranties, or other property or rights
therein of any nature whatsoever or the proceeds thereof which may have been,
are, or hereafter may be, hypothecated, directly or indirectly by the
undersigned or others, in connection with, or as security for, the Indebtedness
or any party thereof. The covenants and conditions set forth or referred to in
any and all instruments of hypothecation constituting the Collateral are hereby
incorporated in this Note as covenants and conditions of the undersigned with
the same force and effect as though such covenants and conditions were fully
set forth herein.
The indebtedness shall immediately become due and payable, without
notice or demand, upon the appointment of a receiver or liquidator, whether
voluntary or involuntary, for the undersigned or for any of its property, or
upon the filing of a petition by or against the undersigned under the
provisions of any State insolvency law or under the provisions of the
Bankruptcy Reform Act of 1978, as amended, or upon the making by the
undersigned of an assignment for the benefit of its creditors. Holder is
authorized to declare all or any part of the Indebtedness immediately due and
payable upon the happening of any of the following events: (1) Failure to pay
any part of the Indebtedness when due; (2) nonperformance by the undersigned of
any agreement with, or any condition imposed by, Holder or Small Business
Administration (hereinafter called "SBA"), with respect to the Indebtedness;
(3) Holder's discovery of the undersigned's failure in any application of the
undersigned to Holder or SBA to disclose any fact deemed by Holder to be
material or of the making therein or in any of the said agreements, or in any
affidavit or other documents submitted in connection with said application or
the indebtedness, of any misrepresentation by, on behalf of, or for the benefit
of the undersigned; (4) the reorganization (other than a reorganization
pursuant to any of the provisions of the Bankruptcy Reform Act of 1978, as
amended) or merger or consolidation of the undersigned (or the making of any
agreement therefor) without the prior written consent of Holder; (5) the
undersigned's failure duly to account, to Holder's satisfaction, at such time
or times as Holder may require, for any of the Collateral, or proceeds thereof,
coming into the control of the undersigned; or (6) the institution of any suit
affecting the undersigned deemed by Holder to affect adversely its interest
hereunder in the Collateral or otherwise. Holder's failure to exercise its
rights under this paragraph shall not constitute a waiver thereof.
Upon the nonpayment of the Indebtedness, or any part thereof, when
due, whether by acceleration or otherwise, Holder is empowered to sell, assign,
and deliver the whole or any part of the Collateral at public or private sale,
without demand, advertisement or notice of the time or place of sale or of any
adjournment thereof, which are hereby expressly waived. After deducting all
expenses incidental to or arising from such sale or sales. Holder may apply
the residue of the proceeds thereof to the payment of the Indebtedness, as it
shall deem proper, returning the excess, if any, to the undersigned. The
undersigned hereby waives all right of redemption or appraisement whether
before or after sale.
Holder is further empowered to collect or cause to be collected or
otherwise to be converted into money all or any part of the Collateral, by suit
or otherwise, and to surrender, compromise, release, renew, extend, exchange,
or substitute any item of the Collateral in transactions with the undersigned
or any assignee. Whenever any item of the Collateral shall not be paid when
due, or otherwise shall be in default, whether or not the indebtedness, or any
part thereof, has become due, Holder shall have the same rights and powers with
respect to such item of the Collateral as are granted in this paragraph in case
of nonpayment of the Indebtedness, or any part thereof, when due. None of the
rights, remedies, privileges, or powers of Holder expressly provided for herein
shall be exclusive, but each of them shall be cumulative with and in addition
to every other right, remedy, privilege, and power now or hereafter existing in
favor of Holder, whether at law or equity, by statute or otherwise.
The undersigned agrees to take all necessary steps to administer,
supervise, preserve, and protect the Collateral; and regardless of any action
taken by Holder, there shall be no duty upon Holder in this respect. The
undersigned shall pay all expenses of any nature, whether incurred in or out of
court, and whether incurred before or after this Note shall become due at its
maturity date or otherwise, including but not limited to reasonable attorney's
fees and costs, which Holder may deem necessary or proper in connection with
the satisfaction of the Indebtedness or the administration, supervision,
preservation, protection of (including, but not limited to, the maintenance of
adequate insurance) or the realization upon the Collateral. Holder is
authorized to pay at any time and from time to time any or all of such
expenses, add the amount of such payment to the amount of the Indebtedness, and
charge interest thereon at the rate specified herein with respect to the
principal amount of this Note.
The security rights of Holder and its assigns hereunder shall not be
impaired by Holder's sale, hypothecation or rehypothecation of any note of the
undersigned or any lien of the Collateral, or by any indulgence, including but
not limited to (a) any renewal, extension, or modification which Holder may
grant with respect to the Indebtedness or any part thereof, or (b) any
surrender, compromise, release, renewal, extension, exchange, or substitution
which Holder may grant in respect of the Collateral, or (c) any indulgence
granted in respect of any endorser, guarantor, or surety. The purchaser,
assignee, transferee, or pledgee of this Note, the Collateral, and guaranty,
and any other document (or any of them), sold, assigned, transferred, pledged,
or repledged, shall forthwith become vested with and entitled to exercise all
the powers and rights given by this Note and all applications of the
undersigned to Holder or SBA, as if said purchaser, assignee, transferee, or
pledgee were originally named as Payee in this Note and in said application or
applications.
Page 2
<PAGE> 3
This promissory note is given to secure a loan which SBA is making or
in which it is participating and, pursuant to Part 101 of the Rules and
Regulations of SBA (13 C.F.R. 101.1(d)), this instrument is to be construed and
(when SBA is the Holder or a party in interest) enforced in accordance with
applicable Federal law.
Upon any breach of this Note, the balance shall continue to accrue interest at
the rate specified herein.
DUE ON SALE - CONSENT BY LENDER. Lender may, at its option, declare
immediately due and payable all sums secured by this Deed of Trust upon the
sale or transfer, without the Lender's prior written consent, of all or any
part of the Real Property, or any interest in the Real Property. A "sale or
transfer" means the conveyance of Real Property or any right, title or interest
therein; whether legal or equitable; whether voluntary or involuntary; whether
by outright sale deed, installment sale contract, land contract, contract for
deed, leasehold interest with a term greater than three (3) years, lease-option
contract, or by sale, assignment, or transfer of any beneficial interest in or
to any land trust holding title to the Real Property, or by any other method of
conveyance of Real Property interest. If any Trustor is a corporation or
partnership, transfer also includes any change in ownership of more than
twenty-five percent (25%) of the voting stock or partnership interests, as the
case may be, of Trustor. However, this option shall not be exercised by Lender
if such exercise is prohibited by applicable law.
HERITAGE BREWING COMPANY, INC.
BY: /s/ JOHN G. STONER
-------------------------------------------
JOHN G. STONER, CHIEF EXECUTIVE OFFICER
BY: /s/ MARK B. MERICLE
-------------------------------------------
MARK B. MERICLE, PRESIDENT/SECRETARY
Note. -- Corporate applicants must execute Note, in corporate name, by duly
authorized officer, and seal must be affixed and duly attested:
part-applicants must execute Note in firm name, together with signature of
a general partner.
Page 3
<PAGE> 1
EXHIBIT 10.2
EQUIPMENT LEASE AGREEMENT
-------------------------
TERMS AND CONDITIONS OF LEASE
1. Lease Equipment. BREWERY LEASING COMPANY ("Lessor") leases to
RIVERSIDE BREWING COMPANY ("Lessee") and Lessee hereby leases from Lessor all
equipment, and leasehold improvements, if any (collectively, the "Equipment"),
listed in Exhibit "A" attached hereto and incorporated herein.
2. Effective Date; Rental Terms. This Lease shall become effective on
December 20, 1993. The rental term of this Lease shall commence on December 20,
1993 ("Commencement Date") and terminate on December 19, 2000. All provisions of
this Lease shall apply during any extended rental term except as may be
otherwise specifically provided in this Lease, or in any subsequent written
agreement of the parties modifying this Lease.
3. Rent. Lessee agrees to pay Lessor aggregate rentals equal to $508,935,
the sum of all rental payments. Rental payments shall be payable in equal
monthly installments of (i) $2,353 beginning on January 1, 1994 and on the same
day of each month thereafter through March 1, 1994 and (ii) $6,196 beginning on
April 1, 1994 and on the same day of each month thereafter through December 1,
2000 at the office of Lessor set forth herein or to such other place as Lessor
may from time to time designate in writing.
4. Security Deposit. Lessor shall retain $-0- as security for the
performance by Lessee of its obligations hereunder. Any Security Deposit so
taken shall be non-interest bearing. Lessor may, but shall not be obligated to,
apply any Security Deposit to cure any default of Lessee hereunder in which
event Lessee shall promptly restore any amount so applied. If Lessee is not in
default in any of Lessee's obligations hereunder, any Security Deposit will be
returned to Lessee at the termination of this Lease.
5. Selection of Equipment; Disclaimer of Warranty. Lessee has selected
both the Equipment and the supplier. LESSEE ACKNOWLEDGES THAT LESSOR HAS NO
EXPERTISE OR SPECIAL FAMILIARITY ABOUT OR WITH RESPECT TO THE EQUIPMENT. LESSEE
AGREES THAT THE EQUIPMENT LEASED HEREUNDER IS LEASED "AS IS" AND IS OF A SIZE,
DESIGN AND CAPACITY SELECTED BY LESSEE AND THAT LESSEE IS SATISFIED THAT THE
SAME IS SUITABLE FOR LESSEE'S PURPOSES, AND THAT LESSOR HAS MADE NO
REPRESENTATION OR WARRANTY WITH RESPECT TO THE SUITABILITY OR DURABILITY OF
SAID EQUIPMENT FOR THE PURPOSES AND USES OF LESSEE, OR ANY OTHER REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT THERETO, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. If the
Equipment is not properly installed, does not operate as represented or
warranted by the supplier and/or manufacturer, or is unsatisfactory for any
reason, Lessee shall
1
<PAGE> 2
make any claim on account thereof solely against the supplier and or
manufacturer and shall, nevertheless, pay Lessor all rental payable under this
Lease and shall not set up against Lessee's obligations any such claims as a
defense, counterclaim, set-off or otherwise. So long as Lessee is not in breach
or default of this Lease, Lessor hereby assigns to Lessee, solely for the
purpose of making and prosecuting any such claim at Lessee's expense, all
rights which Lessor may have against the supplier and the manufacturer for
breach of warranty or other representation respecting any item of Equipment.
All proceeds of any warranty recovery by Lessee from the supplier and/or
manufacturer of any item of Equipment shall first be used to repair or replace
the affected item of Equipment.
LESSEE ACKNOWLEDGES THAT NEITHER THE SUPPLIER NOR ANY SALESMAN,
EMPLOYEE, REPRESENTATIVE OR AGENT OF THE SUPPLIER IS AN AGENT OR REPRESENTATIVE
OF LESSOR, AND THAT NONE OF THE ABOVE IS AUTHORIZED TO WAIVE OR ALTER ANY TERM,
PROVISION OR CONDITION OF THIS LEASE, OR MAKE ANY REPRESENTATION OR WARRANTY
WITH RESPECT TO THIS LEASE. NO SALESMAN, EMPLOYEE REPRESENTATIVE OR AGENT OF
SUPPLIER IS AUTHORIZED TO WAIVE OR ALTER ANY TERM OR CONDITION OF THIS LEASE,
AND NO REPRESENTATION AS TO THE EQUIPMENT, OR ANY OTHER MATTER, BY THE SUPPLIER
SHALL IN ANY WAY AFFECT LESSEE'S OBLIGATION TO PAY RENT AND OTHERWISE PREFORM
AS SET FORTH IN THIS LEASE.
6. Delivery; Acceptance. Lessee has accepted the Equipment. Lessee
agrees to hold Lessor harmless from specific performance of this Lease and from
damages if the Equipment is unsatisfactory for any reason whatsoever.
7. Location; Inspection; Use Possession. The Equipment has been
delivered to Lessee and installed by Lessee, at Lessee's own expense, and shall
be kept at Lessee's premises located at 3397 7th Street, Riverside, California
92501. Lessee shall not remove the Equipment from the aforementioned location
without Lessor's prior written consent. Lessor hereby warrants and represents
that the Equipment will be used for business purposes and not for personal,
family or household purposes, and Lessee acknowledges that Lessor has relied
upon this representation in entering into this Lease. Lessee shall use the
Equipment in a careful and proper manner and shall comply with all laws,
regulations and ordinances relating to its possession, use or maintenance.
Lessee shall affix and maintain labels, if supplied by Lessor, upon a visible
place on each item of Equipment. Lessor shall have the right from time to time,
during reasonable business hours, to enter upon the Lessee's premises for the
purpose of inspecting the Equipment. So long as Lessee is not in default with
regard to the payment of any obligation owing to Lessor as defined herein, or
with regard to any warranty or representation by Lessee to Lessor or with
regard to any term or condition of this Lease, then Lessee may remain in
possession of the Equipment and have the use thereof.
2
<PAGE> 3
8. Alterations; Maintenance. Lessee shall, at Lessee's own
expense, maintain the Equipment in good operating condition, repair and
appearance, furnish all parts and labor required to keep the Equipment in such
condition, protect same from deterioration other than normal wear and tear, and
only use the Equipment in the regular course of Lessee's business and within
normal capacity. For the purpose of assuring Lessor that the Equipment will be
properly serviced, Lessee shall cause the Equipment to be maintained by the
supplier pursuant to the supplier's standard preventative maintenance contract,
if any. Lessee shall not make any modifications, alterations or additions to
the Equipment without prior written consent of Lessor, and the, all such
modifications, alterations and additions shall belong to Lessor and shall be
returned to Lessor with the Equipment upon the expiration or earlier
termination of this Lease.
9. Insurance. Lessee shall obtain, maintain and keep the Equipment
insured against all risks of loss or damage from every cause whatsoever in an
amount not less than the greater or actual cash value of the aggregate amount
of all unpaid rentals at any time for the then entire unexpired portion of the
term of this Lease without deductible and without co-insurance. Lessee shall
also obtain and maintain for the term of this Lease, comprehensive public
liability insurance, with a severability of interest endorsement or its
equivalent, covering liability for bodily injury, including death, and property
damage resulting from the purchase, ownership, leasing, maintenance, use,
operation or return of the Equipment in an amount satisfactory to Lessor.
Lessor, its successors or assigns, shall be the sole named payee with respect
to insurance for damage to or loss of the Equipment and shall be named
additional insured on the public liability insurance. Lessee shall pay all
premiums for such insurance and shall deliver to Lessor the original policy or
policies of insurance, certificates of insurance, or other evidence
satisfactory to Lessor evidencing the insurance required thereby, along with
proof, satisfactory to Lessor, of the payment of the premium therefor;
provided, however, that Lessor shall be under no duty to ascertain the
existence of or to examine such insurance policy or to advise Lessee in the
event such insurance coverage shall not comply with the requirements hereof.
All insurance shall provide for at least thirty (30) days advance written
notice to Lessor before any cancellation or material modification thereof.
Lessee hereby irrevocably appoints Lessor as Lessee's attorney-in-fact to make
claim for, receive payment of, and execute and endorse all documents, checks or
drafts received in payment for loss or damage under any such insurance policy.
Lessee agrees if Lessee shall fail to procure, maintain and pay for such
insurance, Lessor shall have the right, but not the obligation, to obtain such
insurance on behalf of and at the expense of Lessee in the event Lessor does
obtain such insurance, Lessee agrees to pay all costs thereof with the next
rental payment.
3
<PAGE> 4
10. Risk of Loss. Lessee shall bear the entire risk of loss, theft,
destruction, damage or disrepair of the Equipment or any part thereof for any
cause whatsoever. No such loss, damage, theft, destruction or disrepair of the
Equipment shall relieve Lessee of the obligation to pay rent or from any other
obligation under this Lease. In the event of any of the above, Lessee, at
Lessee's own expense and at Lessor's option, shall either (a) repair the
Equipment, returning same to its previous condition, unless unrepairable, or
(b) replace same with like Equipment of equivalent value, in good condition and
acceptable to Lessor, which shall become the property of the Lessor; or (c)
immediately pay Lessor all rent due and to become due under this Lease or such
amount as may be allocated by Lessor, in its sole discretion, to specific items
of Equipment. All proceeds of insurance, received by Lessor as a result of such
loss or damage shall, where applicable, be applied toward the replacement or
repair of the Equipment or the payment of the obligations of Lessee hereunder.
11. Taxes. Lessee shall comply with all laws and regulations relating
to, and shall promptly pay when due, all license fees, registration fees, sales
taxes, use and property taxes, assessments, charges and other taxes, municipal,
state and federal, which may now or hereafter be imposed upon the ownership,
possession, leasing, renting, operation, control, use, maintenance, delivery
and/or redelivery of the Equipment and shall prepare and/or file, upon request
by Lessor, any schedules required by taxing authorities; provided, however,
that notwithstanding the foregoing Lessor shall be responsible for California
state sales or use taxes relating to the lease of the Equipment. In the event
Lessee does not pay all sums specified above, Lessor has the right, but not the
obligation, to pay the same. If Lessor shall so pay any of the aforementioned,
then the Lessee shall remit such amount with the next installment of rent.
12. Redelivery. Upon the termination of this Lease, Lessee shall, at
Lessee's own expense and risk promptly return the Equipment by delivering it,
packed and ready for shipment to such place or carrier as Lessor may specify in
the same condition as received, reasonable wear and tear excepted. In the event
Lessee does not return the Equipment as provided herein, Lessee shall pay to
Lessor the rent specified herein on a prorated basis for each day Lessee fails
to return the Equipment. The acceptance of said rent by Lessor shall not waive
Lessor's rights to have the Equipment promptly returned to Lessor pursuant to
the provisions hereof, nor shall the acceptance of said rent be deemed to be an
extension of the term of this Lease.
13. Indemnity. Lessee shall, and does hereby, indemnify and save
Lessor, its agents, employees, successors and assigns, harmless from any and
all liability, obligations, losses, damages, penalties, claims, suits,
depreciation. Invested Tax Credit (if passed through to Lessee), strict
liability in tort, costs and expenses, including attorneys' fees, arising out of
the ownership, selection, location, installation, possession, leasing, renting,
4
<PAGE> 5
operation, control, use, maintenance, repair, delivery and/or redelivery of the
Equipment. The indemnities and assumptions of liabilities and obligations
herein provided for shall continue in full force and effect notwithstanding the
expiration or other termination of this Lease.
14. Default. Any of the following events or conditions shall constitute
an event of default hereunder: (a) if Lessee shall default in the payment when
due of any indebtedness of Lessee to Lessor arising independently of this
Lease; (b) if Lessee fails to make payment when due of any rentals, or other
monies or charges hereunder on the due date; (c) if Lessee fails to perform any
or all obligations, covenants, agreements, terms or conditions contained or
referred to in this Lease, or in any Security Instrument executed with
reference to this Lease, or in any written instrument modifying any or all of
Lessee's obligations to Lessor; (d) if Lessee fails to pay any rental or
mortgage payment due under, or if Lessee breaches any of the terms, covenants
or conditions contained in, any lease, deed of trust, or Security Instrument
executed by Lessee pertaining to the premises upon which the Equipment or any
other collateral which secures this Lease is located, or to any other property,
or interest therein, which secures this Lease, including, but not limited to,
the lease relating to Lessee's business premises; (e) if Lessee sells, assigns,
transfers, encumbers, or hypothecates any Equipment hereunder or any other
collateral which is security hereto, or any use thereof (except such use as is
expressly authorized by this Lease or the Security Instruments), or if there is
loss, theft, substantial damage, destruction, or other damage to any of the
Equipment or any other collateral; (f) if any person, firm or entity files suit
for the purpose of or the making of any levy, seizure or attachment of or upon
the Equipment or any other collateral; (g) if Lessee cease doing business as a
going concern; (h) if Lessee forfeits the right to do business; (i) if Lessee
merges or consolidates with another person, firm or entity (unless Lessor
issues its prior written consent thereto); (j) if Lessee becomes insolvent or
makes an assignment for the benefit of creditors; (k) if a petition is filed by
or against Lessee under the Bankruptcy Code; (l) if a receiver, trustee,
conservator or liquidator is appointed either with or without the application
and consent of Lessee; (m) if any statement, representation or warranty
heretofore or hereafter furnished by Lessee shall be untrue or unperformed in
any material respect; (n) if Lessee breaches any of the terms of any loan or
credit agreements, or defaults thereunder or if the condition of Lessee's
affairs shall so change as to, in Lessor's good faith opinion, increase the
credit risk involved as to Lessor; or (o) if any guarantor or surety dies or
any event described above occurs with respect to any guarantor or surety.
15. Remedies. Upon the happening of any one or more events or
conditions of default, lessor shall have each and all of the following rights,
which Lessee and Lessor specifically understand and agree are cumulative and
are an addition to any and remedies
5
<PAGE> 6
available to Lessor by reason of any other collateral, provision of law, or
agreement between Lessee and lessor, whether specifically enumerated herein or
not: (a) to declare each and every obligation of lessee to lessor to be
immediately due and payable (with lessor retaining title to the Equipment) and
to recover the balance of rents and charges reserved under the lease (plus any
purchase option which Lessee has agreed to pay Lessor may specifically enforce
this provision which is a material inducement to Lessor entering into this
Lease) and Lessee shall immediately pay said amount discounted to its present
value at a rate or 6% per annum; (b) Lessor may take immediate possession of
all or any part of the Equipment and any additional collateral and for such
purposes may enter upon any premises upon which any of the Equipment or other
collateral may be situated and remove it. In this regard, upon demand by Lessor,
Lessee will assemble the Equipment and collateral and make them, or any part
thereof requested by Lessor, available to Lessor at a place and time designated
by Lessor which is reasonably convenient to both parties; (c) upon the taking of
any or all of the Equipment and additional collateral, Lessor is authorized by
Lessee to enter upon any premises where any of the Equipment or collateral may
be located and to secure the same by removing and changing locks if required;
(d) Lessor may enter upon Lessee's business premises, prepare said premises for
sale, advertise said premises for sale, and sell said premises either for cash
or upon such terms and conditions as Lessor, in its sole discretion, shall
determine; (e) Lessor may install another operator at Lessee's business premises
to operate the business, either temporarily pending sale, or for so long as is
necessary for lessor to recover payment in full of each and every obligation
owing to Lessor by Lessee including repayment of all collection costs, repair
costs, maintenance costs, insurance premiums, premises rents, attorneys' fees or
other expenses of any kind or nature whatsoever incurred by Lessor in relation
to Lessee's default; (f) upon taking or obtaining possession of the Equipment,
Lessor may propose to retain all or a part of the Equipment in satisfaction of
the obligations owing by Lessee's by giving notice thereof in accordance with
Section 9505 of the California Commercial Code, or sell the collateral, or any
part thereof, in such order or amounts as Lessor may deem necessary at public or
private sale, or any other intended disposition to be made by giving notice
thereof to Lessee pursuant to the provisions of Section 9504 of the California
Commercial Code, or without taking possession to sell, lease or otherwise
dispose of the Equipment at public or private sale in accordance with the
provisions of the California Commercial Code. Lessee waives the provisions of
California Code of Civil Procedure 726 with regard to any sale by Lessor of the
Equipment, any additional collateral or any part thereof, or with regard to the
order in which Lessor may proceed against the Equipment, the collateral, or any
part thereof; (g) Lessor shall have all rights afforded by California Commercial
Code Section 9501, as amended by Chapter 974 of the California Statutes of 1985,
including, but not limited to: (1) separate proceedings in any sequence against
any real property collateral and against the Equipment or other collateral that
is
6
<PAGE> 7
personal property or fixtures, or (2) an action for the judicial or nonjudicial
foreclosure of some or all of the real property collateral that would include
some or all of the Equipment, personal property collateral or fixtures, all as
referred to in California Commercial Code Section 9501(4)(i)-(ii); (h) proceeds
of any sale hereunder shall be applied by Lessor in the manner provided by the
California Commercial Code, and Lessor shall also be entitled to all collection
costs, costs of repair, maintenance or rehabilitation of the Equipment or any
collateral, reasonable attorneys' fees and legal expenses expended or incurred
after the curing or attempt to cure of any default, whether with regard to the
taking and selling of the Equipment and additional collateral, or as permitted
in any action upon the obligations due for any deficiency after any sale; (i)
Lessor shall have, in any jurisdiction where enforcement is sought, all of the
rights and remedies of a secured party, whether under the California Commercial
Code, or any other applicable provision of California Commercial Code, or any
other applicable provision of California law. No failure on the part of Lessor
to exercise, and no delay in exercising, any right or remedy hereunder shall
operate as a waiver thereof.
16. Assignment. Without Lessor's prior written consent, Lessee shall
not: (a) assign, transfer, pledge, hypothecate or otherwise dispose of this
Lease, the Equipment or any interest therein; or (b) sublet or lend the
Equipment or permit it to be used by anyone other than Lessee's employees. Any
such assignment, subletting, or attempt thereof shall be void if Lessee is a
corporation, or is an unincorporated association or partnership, the transfer,
assignment or hypothecation of any stock or interest in such corporation,
association or partnership in the aggregate in excess of twenty-five percent
(25%) shall be deemed an assignment within the meaning and provision of this
Section 16. Lessor may assign this Lease or grant a security interest in the
Equipment in whole or in part without notice to Lessee, and Lessor's assignee
or secured party may then assign this lease or the Security Agreement without
notice to Lessee. Each such assignee and/or secured party shall have all the
rights but none of the obligations of Lessor under this Lease. Lessee shall
recognize such assignments and/or security agreements and shall not assert
against the assignees and/or the secured parties any defense, counterclaim or
set-off that Lessee may have against Lessor.
17. Ownership; Personal Property. The Equipment is, and shall at all
times be and remain the sole and exclusive property of Lessor, and Lessee,
notwithstanding any trade-in or down payment made by Lessee on its behalf with
respect to the Equipment, shall have no right, title or interest thereon,
except as to the use thereof subject to the terms and conditions of this lease.
The Equipment is, and at all times shall remain, personal property
notwithstanding that the Equipment or any item thereof may not be, or hereafter
become, in any manner affixed or attached to, or imbedded in, or permanently
resting upon real property or any improvement thereof or attached in any manner
to what is
7
<PAGE> 8
permanent. If requested by Lessor prior to or at any time during the term hereof
with respect to an item of Equipment, Lessee will obtain and deliver to Lessor
waivers of interest or liens in recordable form, satisfactory to Lessor, from
all persons claiming any interest in the real property on which such item is
installed or located. So long as Lessee shall not be in default and fully
performs all of its obligations hereunder, Lessor will not interfere with the
quiet enjoyment of the Equipment by Lessee.
18. Late Charges. If Lessee fails to pay any rental payment or any
other sum to be paid by Lessee to Lessor hereunder within ten (10) days after
said payment is due, Lessee shall pay to Lessor a penalty of five percent (5%)
of the payment then due, which amount is due immediately upon being incurred,
as part compensation for Lessor's internal operating expenses incurred by
Lessor in the collection of said late payments including, but not limited to,
payments to others relevant to the collection thereof.
19. Net Lease Offset. This Lease is a net Lease, and Lessee shall not
be entitled to any abatement of rent or other payments due hereunder, or any
reduction thereof whatsoever. Lessee hereby waives any and all existing and
future claims, as offsets against any rent or other payments due hereunder and
agrees to pay the rent and other amounts due as and when due, regardless of any
offset or claim which may be asserted by Lessee or on its behalf. This Lease
shall not terminate, or the respective obligations of Lessor or Lessee be
otherwise affected, or Lessor have any liability whatsoever to Lessee, by
reason of any defect in or damage to or loss or destruction of any or all items
of Equipment from whatever cause, including, without limitation, any
prohibition, commercial frustration or impracticability of Lessee's use of the
Equipment or any item thereof, or the interference with such use by any
government, person or corporation. Lessee specifically acknowledges the
foregoing as its responsibility under the terms and conditions of this Lease.
20. Miscellaneous. All obligations of the Lessee, if more than one,
shall be joint and several. Lessee shall provide Lessor with a copy of Lessee's
annual financial statement, including balance sheet and profit and loss
statement within ninety (90) days after the close of Lessee's business year, in
addition to any other financial data or information relative to this Lease and
the Equipment as Lessor may from time to time reasonably request. This lease
shall be binding upon the parties, their successors, legal representatives and
assigns and is a valid and subsisting legal instrument, and no provision which
may be deemed unenforceable shall in any way invalidate any other provision or
provisions, all of which shall remain in full force and effect. All paragraph
headings are inserted for reference purposes only and shall not affect the
interpretation or meaning of this agreement. This instrument constitutes the
entire contract between the parties hereto, and no representation, oral or
written, shall constitute an amendment hereto unless signed in writing by an
officer of Lessor. Time is of the essence in this
8
<PAGE> 9
Lease and each and all of its provisions. This Lease shall be interpreted,
construed and enforced pursuant to the laws of the State of California.
21. Eligibility of Rent As Tax Deductions. Lessor assumes no liability
and makes to representation as to the treatment of the rental payments stated
in the Schedule above by any federal, state or local taxation Agency, nor does
Leasor assume any liabiity or guarantee the availability of investment tax
credits or any other tax consequences relating to this Lease.
22. Notices. Any written notice or demand under this Lease may be given
to a party by mailing it to the party at its address set forth herein, or at
such address as the party may provide in writing from time to time. Notice or
demand so mailed shall be effective when deposited in the United States Mail
duly addressed and with postage prepaid.
23. Expenses of Enforcement. Lessee shall pay to Lessor all costs and
expenses, including reasonable attorneys' fees and costs of collection
agencies, incurred by Lessor in exercising any of its rights or remedies
hereunder or in enforcing any of the terms or provisions hereof whether or not
suit is brought.
THIS LEASE IS NONCANCELABLE FOR THE TERM INDICATED ABOVE except as
expressly provided herein. lessee hereby agrees that Lessee's obligation to pay
rent and any other amounts owing hereunder shall be absolute and unconditional.
The undersigned Lessee attests that it has read this Lease Agreement, its
Exhibits and any Security Instruments executed with reference to this Lease
Agreement, which Security Instruments are deemed to be a part of this Lease,
and is fully aware of all the terms and conditions contained therein. Leessee
acknowledges that it has heretofore purchased the Equipment from supplier(s),
sold the Equipment to Lessor and desires to lease said Equipment from Lessor
upon the terms and conditions of this Lease.
LESSOR LESSEE
BREWERY LEASING COMPANY RIVERSIDE BREWING COMPANY
By: /s/ Michael R. Hagerman By: /s/ (illegible)
----------------------- ------------------------
Michael R. Hagerman Title: Pres
---------------------
Address: Address:
2300 Gardner Pl. 2025 Chicago Ave STE A4
- --------------------------- ----------------------------
Glendale CA 91205 Riverside CA 92557
- --------------------------- ----------------------------
9
<PAGE> 10
ADDENDUM
TO
BREWERY LEASING CORP. (BLC)
EQUIPMENT LEASES WITH RIVERSIDE BREWING COMPANY
Effective with the closing of the acquisition of Riverside Brewing Company by
Beverage Works, Inc. (BWI), BLC agrees to make the following changes to the
leases:
1. Reduce total amount of lease by $500,000, applying 25% to the reduction to
the brewpub and 75% to brewery.
2. Interest rate on the lease will be lowered to 10%.
3. Payment of terms shall remain the same through December 31, 1997, except
for the reduction on the interest rate.
4. Effective January 1, 1998, the leases will be consolidated into one five
year lease with a one dollar purchase option at the end of the lease.
5. The October 1995 through December 1995 deferred lease payments will be
deducted from accounts payable and added back to the lease. The January 1996
through September 1996 deferred lease payments will be forgiven and removed
from accounts payable in receipt of additional shares from Orange Empire
Brewing Company.
6. BLC shall enter into a two year consulting agreement with BWI for brewery
advisory services, with the possibility of earning up to 10,000 shares
during the term of the agreement.
<PAGE> 1
EXHIBIT 10.3
PERTINENT DATES
GROUND LEASE AGREEMENT
1203 9TH STREET
<TABLE>
<CAPTION>
DUE DATE
<S> <C>
* Lessee inspection for soils, feasibility, etc. July 6, 1988
* Delivery of Building Plans to Lessor July 6, 1988
* Approval of Building Plans by Lessor July 20, 1988
* Removal of Spur Track Upon Delivery of Premises
Notification of Availability Upon Delivery of Premises
* Financing October 31, 1988
* Zoning and Building Permits October 31, 1988
Commencement of Construction Not later than
January 1, 1989
Completion of Construction Not later than
January 1, 1990
First Appraisal June 6, 1993
Second Appraisal June 6, 1998
Third Appraisal June 6, 2008
Fourth Appraisal June 6, 2018
Fifth Appraisal June 6, 2028
</TABLE>
* These items may be extended for up to sixty (60) days, but not later than
December 31, 1988, by providing ten (10) days written notice.
<PAGE> 2
GROUND LEASE AGREEMENT
Dated June 6th, 1988
By and Between
RANDALL LYLE STEELE
and
SUSAN STEELE
as Lessor,
and
STANISLAUS BREWING COMPANY INC.,
as Lessee
<PAGE> 3
BASIC GROUND LEASE TERMS
This Lease is dated for reference purposes only this 6th day
of June, 1988.
1. RENT PAYMENT ADDRESS: Lessor: RANDALL LYLE STEELE
(PARAGRAPH 2 (D)) SUSAN STEELE
442 Wayer Road
Modesto, CA. 95351
2. PARTIES AND NOTICE Lessor: RANDALL LYLE STEELE
ADDRESSES: SUSAN STEELE
(PARAGRAPH 20) 442 Wayer Road
Modesto, CA. 95351
Lessee: STANISLAUS BREWING
COMPANY, INC.,
A California Corporation
3454 Shoemake Drive
Modesto, CA. 95351
ATTENTION: Garith Helm
3. PREMISES: General Location:
1203 9th Street
Modesto, CA.
4. TERM: Fifty (50) years, beginning the
(PARAGRAPH 1) earlier of the Commencement Date as
defined or October 1, 1988.
5. RENT: Minimum Monthly Rent:
(PARAGRAPH 2) Commencement through 12th month:
Three Thousand and no/l00
Dollars ($3,000.00), thereafter
according to PARAGRAPH 2 (B)(1) and
(2).
6. USE: Commercial - Brewery, Restaurant, Pub
(PARAGRAPH 8) Combination.
7. CONTENTS: This Lease contains Pages 1 through
53, and Exhibit "A", "B", "C", "D-1,
and "D-2".
The above terms are incorporated in this Lease as indicated
above and referenced herein.
(i)
<PAGE> 4
INDEX
<TABLE>
<CAPTION>
PARAGRAPH PAGE
<S> <C> <C>
BASIC GROUND LEASE TERMS (i)
DESCRIPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1. Feasibility, Soil, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Zoning and Building Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Removal of Spur Track . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
C. Condition of the Premises Upon
Commencement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
D. Early Occupation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
E. Delivery of the Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
F. Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. Satisfaction of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Inspection Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Executed Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a
(c) Notification of
Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(e) Zoning and Building Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(f) Removal of Spur Track . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(g) Extension of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. Receipt and Disbursement of
Funds; Escrow Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Prepaid Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Cost of Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
2 . RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
A. Minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
B. Rent Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1. Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. Cost of Living Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
C. Prepaid Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
D. Manner of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3. LESSEE'S CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
A. Building Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
B. Interior Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
C. Commencement of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
D. Completion Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4. TAXES AND ASSESSMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
A. Real and Personal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
B. Payment in Installments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
C. Proration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
D. Contest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. CONSTRUCTION OF BUILDINGS AND
IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
A. Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
B. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
C. Removal Upon Expiration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
D. Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
E. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
F. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
G. No Liens or Charges; Bond
Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
H. Notice of Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
I. City of Modesto Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. USE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
A. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
B. Acts Affecting Fire Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
C. Environmental Hazards and Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
D. Lessee's Business Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9. DAMAGE AND DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
A. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
B. Consent of Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
C. "Reasonable" Factors to Withhold
Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
D. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11. DEFAULT AND REMEDIES OF THE LESSOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
A. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
B. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
C. Interest and Late Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
D. No Termination Without Election by
the Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
E. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
F. The Lessor's Right to Cure Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
12. DEFAULT BY THE LESSOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13. TERMINATION OF LEASE; FORFEITURE OF
PROPERTY; CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
14. SURRENDER OF LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15. COSTS AND FEES OF LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
16. CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
17. ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
18. QUIET ENJOYMENT AND WARRANTIES OF TITLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
19. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
A. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
B. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
C. Right to Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
D. Condemnation by Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
E. Early Delivery of Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
20. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
21. ENCUMBRANCE OF LEASEHOLD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
A. Encumbrance Subject to Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
B. Lessor's Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
C. No Voluntary Surrender of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
D. Notification of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
E. No Prior Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
F. Deferral of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
G. Recorded Request for Notice of
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
H. No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
I. Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
J. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
K. Modification of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
22. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
A. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
B. Execution of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
23. RIGHT OF FIRST REFUSAL TO BUY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
24. BANKRUPTCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
A. Time Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
B. Assumption; Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
C. Lessor's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
D. Assignment by Trustee;
Payment to Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
E. Lessor's Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
F. Lessor's Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
25. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
A. Further Execution of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
B. Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
C. Enforcement Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
D. Inurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
E. Language of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
F. California Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
G. Table of Contents and Paragraph
Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
H. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
I. Sublessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
J. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
K. Waiver of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
L. Month-to-Month Tenancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
M. Covenants and Conditions of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
N. Right of Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
0. In the Event of a Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
P. Time is of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
0. Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
R. Waiver of California Code Sections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
S. Relationship of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
T. Preparation and Submissions of Draft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
U. Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
V. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
Exhibit "A" Premises
Exhibit "B" Plans & Specifications
Exhibit "C" Parcel Map
Exhibit "D-l" Letter from Sidney A. Israels
Exhibit "D-2" Letter from Stan T. Yamamoto
<PAGE> 8
GROUND LEASE
THIS GROUND LEASE is made as of this 6th day of June, 1988, by and
between RANDALL LYLE STEELE and SUSAN STEELE, Husband and Wife as community
property, collectively as; ("Lessor") and STANISLAUS BREWING COMPANY, INC., A
California Corporation as ("Lessee").
DESCRIPTION
A. Lessor is the owner of that certain real property located in the City
of Modesto, County of Stanislaus, State of California, more particularly
described in Exhibit "A" attached hereto and made a part hereof, together with
any and all improvements, appurtenances, rights, privileges and easements
benefiting, belonging or pertaining thereto, but exclusive of any improvements
now or hereafter located on the property (the "Premises")
B. Lessor leases to Lessee and Lessee hires from Lessor, the Premises
upon the following terms and conditions:
1. TERM.
A. Commencement Date. The Term of this Lease shall be the earlier
of October 1, 1988, or that date that Lessor causes the Premises to become
available by removing the current building, slab and asphalt and is able to
deliver bare ground with stubbed utilities, at Lessor's cost, the current
tenant vacating, and Lessor is reasonably assured that Lessee has obtained
financing and satisfied the contingencies set forth below in Subparagraph B1
(the "Commencement Date"). Notwithstanding the fact that the Lease shall have
commenced on the Commencement Date, in the event the contingencies set forth
below in Subparagraph 1.B have not been satisfied within the times set forth
therein, including any extensions, such contingencies shall be conclusively
interpreted as conditions subsequent that were not satisfied and the Lease
shall terminate and be of no further effect. Thereafter, neither Lessee nor
Lessor shall have any obligation hereunder. The Escrow provided for in
Paragraph 1.F. below shall terminate and any funds therein distributed
according to the terms of the Lease. Lessor shall be entitled to keep any
payments of rent received from Lessee prior to such termination, on account of
Lessor's time and effort expended.
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<PAGE> 9
B. Contingencies. This Lease is contingent upon Lessee being
satisfied as to the following conditions within the periods of time proscribed:
(1) Feasibility, Soil, etc. The Lessee shall have the right
to enter upon the Premises to inspect and conduct tests and
investigations on the Premises for a period of thirty (30) days
after the Execution Date (the "Inspection Period~) to determine for
itself the fitness and suitability of the Premises for the purposes
for which the Lessee intends to use the Premises. Such
inspections, surveys, tests and investigations shall be at the sole
cost and expense of the Lessee, and the Lessee shall indemnify and
hold Lessor harmless from any claims resulting from such
activities. Fitness and suitability shall include not only
immediate availability to the Premises at its perimeter of
sewerage, water, gas, electricity and telephone service adequate
for the needs of the lessee as well as suitable soil conditions and
zoning, but also governmental approval of entrances and exists,
building and health permits, fire regulation requirements,
environmental matters, including the nature and extent of hazardous
materials present or near the Premises, toxic substance
contamination, and labor considerations based upon the plans and
specifications of the Lessee attached as Exhibit "B" ("the Plans").
The foregoing partial enumeration is in no way intended to limit
the meaning of fitness and suitability of the Premises for the
purposes and use of the Lessee of the Premises. Should the Lessee
deem it necessary to apply or and obtain a building permit or other
permits during the Inspection Period, then the Lessor agrees to
reasonably cooperate in such efforts and to execute appropriate
documents and allow such to be in the name of the Lessor, if
necessary. In the event the Lessee should notify the Lessor on or
before the end of the Inspection Period by an affirmative written
notice of cancellation that it disapproves of the Premises for any
reason, this Lease shall terminate and neither Party shall have any
further obligation under this Lease. Absent an affirmative written
notice of cancellation, this Lease shall commence upon the
Commencement Date.
-2-
<PAGE> 10
(2) Financing. No later than October 31, 1988, Lessee shall
obtain funds required for the construction of improvements based upon
plans and specifications as described in Subparagraph (3) below,
either through the securities offering anticipated by the Lessee,
personal financing, and/or through a leasehold permanent commitment
from a Commercial Bank, Savings and Loan, Insurance Company, Real
Estate Investment Trust, Mortgage Company or other lender reasonably
approved by Lessor. If financing is obtained through an institutional
lender, the loan shall not exceed the cost of improvements as
reasonably approved by Lessor, including professional services
directly related thereto, at an interest rate not exceeding the
prevailing market rate for similar financing. Said commitment shall be
for a permanent leasehold loan upon terms reasonably satisfactory to
Lessor.
In the event of a securities offering, Lessee shall hold Lessor
harmless from all liability, losses, penalties, costs, expenses
(including without limitation, attorneys' fees), causes of action,
claims or judgments arising out of or related to said securities
offering.
(3) Zoning and Building Permit. Lessee shall obtain suitable
zoning and building permits based upon plans and specifications
reasonably approved by Lessor no later than October 31, 1988. Lessor
shall be provided the aforementioned plans and specifications no later
than thirty (30) days from the Execution Date, and Lessor shall
indicate its decision no later than fourteen (14) days thereafter.
Lessor hereby agrees to cooperate with Lessee and any third party in
granting or relocating such utility easements as are reasonably
necessary to service the property as required by said plans and
specifications.
(4) Removal of Spur Track. Lessor shall at Lessor's sole cost,
remove the spur track adjoining the Southern Pacific or railway
located to the west of the Premises.
The aforedescribed contingency periods maybe extended for respective
sixty (60) day periods, but in no event later than December 31, 1988.
Either party may extend contingency periods
-3-
<PAGE> 11
by giving written notice to the other within ten (10) days of
expiration a contingency period.
C. Condition of the Premises Upon Commencement. The satisfaction of the
aforedescribed contingency periods is an acknowledgment by the Lessee.to Lessor
that Lessee accepts the Premises in its condition existing as of the Execution
Date of this Lease and subject to all matters of record and to all applicable
zoning, municipal, county, state and federal laws, ordinances and regulations
governing and regulating the use of the Premises (including, but not limited
to, the Occupational and Health Safety Act and Proposition 65 of the State of
California).
To the best of Lessors knowledge, there are none of the aforedescribed
violations of any such law, ordinance or regulation however, Lessee
acknowledges that except as expressly set forth in this Lease, neither the
Lessor nor any agent of the Lessor has made any representation or warranty as
to the condition of the Premises or the suitability of the Premises for the
conduct of the business of the lessee or the use thereof allowed by this Lease.
The execution of this Lease by the Lessee shall constitute the acknowledgment
by the Lessee that the Premises are in good condition and that the Lessee
accepts the Premises in its current "As Is" condition.
In addition, the Lessee acknowledges having had an adequate and
independent opportunity, at its sole option, cost and expense, to undertake an
investigation of the Premises to determine the nature and extent of any
hazardous materials, substances or conditions present at, on or near the
Premises. Lessor represents and warrants to the best of Lessor's knowledge
that as of the date of this Lease there are no hazardous materials, substances
or conditions present at, on or near the Premises that would adversely impact
the Lessees' ability to use the Premises as expressed herein. The Lessee
warrants that it is leasing the Premises with the full satisfaction that there
are no violations of applicable federal, state or local ordinances, statutes or
regulations and no hazardous materials, substances or conditions at, on or
about the Premises. The Lessee acknowledges that it has leased the premises
from the Lessor without any form of warranty, except as otherwise set forth
herein, from the Lessor with regard to the existence of or absence of knowledge
on the part of the Lessor of the existence of any hazardous materials,
substances or conditions at, on or about the Premises. The Lessee accepts the
Premises in its current "As Is" condition, subject to the removal of the
building by Lessor as set forth in paragraph 1.
-4-
<PAGE> 12
D. Early Occupation. In the event that the Lessor shall permit
the Lessee to occupy the Premises prior to the Commencement Date of the Term,
such occupancy shall be subject to all the provisions of this Lease. Such early
occupancy shall not advance the termination date of the Term set forth as
applicable herein.
E. Delivery of the Premises. The Lessor shall deliver to the
Lessee possession of the Premises on the Commencement Date.
F. Escrow. An Escrow has been opened with Ticor Title Company,
1207 "I" Street, Modesto, CA. 95354, Attention: Gail L. Brickley, who shall act
as the assigned Escrow Holder herein for expediting the following conditions
subsequent. Failure to satisfy such conditions shall result in termination of
this Lease as described in Paragraph 1.A:
(I) Satisfaction of Conditions.
(a) Inspection Period. Lessee shall provide written
indication to the Escrow Holder of the fitness and
suitability of the Premises pursuant to Paragraph I. B. (1)
of the Lease, within thirty (30) days of execution of said
Lease.
(b) Executed Lease. within five (5) days of execution,
Lessor shall deliver to the Escrow Holder, an.executed copy
of this Lease.
(c) Notification of Availability. Lessor shall notify
Escrow Holder upon the date Lessor is able to deliver bare
ground with stubbed utilities.
(d) Financing. Lessee shall provide to the Escrow
Holder, evidence of financing satisfactory to Lessor no later
than October 31, 1988, pursuant to Paragraph 1. B (2) of the
Lease.
(e) Zoning and Building Permits. Lessee shall obtain
suitable zoning and building permits based on plans and
specifications approved by Lessor, no later
-5-
<PAGE> 13
than October 31, 1988, pursuant to Paragraph 1. B.
(3) of the Lease.
(f) Removal of Spur Track. Lessor shall
remove the spur track prior to the Commencement
Date pursuant to Paragraph 1. B. (4) of the Lease.
Lessor shall notify Escrow Holder upon completion
of the spur track removal.
(g) Extension of Conditions. The
aforementioned conditions may be extended upon
written notification from either party, not less
than ten (10) days prior to the expiration of a
condition. However, conditions may be extended no
later than December 31, 1988.
(2) Delivery of Documents.
(a) Evidence of Insurance. Lessee shall
provide Escrow Holder for the benefit of Lessor,
certificates or evidence of adequate insurance prior
to the satisfaction of the contingencies described
herein and thereafter in accordance with Paragraph 7
of the Lease.
(3) Receipt and Disbursement of Funds; Escrow Costs.
(a) Commissions. Commissions payable in
accordance with Paragraph 25. U. shall be payable
through Escrow Holder by Lessor.
(b) Prepaid Rent. Prepaid rent payable in
accordance with Paragraph 2. C. shall be disbursed
to Lessor through Escrow Holder upon Commencement
Date.
(c) Cost of Escrow. The cost of Escrow
shall be shared equally between Lessor and Lessee.
The cost of said escrow is estimated at $570.00; this
figure is for estimation purposes only, final cost
may vary.
-6-
<PAGE> 14
(d) Title Insurance. In the event that Lessee
desires to obtain a Leasehold Policy of Title
Insurance, this Escrow shall not be contingent on
same, but may be obtained at Lessee's sole cost and
expense.
Each party shall execute additional instructions and documents as
required by the Escrow Holder for the purpose of expediting the conditions and
additional documentation required as outlined in the preceding paragraphs.
2. RENT.
A. Minimum. For the use and occupancy of the Premises, the Lessee
agrees to pay to the Lessor rent ("Rent"). On an annualized basis, Rent shall
initially be the sum of Thirty-Six Thousand And No/100 Dollars ($36,000.00).
All Rent shall be payable monthly (the Monthly Rental"). The Monthly Rental
shall initially be in the sum of Three Thousand And No/100 Dollars ($3,000.00).
Rent shall be adjusted upward (and not downward) in accordance with the
provisions of Subparagraph 3 B. Monthly Rent shall be payable on the first day
of each and every month commencing on the Commencement Date (unless the
Commencement Date is not the first of a month, in which event the first payment
of Monthly Rent shall be payable no later than the Commencement Date with the
sum due for Monthly Rent for the fractional month to be prorated on the basis
of a thirty (30) day month.
B. Rent Adjustments. Throughout the Term, the initial Rent
specified in Subparagraph 3A of this Lease shall be adjusted upward in
accordance with the provisions of this Subparagraph.
(1) Appraisals. In addition to the minimum monthly rent and
the CPI Adjustments set forth herein, appraisals shall be conducted
for each adjustment year commencing on the fifth (5th) year and
upon the tenth (10th), twentieth (20th), thirtieth (30th) and
fortieth (40th) years of this Lease to determine the then current
market value of the Land excluding the value of any improvements
thereon, as of the date of the Commencement Date of the respective
adjustment year. After such determination is made, the minimum
annual rental amount shall be based on no
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<PAGE> 15
less than twelve percent (12%) of the appraisal amount. However, in no
event shall the minimum monthly rent be less than that set forth
herein for each appraisal year.
(a) Appraisals shall be conducted no less than ninety
(90) days prior to the sixtieth (60th), one hundred twentieth
(120th), two hundred fortieth (240th), three hundred sixtieth
(360th) and four hundred eightieth (480th) months ("Appraisal
Date" herein)
(b) The method for selecting the appraiser(s) shall
be as follows:
(i) Upon agreement of a single appraiser, the
appraisal shall he conducted by that appraiser. The
fee for such appraiser shall be paid by the Lessor.
(ii) Any appraiser selected under this
provision shall have M.A.I. credentials or their
equivalent, be reasonably qualified and demonstrate
familiarity to appraise similar properties in the
San Joaquin Valley. All appraisals shall be based on
the then current usage of the property.
(iii) If Lessor and Lessee cannot agree on a
single appraiser, Lessor and Lessee shall each employ
an appraiser and shall each be responsible for the
payment of the appraisal fee to their respective
appraiser. Upon review of the appraisal reports
provided by both appraisers, Lessor and Lessee shall
utilize the mid point of the appraisals to determine
the new minimum monthly rental amount.
-8-
<PAGE> 16
(iv) If Lessor and Lessee further disagree,
they shall allow the two appraisers selected in
subparagraph (iii) above to select an independent
third party appraiser to conduct an additional
appraisal. If the Lessor and Lessee can agree on two
of the three appraisals, those two reports may be
used to determine the minimum monthly rental amount.
If no agreement is made, then the mid point of the
three appraisal reports shall be used to determine
the new minimum monthly rental amount. The fee for
this third party appraisal shall be shared equally
between Lessor and Lessee.
In no event shall this appraisal amount be
determined later than the respective appraisal year.
Any delay shall nevertheless at Lessor's option
permit a retroactive payment of any rental increase
to the date that the appraisal should have been
completed for the respective appraisal year.
(2) Cost of Living Adjustment. In addition any appraisal
adjustment described in Paragraph 1 above, the basic annual rent shall
be adjusted every twelve (12) months of the term of the Lease,
including any extensions, by the percentage change that occurs in the
Consumer Price Index, All Urban Consumers, for the San
Francisco-Oakland region, All Items (1984=100 base), as published by
the Bureau of labor Statistics, U.S. Department of Labor. Accordingly,
the Consumer Price Index average figure for the year preceding the
Commencement Date ("Commencement Index") shall be divided into the
Consumer Price Index figure for the year preceding the anniversary
date ("Anniversary Index") and said quotient shall be multiplied by
the minimum monthly rent. The result then becomes the minimum monthly
rent.
-9-
<PAGE> 17
However, in no event shall the minimum monthly rent be less than
that set forth herein, nor shall any increase by reason of this CPI
Rent Adjustment be greater than five percent (5%) on any twelve (12)
month period per year. The above is expressed by a formula as
follows:
Anniversary Index x Minimum Monthly Rent
Commencement Index
As an illustration of the application of the above formula, assume
for the purpose of this illustration that the Anniversary Index for
the fourth year Adjustment Date is 130, and the Commencement Index
is 100. Base rental is given at $3,000.00. The minimum monthly rent
to be carried forward to the next Adjustment Date would
he determined as follows
130 x 3,000 (1.30 x 3,000) = $3,900.00
100
However, due to the limitation of five percent (5%) per year the
actual adjusted rent to be carried forward to the next Adjustment
Date would be $3,600.00 (1.20 x 3,000).
If the Index is discontinued or revised during the term, such other
government index or computation with which it is replaced shall be
used in order to obtain substantially the same results as would be
obtained if the Index had not been discontinued or revised.
C. Pre aid Rent. In accordance with the terms of Subparagraph A,
Rent is prepaid and non-refundable for the ensuing two (2) months. Accordingly,
no later than the Commencement Date, the Lessee shall pay to the Lessor the sum
of Six Thousand And No/100 Dollars ($6,000.00) for the first two (2) months of
the Term.
D. Manner of Payment. The monthly installment payable pursuant to
this Paragraph 2 shall be paid to Lessor, at 442 Weyer Road, Modesto, CA.
95351, or at any other address Lessor may from time to time provide Lessee for
this purpose.
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<PAGE> 18
3. LESSEE'S CONSTRUCTION.
A. Building Construction. The Lessee agrees to and shall have
constructed on the Premises the building in accordance with the plans
heretofore agreed to by the parties. The Lessee shall bear the entire expense
of Lessee's construction improvements ("Lessee's Improvements" herein).
B. Interior Improvements. In addition to the construction of the
building, the Lessee agrees to and shall have constructed at Lessee's sole cost
and expense within interior improvements to the building in accordance with and
shall equip the building and/or affix thereto the equipment and fixtures called
for by the plans.
C. Commencement of Construction. The Lessee shall cause construction
(to include non-building activities, e.g., engineering) of the Lessee's
Improvements to be commenced as soon as practicable, but in no event, later
than January 1, 1989, and shall cause construction thereof to be diligently
prosecuted to completion. The Lessee shall as soon as practicable (and, if
practicable, prior to completion of the Lessee's Improvements) commence the
interior improvements and shall cause said construction to be diligently
prosecuted to completion.
D. Completion Date. Subject to material shortages, labor shortages,
strikes, lockouts, boycotts, other labor disruptions, delays by contractors or
subcontractors, governmental actions, war, riot, insurrection, rebellion, act
of God, fire, reasonable control of the Lessee, the Lessee's Improvements shall
be completed on or before January 1, 1990. Subject to the same limitations,
the Lessee shall cause the Interior Improvements to be completed within two (2)
weeks of completion of the Lessee's Improvements.
4. TAXES AND ASSESSMENTS.
A. Real and Personal. In addition to the amounts of money due as
Rent under this Lease, the Lessee shall pay to Lessor the real property taxes
imposed on the Premises, and the Lessee's exterior and interior improvements.
Payment of these taxes is to be made to Lessor upon demand and before this tax
is to become delinquent.
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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(s),
levy or tax (other than inheritance, personal income or estate taxes) imposed
on the Premises 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 or Lessee in the Premises, as
against Lessor's right to rent or any income therefrom, and as against Lessor's
business of leasing the Premises. Lessee shall pay any assessments associated
with the obtaining a building permit or conditional thereto. The term "real
property taxes" shall also include any tax, fee, levy, assessment or charge (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 taxes."
B. Payment in Installments. If the right is given to
pay either in one sum or in installments, the Lessee may elect either mode of
payment and its election shall be binding upon the Lessor. If by making such
election to pay in installments, any of the installments shall be payable after
the termination of the Initial Term or an Extended Term or any extension
thereof, such unpaid installment shall be prorated as of the date of
termination and any amounts payable after the date of termination shall be paid
by the Lessor.
C. Proration. All taxes, assessments, levies and
charges payable under this Paragraph shall be prorated at the Commencement Date
and upon termination of this Lease. For taxes paid by the Lessor prior to the
Commencement Date, the Lessee shall within ten (10) days of demand by the
Lessor pay its proportionate share thereof.
D. Contest. If the Lessee in good faith should desire to
contest the validity of amount of any tax, assessment, levy or governmental
charge herein agreed to be paid by the Lessee, the Lessee shall be permitted to
do so and to defer the payment thereof to the extent of the tax that is being
contested in validity or amount until final determination of the contest and
Lessor will cooperate in all reasonable ways in respect to Lessees' tax contest
or appeal, if, but only if, the Lessee shall have given to the Lessor at least
fifteen (15) days written notice of the desire to the Lessee to contest the
tax, assessment, levy or governmental charge and upon protecting the Lessor by
good and sufficient surety bond against such tax, assessment, levy or
governmental charge and from any costs, liability or damage arising out of such
contest.
5. UTILITIES. The lessee shall make all arrangements for
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and pay for all utilities an services furnished to or utilized by it at or for
the benefit of the Premises, including, but not limited to, gas, water,
electricity, telephone service, and trash. The Lessee shall be responsible for
any and all connection charges and deposits which utility and service providers
may require. In all cases wherever possible, there shall be separate meters
installed for the utilities which are furnished to the Lessee.
The Lessee hereby represents that it is leasing the Premises with a
full understanding of and having had an ample opportunity to reasonably
investigate that all utilities, including, but not limited to, water, sewer,
gas, electricity and telephone are property installed to and available at the
boundaries of the Premises and that upon completion of the building in
conformance with the agreed Plans, the utility services will meet the needs of
the Lessee, and that if not, the utility service(s) to meet its needs and that
of its commercial venture.
6. CONSTRUCTION OF BUILDINGS AND IMPROVEMENTS.
A. Legal Compliance. Lessee agrees that any building or
buildings that may be constructed on the Premises prior to and during the term
of this Lease shall comply with and be constructed in accordance with all
existing building ordinances and any other laws or municipal, state, federal or
other governmental regulations or orders applicable thereto. Lessee may at any
time and from time to time construct improvements and/or remodel the
improvements then located on the Premises, or raze any improvements then
located thereon for the purpose of constructing new improvements having a value
at least equivalent to the improvements razed. Any improvements shall be
commenced and completed, under direction of a licensed contractor, with all due
diligence after commencement and after the razing of any existing improvements,
where necessary, subject, however, to delays occasioned by strikes, lockouts,
acts of God, governmental restrictions, or any other causes of any description
that are beyond the control of Lessee.
B. Title. All buildings and other improvements
hereinafter constructed upon the Premises shall become subject to this Lease,
but title thereto shall remain in the Lessee until the expiration or sooner
termination of the term of this Lease, at which time any building and other
improvements then remaining upon the Premises shall become and be the property
of Lessor.
C. Removal Upon Expiration. At the expiration of the
term of this Lease, provided Lessee is not then in default, Lessee shall have
the right to remove any or all trade fixtures, provided all resultant injuries
to the Premises and remaining improvements are remedied.
D. Maintenance. Lessee covenants and agrees, at its own
cost and expense, to keep any improvements located on the
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Premises, including the roofs, sidewalks, and any and all appurtenances, in
good condition and repair except for ordinary wear and tear during the entire
term of this Lease except as provided in Paragraph 7 hereof, it being expressly
understood and agreed that Lessor is not to be called upon to make any
expenditure whatsoever, on account of any improvements, alterations, renewals,
modifications, additions or changes to any improvements on the Premises,
abutting sidewalks, or appurtenances. In the event Lessee fails to perform any
of its covenants in this Paragraph or in Paragraph 7 and, if by doing so such
failure may be corrected, Lessor may, but shall not be required to, after at
least thirty (30) days' written notice to Lessee and the failure of Lessee to
correct such failure within such time, enter the Premises, or direct others to
do so, to correct such failure and Lessor's reasonable costs thereto shall be
due and payable as additional rent together with the next regular monthly rent
payable after Lessor incurs such cost; provided, however, that if the matter
involved may not be corrected within such time it shall be adequate for Lessee
to begin such correction within such time and complete the same thereafter with
due diligence.
E. Alterations. So long as this Lease is in effect,
Lessee shall have the right to make alterations, improvements, additions or
repairs to any improvement on the premises, at any time, provided that the
improvement will not be weakened by reason thereof and that any such alteration
shall not diminish the value of the improvements on the Premises. All of such
work shall be performed in accordance with ordinances, laws, regulations and
orders, as provided for new buildings, and in a good and workmanlike manner.
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F. Notice. Lessee agrees to give Lessor not less than
ten (10) days notice in writing of Lessee's intention to construct any
improvements on the real property demised hereunder and/or to perform any work
of alteration, improvement, addition or repair to any building located on the
Premises prior to commencing any such work so that Lessor may post a notice of
non-responsibility.
G. No Liens or Charges; Bond Requirement. At all times
during the term of this Lease, Lessee shall keep the Premises and improvements
free and clear of mechanics liens and other liens for labor, service, supplies,
equipment or materials supplied to Lessee. Lessee will at all times fully pay
and discharge and wholly protect and save harmless Lessor and the Premises and
improvements against any and all demands or claims, and against all attorneys'
fees and costs and any and all expenses, damages or outlays which may or might
be incurred by Lessor or Lessee by reason of, or on account of, any such liens
or claims. Should Lessee fail to pay off and fully discharge any such liens or
claims within forty-five (45) days after written notice form Lessor of the
existence of such a lien or claim, Lessor shall have the right, at Lessor's
option, to require Lessee to furnish the bond described in Section 3143 of the
California Civil Code (or any comparable statute hereafter enacted for
providing a bond freeing the Premises from the effect of such a lien claim)
equal to one and one-half (1 1/2) times the total estimated costs of
improvement. In the event Lessee does not furnish such a bond after written
request from Lessor, and final judgment has been rendered against Lessee by a
court of competent jurisdiction for the foreclosure of such lien or clam and
Lessee fails to stay the judgment by lawful means or pay the judgment, or
otherwise discharge, stay or present the execution of any such judgment or lien
or both.
Lessee agrees to repay the Lessor and to reimburse Lessor for all
monies which Lessor may pay out in discharge of any such claims, liens or
judgment, and for all reasonable attorneys' fees, costs and expenses which may
be incurred by Lessor by reasons of, or in account of, any of the same, with
interest at the annual rate of two percentage points above the prime rate, but
in no event greater than the highest rate then legally permitted from the time
of payment by Lessor until repaid by Lessee to Lessor; and all such sums of
money shall be repaid by Lessee to Lessor on or before the first day of the
next calendar month after such payment by Lessor.
H. Notice of Completion. On completion of any
substantial work of improvement during the term, Lessee shall file or cause to
be filed a valid notice of completion. Lessee hereby irrevocably appoints
Lessor as Lessee's attorney-in-fact to file the notice of completion on
Lessee's failure to do so after the work of improvement has been substantially
completed.
I. City of Modesto Requirements. Lessee assumes full
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responsibility for completion of curbs, gutters and sidewalks pursuant to the
Parcel Map attached hereto as Exhibit "C." To the extent Lessee's building or
wall does not satisfy the so-called "firewall" requirements pursuant to those
letters from Attorney Sidney A. Israels and City Attorney Stanley Yamamoto
dated December 30, 1987, and January 6, 1988, respectively, and attached hereto
as Exhibit "D-1" and "D-2" respectively, such "firewall" requirements shall be
satisfied by Lessor. However, Lessee shall use reasonable best efforts to
satisfy said "firewall" requirement.
7. INSURANCE. Lessee shall, throughout the term of this Lease,
procure and maintain Comprehensive General Liability insurance insuring Lessor
and Lessee as named co-insureds against any and all claims and liability of
personal injury, death, or property damage occurring upon or about the Premises
and or its improvements and appurtenances, including elevators (when and if
there are elevators on the premises) and sidewalks abutting the Premises, in
the amount of One Million Dollars ($1,000,000) combined single limit for injury
or death to any one person or persons or damages to property.
Throughout the terms of this Lease, Lessee shall keep all improvements
located on the Premises insured against loss or damage by fire and other risks
commonly covered for commercial structures. The amount of the insurance shall
be not less than one hundred percent (100%) of the then actual replacement
cost, excluding architect's and engineers' fees and costs of replacing
excavations and foundations but without deduction for depreciation (the "Full
Insurable Value"). The Full Insurable Value shall be determined from time to
time, not more frequently than at one (1) year intervals, by an appraisal made
in accordance with the rules and regulations and/or practice of any board of
underwriters, or like board or body, recognized and accepted by the insurance
company or companies writing such insurance.
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The insurance policies provided for in this Paragraph against loss or
damage by fire shall insure Lessor and Lessee as named co-insureds and the
mortgagee, if any, of the fee and the mortgagee, if any, of the Leasehold
(provided that any mortgagee included in such insurance agrees to use the
proceeds thereof in conformity with this Lease), as their interests may appear.
The policies required by this Paragraph shall be at the cost and
expense of Lessee. Lessee agrees to pay the premiums for all insurance
required hereunder in annual or lesser installments as Lessee and the
applicable insurance company may deem appropriate. Lessee shall deliver
policies or duplicates thereof or certificates therefor to Lessor. If Lessee
fails to effect, maintain or renew any required insurance or to pay the
premiums therefor, then Lessor, at its option (but without obligation to do
so), may procure such insurance, and any sums expended by it for such insurance
shall be repaid by Lessee to Lessor on the first day of the next calendar month
after payment by Lessor, together with interest at the annual rate of two (2)
points above the preferred commercial or prime rate charged to Wells Fargo Bank
customers, but in no event greater than the highest rate then legally
permitted, from the date of payment by Lessor until paid by Lessee. Any
failure of Lessee to repay the same shall carry with it the same consequence as
failure to pay an installment of rental.
To the extent obtainable each insurer shall agree, by endorsement on
the policy or policies issued by it, or by independent instrument furnished to
Lessor, that it will give Lessor thirty (30) days' written notice before the
policy or policies in question shall be materially altered or cancelled.
Neither Lessor nor Lessee shall carry separate insurance, concurrent
in form or contributing in the event of loss with any insurance required to be
furnished by Lessee under this Paragraph, unless both Lessor and Lessee are
included therein as the insureds, with loss payable as provided in this Lease.
All policies provided for in this Paragraph may be by separate
insurance or included in blanket policies of Lessee or the parents,
subsidiaries or affiliates of Lessee.
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The insurance policies provided for in this Paragraph against loss or
damage by fire shall be made payable to any bank doing business in Stanislaus
County, California, selected from time to time as trustee by Lessee should said
loss or damage equal or exceed Twenty-Five Thousand Dollars ($25,000); and
disposition of the recoveries thereon shall be subject to the restrictions and
shall be made as hereinafter provided for in this Lease. In the event of the
resignation of any such trustee, such trustee shall file an accounting of the
assets held hereunder with the parties hereto and shall deliver any trust
assets held hereunder to such bank as is selected by Lessee as the successor
trustee.
Any coverage minimums, the deductible and the minimum amount of
proceeds payable to the trustee set forth in this Paragraph or elsewhere in
this Lease may at Lessor's option be increased to the extent so advised in the
reasonable judgment of Lessor's independent insurance broker at the beginning
of the fifth, and at the beginning of each five year period thereafter
throughout the term of this Lease.
Subject to the replacement cost provision herein, so long as the
applicable policy is not affected and the cost thereof is not increased
thereby, each of the parties hereto waives its entire right of recovery against
the other for any damages caused by an occurrence insured against by such party
and the rights of any insurance carrier to be subrogated to the rights of the
insured under the applicable policy.
8. USE OF PREMISES.
A. Compliance with Laws. Lessee may use the Premises
for commercial purpose, specifically for a Brewery, Restaurant, Pub, or any
combination thereof, or other commercial usage, reasonably approved by Lessor,
allowed under the applicable zoning ordinance for the Premises. Lessee will
not use nor knowingly permit any person to use or occupy in any manner
whatsoever the Premises or any improvement thereon, or any part thereof, for
any extra hazardous purpose, nor for any purpose nor in any manner or use in
violation of any law or ordinance or of any governmental, political or military
order or regulation.
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Lessee agrees to conform to all laws and ordinances and all orders and
regulations of any and every legal, governmental or military board, body,
commission or officer relating to, affecting or controlling the construction,
reconstruction, replacement, changes in construction of, repair, maintenance,
condition, equipment, protection, occupancy or use of any and every building,
structure or improvement that may be, or that may be placed or maintained upon
the Premises, or relating to, affecting or controlling the improvement,
occupancy, use or condition of, or any work or operation in or upon the
Premises, or any sidewalk or street surrounding or adjoining the Premises.
Lessee agrees to pay and discharge, and to keep the Lessor and the Premises and
any improvement thereon, free and harmless from any fine, penalty, or other
change incurred for violation of any law, order, ordinance or regulation.
Lessee shall have the right to contest by appropriate legal
proceedings or in such other lawful manner as Lessee may deem suitable in the
name of Lessee or Lessor, or both, but without cost or expense to Lessor, the
validity of any law, ordinance, certificate, order, rule, regulation or
requirement of the type referred to in this Paragraph. If compliance may
legally be held in abeyance without incurring any lien, charge or liability of
any kind against the Premises or the improvements thereon or any interest of
Lessor or Lessee therein, and without subjecting Lessor to any liability, civil
or criminal, Lessee may postpone compliance therewith until the final
determination of any contest, provided that all such proceedings shall be
prosecuted with all due diligence and dispatch. Provided the same shall be
without cost or expense to Lessor, Lessor agrees he will cooperate with Lessee
in any such contest. If Lessee shall initiate or carry on any such contest in
the name of Lessor, or of Lessor and Lessee, Lessee shall advise Lessor in
writing not less than five (5) days before initiating such contest, and shall
give full details as to the tribunal in which the contest is to be filed, the
laws, ordinances, certificate, order, ruling, regulation or requirement
contested, and such additional data as Lessor may require. If any lien, charge
or civil liability, but not criminal liability, is incurred by reason of
non-compliance, Lessee may still proceed with such contest if Lessee furnishes
to Lessor security reasonably satisfactory to Lessor against any loss or injury
by reason of such non-compliance or delay therein, and prosecutes the contest
with due diligence and dispatch.
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B. Acts Affecting Fire Insurance. The Lessee shall not
do or permit anything to be done in, on or about the Premises or bring or keep
anything therein which will an any way increase the rate of fire insurance upon
the building or any of its contents. The Lessee shall at its sole cost and
expense promptly comply with all laws, statutes, ordinances and governmental
rules, regulations or requirements now in force or which may hereafter be in
force and with the requirements of any board of fire underwriters or other
similar body now or hereafter constituted relating to or affecting structural
changes not related to the Lessee's Improvements or the Interior Improvements.
C. Environmental Hazards and Compliance. The Lessee, at
its sole cost and expense, agrees to comply with all federal, state and local
laws, rules and regulations now in force or which may hereafter be in force
which deal with the handling, control, discharge and disposition of hazardous
waste, material and substances (as such are defined from time to time in the
federal, state and local laws, rules and regulations. Specifically, without
subtracting from the generality of the foregoing, the Lessee agrees to comply
with the language of Proposition 65 of the State of California, which in part
provides as follows, "No person in the course of doing business shall knowingly
discharge or release a chemical known to the state to cause cancer or
reproductive toxicity into water or onto or into land where such chemical
passes or probably will pass into any source of water......"
Upon the expiration of this Lease, the Landlord shall be the sole cost
and expense of the Lessee, have the Premises surveyed for the presence of
hazardous waste, material and substances. Any and all hazardous waste,
material and substances discovered at, upon or about the Premises which the
survey develops shall, at the sole cost and expense of the lessee, be removed
and disposed of in accordance with the requirements of the federal, state or
local governmental agency in charge thereof. During the period of cleanup, if
the Premises cannot then be offered by the Lessor for reletting under
applicable federal, state or local statutes, ordinances or regulations, the
Lessee shall continue to pay to the Lessor Rent and any and all other expenses
which are the responsibility of the Lessee under this Lease.
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The Lessee shall indemnify and hold the Lessor and its directors,
officers, and employees harmless from and defend the Lessor against any and all
claims or liability for injury or damage to any person or property whatsoever
arising from all matters related to hazardous waste, material and substances.
D. Lessee's Business Operation. The Lessee hereby
agrees that the Lessor shall not be liable for injury to the business of the
Lessee or any loss of income therefrom or for damage to the goods, wares,
merchandise or other property of the Lessee, the Lessee's employees, invitees,
customers or other person in, on or about the Premises, nor shall the Lessor be
liable for injury to the person of the Lessee, the Lessee's employees,
invitees, customers or any other person in, on or about the Premises, either
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 such damage or injury results from
conditions arising in, on or about the Premises or the building or the overall
parcel, or from other sources or places and regardless of whether the cause of
such damage or injury to the means of repairing the same is accessible to the
Lessee. The Lessor shall not be exempt from liability for its negligence or
the negligence of its employees.
The Lessee shall indemnify and hold the Lessor harmless from and
defend the Lessor against any and all claims or liability for injury or damage
to any person or property whatsoever arising from the use by the Lessee of the
Premises, or from the conduct of the Lessee's business, or from any work,
activity or things done, permitted or suffered by the Lessee in, on or about
the Premises or elsewhere. The Lessee shall further indemnify the Lessor and
hold the Lessor harmless from and against any and all claims arising from any
breach or default in the performance of any obligation on the part of the
Lessee to be performed under the terms of this Lease, or arising from the
negligence or willful acts of the Lessee, or any of the Lessee's agents and
employees, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in the defense of any such claim. As a material part of
the consideration to the Lessor in entering this Lease, the Lessee hereby
assumes all risk of damage to the Premises, the building and the overall
parcel, other property (both real and personal) or injury to persons in, on or
about the Premises from any
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cause, and the Lessee hereby waives all claims in respect thereof against the
Lessor, except for any claim arising out of the sole negligence of the Lessor.
9. DAMAGE AND DESTRUCTION. If at any time during the term of
this Lease any improvement on the Premises is damaged or destroyed by fire, act
of God, earthquake or the elements, or public enemies, other casualty, Lessee
shall repair the improvement or replace it as follows: If the damage is
partial and can be repaired under the then existing building ordinances of the
applicable jurisdiction or the building laws of the State of California, Lessee
shall repair the improvement at Lessee's own cost and expense. If the damage
to the improvement cannot be repaired, or if the improvement is totally
destroyed, Lessee shall replace the improvement so irreparably damaged or
totally destroyed with another improvement of equal value. If the damage or
destruction is covered by insurance then a reasonable period of time shall be
allowed to adjust the claim against the insurance company before Lessee is
required to begin the work of repair or replacement. All of the work provided
for in this paragraph shall be in conformity with all ordinances, laws,
regulations and orders, as provided for a new building in Section 7 hereof.
Subject to Lessees' obligations to Lessees' leasehold lender, all
recoveries upon any insurance policies required or permitted under Paragraph 7
shall be applied toward the work of repair and/or replacement, and any excess
funds shall be payable to Lessee.
In the event that such damage or destruction to any improvement on the
Premises exceeds twenty-five percent (25%) of the replacement cost (excluding
architectural and engineering fees, foundation and excavation), Lessee shall
have the option of repairing the Premises or returning the Premises to a "broom
clean" condition, provided such damage or destruction occurs during the last
three (3) years of the term of this Lease, Lessee may upon at least thirty (30)
days' prior written notice to Lessor terminate this Lease as to such
improvement, together with such immediately adjacent land thereunder as is
reasonably necessary for the comfortable use and occupancy, free and clear of
all tenancies. In such event (i) all insurance proceeds not used for repair or
restoration of any portion of the Premises not terminated shall be paid to
Lessor, (ii) rent under this Lease shall be reduced as of the date of
termination in the proportion that the square footage of the land so terminated
bears to the square footage of the
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entire land initially demised hereunder and shall be prorated, (iii) all costs
and expenses relating to the terminated land and building shall be prorated as
of termination and Lessee shall thereafter cease to have any obligation
therefor, and (iv) the parties shall exchange among themselves easements and
such other instruments as shall be reasonably necessary to assure that all
buildings on the Premises (including the terminated portion) retain the same
parking, utilities, access and similar rights and privileges as they enjoyed
prior to such termination. In the event of a dispute under any of the
provisions of this final paragraph of Paragraph 9, the matter shall be
determined by arbitration.
10. ASSIGNMENT AND SUBLETTING.
A. Purpose. The purpose of this Lease is to
transfer possession of the premises to Lessee for Lessee's use in return for
certain benefits including rent to be transferred to the Lessor. The essence
of this Lease agreement then is the transfer of possession of the premises to
Lessee for its personal use and payment of money and other consideration by
Lessee for this transfer by Lessor. The Lessee's right to assign or sublet as
stated in this Paragraph is subsidiary and incidental to the underlying purpose
hereof. Lessee acknowledges that it has entered into this Lease in order to
acquire the premises for its own personal use and has not entered into this
lease for the purpose of obtaining the right to convey the leasehold to others.
The terms "assignment" or "subletting" as used herein shall include any
transfer of possession or of a contingent right of possession, including
without limitation, any agency, franchise or management agreement amounting in
terms to a "net lease" or complete abdication and assignment of Lessee's legal
responsibility, and excluding any mortgage or hypothecation pursuant to
Lessee's lender's requirements and subject to the requirements of this Lease.
B. Consent of Lessor. Lessee shall not assign this
Lease or any interest therein, and shall not sublet the said Leased premises or
any part thereof, or any right or privilege appurtenant thereto, or suffer any
other person (the agents and servant of Lessee excepted) to occupy or use the
said leased premises, or any portion thereof, without the reasonable written
consent of Lessor first had and obtained, and a consent to one assignment,
subletting, occupation or use by any other person shall not be deemed to be a
consent to any subsequent assignments, subletting, occupation or use by another
person. Any such assignment or subletting without such consent shall be void,
at the option of the Lessor. This Lease shall not, nor shall any interest
therein, be assignable, as to the interest of Lessee, by operation of law,
without the written consent of Lessor.
C. "Reasonable" Factors to Withhold Consent. The consent
of the Lessor to an assignment or sublet may not be
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unreasonably withheld, provided, should Lessor withhold its consent for any of
the following reasons, which list is not exclusive, such withholding shall be
deemed to be reasonable:
(1) In the event of a sublease that the Lessee
has virtually assigned and/or completely abrogated its legal
responsibility under this Lease.
(2) That the proposed use is different from
assignor's use of the Premises and such proposed use
diminishes the value of the Premises.
(3) That the financial capacity of the proposed
assignee is less than that of Lessee herein, or if greater
than Lessee, it is otherwise financially inadequate.
D. Conditions. Notwithstanding the foregoing, the
following conditions shall apply to any proposed assignment or sublease
hereunder:
(1) Each and every covenant, condition or
obligation imposed on Lessee by this lease and each and every
right, remedy or benefit afforded Lessor by this Lease shall
not be impaired or diminished as a result of such sublease;
(2) Any sums of money, or other consideration
received by Lessee as a result of such subletting or
assignment, including bonuses, key money, or the like (except
rental or other payments received which are attributable to
the amortization for the cost of leasehold improvements
performed at the expense of the Lessee herein) which shall
exceed, in the aggregate, the total sums which Lessee is
obligated to pay Lessor under this Lease, or the prorated
portion thereof if the premises subleased or assigned is less
than the entire premises, shall be payable to Lessor as
additional rental under this lease without affecting or
reducing any other obligation of the Lessee hereunder;
(3) If Lessee is a corporation which is not
deemed a public corporation, or is an unincorporated
association or partnership, the transfer, assignment or
hypothecation of any stock or interest in such corporation,
association or partnership in the aggregate in excess of fifty
percent (50%) shall be deemed an assignment within this
Paragraph;
(4) Lessee shall reimburse Lessor as additional
rent for Lessor's reasonable costs and attorney's fees
incurred in conjunction with the processing and
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documentation of any such requested assignment, subletting, transfer,
change of ownership or hypothecation of this Lease or Lessee's
interest in and to the premises said costs and fees are subject to
arbitration; and
(5) No subletting even with the consent of Lessor
shall relieve Lessee of its primary obligation to pay the rent
and perform all other obligations to be performed by Lessee
hereunder. The acceptance of rent by Lessor from any person
shall not be deemed to be a waiver by Lessor of any provision
of this Lease or to be a consent to any subletting.
11. DEFAULT AND REMEDIES OF THE LESSOR.
A. Events of Default. The occurrence of any one or
more of the following events ("Events of Default") shall constitute a breach of
this Lease by the Lessee:
(1) If the Lessee shall fail to pay any Rent when
and as the same becomes due and payable and such failure shall
continue for more than ten (10) days after the same becomes
due and payable;
(2) If the Lessee shall fail to obtain or
maintain any of the several policies of insurance which are
required of it by this Lease;
(3) The failure of the Lessee to observe or
perform any of the covenants, conditions or provisions of this
Lease to be observed or performed by the Lessee, other than
those described in Sub-Subparagraphs (1), (2), and (3) above,
if such failure continues for a period of thirty (30) days
after written notice thereof from the Lessor to the Lessee;
provided, however, that if the nature of the Lessee's failure
is such that more than thirty (30) days are reasonably
required for its cure, then the Lessee shall commence such
cure with the thirty (30) day period and thereafter diligently
prosecute such cure to completion;
(4) If the Lessee (i) shall make a general
assignment for the benefit of creditors, or (ii) shall admit
in writing its inability to pay its debts as they become due
or shall file a petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file a petition
seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under
any present or future statute, law or regulation, or (iii)
shall file an answer admitting or shall fail reasonably to
contest the material
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allegations of a petition filed against it in any such proceeding, or
(iv) shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of the Lessee or any material part of
its properties;
(5) If within ninety (90) days after the
commencement of any proceeding against the Lessee seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present
or future statute, law or regulation, such proceeding shall
not have been dismissed, or if, within ninety (90) days after
the appointment without the consent or acquiescence of the
Lessee of any trustee, receiver or liquidator of the Lessee or
of any material part of its properties, such appointment shall
not have been vacated;
(6) If this lease or any estate of the Lessee
hereunder shall be levied upon under any attachment or
execution, and such attachment or execution is not vacated
within ten (10) days;
(7) The vacating or abandonment of the Premises
by the Lessee; or
(8) The discovery by the Lessor that any
financial statement given to the Lessor by the Lessee, any
permitted assignee/sublessee of the Lessee, any successor in
interest of the Lessee or any guarantor of the Lessee's
obligations under this Lease is materially false.
(9) An assignment or sublease in violation of Paragraph 10 of this Lease.
B. Remedies. If any Event of Default should occur,
without limiting the Lessor in the exercise of any right or remedy which the
Lessor may have by reason of such Event of Default either under this Lease or
at law or equity, then the Lessor may, at any time thereafter, with not less
than twenty (20) days prior written notice or demand:
(1) Terminate the right of the Lessee to
possession of the Premises by any lawful means, in which case
this Lease shall terminate and the Lessee shall immediately
surrender possession of the Premises to the Lessor. Upon a
termination of the Lease under this remedy, the Lessee's right
to possession shall terminate and this Lease shall terminate,
unless on or before such date all arrears of rent and all
other sums payable by the Lessee under this Lease (together
with interest
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thereon at the rate set forth in Subparagraph C hereof if payable to
the Lessor) and all costs and expenses incurred by or on behalf of the
Lessor hereunder shall have been paid by the Lessee and/or any and all
obligations, promises or covenants or any other Event of Default and
all other breaches of this Lease by the Lessee at the time existing
shall have been cured and fully remedied to the satisfaction of the
Lessor. Absent a cure and upon a termination hereunder, the Lessor may
recover from the Lessee:
(a) The worth at the time of award of the unpaid Rent which had been
earned at the time of termination;
(b) 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 Rent loss that the Lessee
proves could have been reasonably avoided;
(c) The worth at the time of award of
the amount by which the unpaid Rent for the balance
of the Initial Term or an Extended Term after the
time of award exceeds the amount of such Rent loss
that the Lessee proves could be reasonably avoided;
and
(d) Any other amount necessary to
compensate the Lessor for all the 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.
The "worth at the time of award" of the
amounts referred to in Subparts (a) and (b) of
Sub-Subparagraphs B(1) above is computed by allowing
interest at the rate set forth in Subparagraph C.
The "worth at the time of award" of the amount
referred to in Subpart (c), Sub-Subparagraphs B(2)
above is 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%).
(2) Maintain the Lessee's right to possession, in
which case this Lease shall continue in effect whether or not
the Lessee shall have abandoned the Premises. In such event,
the Lessor shall be entitled to enforce all of the Lessor's
rights and remedies under this Lease,
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including the right to recover Rent as it becomes due under this
Lease.
(3) Pursue any other remedy now or hereinafter
available to the Lessor under the laws or judicial decisions
of the State of California.
C. Interest and Late Charges. Every installment of Rent
and every other payment due hereunder from the Lessee to the Lessor which shall
not be paid within ten (10) days after the same shall have become due and
payable shall bear interest at the rate of twelve percent (12%) per annum, but
in no event greater than the highest rate then legally permitted, form the date
that the same became due and payable and until paid, whether or not demand be
made therefor. The Lessee acknowledges that late payment by the Lessee to the
Lessor of Rent will cause the Lessor to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges and late charges that may be imposed on the Lessor by the
terms of any mortgage or trust deed covering the Premises. Therefore, if any
installment of Rent due from the Lessee is not received by the Lessor when due,
the Lessee shall pay to the Lessor an additional sum equal to six percent (6%)
of the overdue Rent as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that the Lessor will
incur by reason of late payment by the Lessee. In no event shall the operation
of this Subparagraph cause the Lessor to accept a sum greater than the highest
rate of interest then allowed in the State of California. Any sum accepted as
a late charge or interest which is later shown to have violated the usury laws
of the State of California shall be applied to future Rent obligations of the
Lessee, if any, and if none, returned to the Lessee without interest.
Acceptance of interest or any late charge shall not constitute a waiver of the
default of the Lessee with respect to the overdue amount, or prevent the Lessor
from exercising any of the other rights and remedies available to the Lessor
under this Lease or at law or equity.
D. No Termination Without Election by the Lessor. Even
though the Lessee has breached this Lease and abandoned the Premises, this
Lease shall continue in effect for so long as the Lessor does not terminate the
rights of the Lessee to possession, and the Lessor may enforce all its rights
and remedies under this Lease, including the right to recover the Rent as it
become due under this Lease. Acts of maintenance or preservation or efforts to
relet the Premises or the appointment of a receiver upon initiative of the
Lessor to protect its interest under this Lease shall not constitute a
termination of the Lessee's right to possession.
E. Remedies Not Exclusive. The remedies provided for
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in this Lease are in addition to any other remedies available to the Landlord
at law, in equity, by statute or otherwise.
F. The Lessor's Right to Cure Defaults. All agreements
and provisions to be performed by the Lessee under any of the terms of this
Lease shall be at its sole cost and expense and without any abatement of Rent.
If the Lessee shall fail to pay any sum of money, other than Rent, required to
be paid by it hereunder or shall fail to perform any other act on its part to
be performed hereunder, and such failure shall continue for ten (10) days after
notice thereof by the Lessor, the Lessor may, but shall not be obligated to do
so, and without waiving or releasing the Lessee from any obligations of the
Lessee, make any such payment or perform any such other act on the Lessee's
part to be made or performed as in this Lease provided. All sums so paid by
the Lessor and all necessary incidental costs shall be deemed additional rent
hereunder and shall be payable to the Lessor on demand, and Lessor shall have
(in addition to any other right or remedy of the Lessor) the same rights and
remedies in the event of non-payment thereof by the Lessee as in the case of
default by the Lessee in the payment of Rent.
12. DEFAULT BY THE LESSOR. The Lessor shall not be in default
unless the Lessor fails to perform obligations required of the Lessor within
thirty (30) days after written notice by the Lessee to the Lessor and to the
holder of any first mortgage or deed of trust covering the Premises (whose name
and address will be provided to the Lessee upon written request), specifying
therein the alleged failure to the Lessor to perform such obligation.
Furthermore, if the nature of the obligation of the Lessor is such that more
than thirty (30) days are required to affect a cure, then the Lessor shall not
be in default if the Lessor commences such cure within such thirty (30) day
period and thereafter prosecutes such cure to completion.
13. TERMINATION OF LEASE; FORFEITURE OF PROPERTY; CONDITION.
Lessee agrees that as at the termination of this Lease or repossession of the
leased Premises by Lessor, by way of default or otherwise, it shall remove all
personal property to which it has the right to ownership pursuant to the terms
of this Lease. Any and all such property of Lessee not removed by such date
shall, at the option of the Lessor, irrevocably become the sold property of
Lessor. Lessee waives all rights to notice and all common law and statutory
claims and causes of action which it may have against Lessor subsequent to such
date as regards the storage, destruction, damage, loss of use and ownership of
the personal property affected by the terms of this Paragraph. Lessee
acknowledges Lessor's need to relet the leased Premises upon termination of
this Lease or repossession of the leased premises and understands that the
forfeitures and waivers herein are necessary to aid said reletting, and to
prevent Lessor incurring a loss for inability to deliver the property to a
prospective
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Lessee.
In addition, upon such termination of the Lease, the Lessee shall
deliver up to Lessor peaceable possession of the Premises and improvements in
the same condition as received, including proper site clearance and removal if
requested by Lessor, free and clear of any and all hazardous waste, material,
substance and violations of law.
Not less than one year prior to the termination date of this Lease,
Lessor shall notify Lessee of Lessors intention to have the premises demolished
and the property returned to Lessor in the same state it was delivered to
Lessee or to have the premised remain in place. Should demolition be
requested, the cost of demolition shall be at the sole expense of the Lessee.
14. SURRENDER OF LEASE. The voluntary or other surrender of this
Lease by Lessee, or a mutual cancellation thereof, shall not work as a merger,
and shall, at the option of Lessor, terminate all or any existing subleases or
subtenancies, or may, at the option of Lessor, operate as an assignment to it
of any or all such subleases.
15. COSTS AND FEES OF LITIGATION. In the event that the Lessor
should institute any suit against Lessee for violation of any of the covenants
or conditions of this Lease or for recovery of possession of the Premises, or
should the Lessee institute suit against Lessor for violation of any of the
covenants or conditions of this Lease, or should either party intervene in any
action or proceeding in which the other is a party, to enforce or protect its
interest or rights hereunder, the prevailing party shall be entitled to the
reasonable fees of its attorneys, as determined by the adjudicatory authority
hearing the matter and taxes as part of the costs thereof. Arbitration
provided for by this Lease is included within the scope of this Paragraph 15.
16. CERTIFICATES. Lessor and Lessee shall, without charge, at any
time and from time to time, within ten (10) days after receipt of written
request, deliver a duly executed and acknowledged written instrument to the
requesting party or to any other person, firm or corporation specified in the
request, certifying:
(a) That this Lease is unmodified and in full force and
effect, or, if there has been any modification, that it is in full force and
effect as modified in the manner stated in such document;
(b) That Lessee is not in default under the terms of this
Lease, or, if in default, the details thereof;
(c) Whether or not there are then existing any setoffs
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or defenses against the enforcement of any of the agreements, terms, covenants
or conditions of this Lease and any modification thereof upon the part of
Lessor or Lessee, to be performed or complied with, and, if so, specifying the
same; and
(d) The dates to which the net rent, additional rent (if any)
and other charges hereunder have been paid.
Any such statement delivered pursuant to this Paragraph may be relied
upon by any prospective purchaser of the fee of the Premises, or by any
prospective purchaser or encumbrance of the leasehold estate, or other party to
whom the instrument is directed.
17. ARBITRATION. Wherever arbitration is provided for in this
Lease, it shall be conducted under the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") then in effect. The decision of the
arbitrator(s) shall be final, binding and non-appealable and may be entered as
a judgment in any court of competent jurisdiction. Either party shall have the
right to specifically enforce this Paragraph 17 in order to compel an
arbitration as required by the terms of this Lease, and the failure of the
opposing party to agree to such arbitration shall render such party liable as a
material default under this Lease for all damages proximately caused by the
failure to so agree.
Following a receipt of a list of proposed arbitrators from AAA, the
parties shall have ten (10) days within which to reject any arbitrator deemed
objectionable, failing in which the right to reject arbitrators shall be deemed
waived. To the extent consistent with the rules, the arbitration hearing shall
be set within ninety (90) days after the selection of the arbitrator(s) in
Stanislaus County. Each party shall have the right to pre-arbitration
discovery pursuant to the rules set forth in California Code of Civil Procedure
Section 2016 through 2037. The arbitrator(s) shall render this award within
thirty (30) days after conclusion of the hearing. The arbitrator(s) shall be
entitled to award the prevailing party in such arbitration, reasonable
attorneys' fees, cost of arbitration filing, fees or the arbitrator(s), costs
of the reporter's transcript and expert witness fees.
18. QUIET ENJOYMENT AND WARRANTIES OF TITLE. Lessor warrants that
so long as Lessee is not in default hereunder Lessee shall have the quiet
enjoyment of the Premises throughout the term of this Lease, including any
extended term, without let or hindrance on the part of Lessor, and Lessor will
warrant and defend Lessee in the peaceful and quiet enjoyment of the Premises
against all persons claiming through Lessor.
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19. EMINENT DOMAIN.
A. Definitions. The following definitions shall apply
in construing provisions of this Lease relating to a taking of or damage to all
or any party of the premises or improvements or any interest in them by eminent
domain or inverse condemnation:
(1) "Taking" means the taking or damaging,
including severance damage, by eminent domain or by inverse
condemnation or by any public or quasi-public use under any
statute. The transfer for title may be either a transfer
resulting from the recording of a final order or condemnation
or a voluntary transfer or conveyance to the condemning agency
or entity under threat of condemnation, in avoidance of an
exercise of eminent domain, or while condemnations are
pending. The taking shall be considered to take place as of
the later (a) the actual date physical possession is taken by
the condemnor, or (b) the date on which the right to
compensation and damages accrues under the law applicable to
the premises.
(2) "Improvements" means all products of skill
artifact, plan or design for construction on, modification of,
or planned use of existing structures, natural or cultivated
or earth contours on the premises including, but not limited
to, buildings, structures, fixtures, fences, utility
installments, excavations, surfacing, ornamental trees,
bushes, vines and other plants or shrubbery, whether occurring
on the premises naturally or placed by human design or effort,
and whether coming into being on the premises before or after
commencement of the term; landscaping, ground cover, and
artistic and ornamental components of any of the above.
(3) "Notice of intended taking" means any written
notice expressing an existing intention of taking, as
distinguished from a mere preliminary inquiry proposal and
that contains a description or map of the taking reasonably
defining the extent of the taking, including, the service of a
condemnation summons and complaint on a party to this Lease.
The notice is deemed given when actually received by a party
to this Lease from the condemning agency or entity.
(4) "Award" means compensation paid for the
taking whether pursuant to judgment or by
agreement or otherwise.
B. Notice. The party receiving any notice of the
following specified kind shall promptly give the other party
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notice of the receipt, contents, and date of the notice received:
(1) Notice of intended taking;
(2) Service of any legal process relating to
condemnation of the premises of improvements;
(3) Notice in connection with any proceeding or
negotiations with respect to such a
condemnation; or
(4) Notice of intent or willingness to make or
negotiate a private purchase, sale, or transfer, in lieu of
condemnation.
C. Right to Representation. Lessor, Lessee, and all persons
and entities holding under Lessee, shall each have the right to represent his
or its respective interest at each proceeding or negotiation with respective
interest at each proceeding or negotiation with respect to a taking or intended
taking and to make full proof of his or its claim. Not agreement, settlement,
sale or transfer to or with the condemning authority shall be made without the
consent of Lessor and Lessee. Notwithstanding the above, Lessor shall have no
right of representation where the taking only applies to the improvements.
Lessor and Lessee each agree to execute and deliver to the other any
instructions that may be required to effectuate or facilitate the provisions of
this Lease relating to condemnation.
D. Condemnation by Eminent Domain. In the event of
condemnation by eminent domain (or any similar law authorizing the involuntary
taking of private property, which shall include a sale in lieu thereof to a
public body, quasi-public or other authority to entity legally endowed with
such power) of a portion or all of the Premises, the respective rights and
obligations of the parties hereto shall be as follows:
(1) If the portion condemned and taken is not a
Substantial Portion, defined below) of the Premises, or in the
event a substantial Portion is taken but Lessee does not
terminate this Lease as allowed by subparagraph (b) hereof,
then Lessee shall reconstruct the remainder of the Premises so
as to constitute an architectural unit, if any portion but
less than all of a building is taken, and/or to an integrated
plan of development for the remaining parcel, in the event an
entire building or land other than land upon which a building
is taken. All awards (other than any award based upon a
taking of Lessee's fixtures and equipment) shall be paid as
follows:
(a) Subject to the rights of any Leasehold
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Mortgagee, there shall be held by Lessee and applied to the cost of
repair and restoration an amount sufficient for the cost of such
repair and restoration required by this paragraph;
(b) Next, there shall be paid pro rata to Lessor
and Lessee the value of the land, as unimproved land
exclusive of improvements and the improvements so
taken.
(c) In the event of such condemnation and taking,
the rental shall be reduced by an amount equal to
that proportion of such rent which the value of the
law and improvements so taken shall bear to the value
of all of the Premises and the improvements thereon.
In the event that the parties cannot agree upon the
allocation of the award or reduction of the rental,
or if there is a dispute under any of the other
provisions of this subparagraph (1), the same shall
be determined by arbitration.
(2) Notwithstanding the above, Lessee will be
relieved of its obligation to repair or reconstruct
improvements taken during the final twenty (20) years of the
term of the Lease if:
(a) The work of repair or reconstruction
would constitute a "major" repair or alteration as
defined in the provisions of this Lease relating to
maintenance, repair and alteration of improvements;
(b) Within sixty (60) days after Lessee
receives notice of intent of taking, Lessee given
Lessor notice of election to claim the relief; and
(c) Lessee is not otherwise in monetary default under the terms of this Lease.
If the conditions described herein are met, the award shall be
apportioned as described in subparagraph (3) below. If all the foregoing
conditions for relief are satisfied, the cost of such repair or reconstruction
shall be deducted from Lessee's share of the award and paid to any Leasehold
Mortgagee demanding it by notice within twenty (2) days after Lessee's notice
of election, and otherwise to Lessor.
(3) In the event that a Substantial Portion of
the Premises is taken, the Lessee shall have the option by
written notice to Lessor within sixty (60) days of such taking
to terminate this Lease, in which event this
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Lease shall terminate and all awards shall be paid in the following
order:
(a) The Leasehold Mortgagee shall receive all
sums due under any note executed by Lessee secured by
a leasehold deed of trust only after the Lessor's Fee
Mortgagee or Beneficiary, if any, received its sums
due under any note executed by Lessor, secured by a
senior deed of trust on the Premises;
(b) Next, there shall be paid pro rata to Lessor
and Lessee the value of the land and improvements
so taken;
(c) In the event of any dispute as to the
allocation of award or of any other dispute under any
of the provisions of this subparagraph (3), the same
shall be determined by arbitration.
(4) A "Substantial Portion" of the Premises shall
mean five percent (5%) or more of the square footage of the
Premises as originally comprised or a lesser portion
indispensable to Lessee's operations.
(5) If all or any portion of the Premises and any
building located thereon shall be taken by the exercise of the
right of eminent domain for governmental occupancy for a
limited period, this Lease shall not terminate and Lessee
shall continue to perform and observe all of its obligations
hereunder as though the taking had not occurred, except to the
extent that it may be prevented from so doing by reason of
such taking. Lessee, however, shall in no event be excused
from the payment of rent, and all other sums and charges
required to be paid by Lessee under this Lease. In the event
of such a temporary taking, Lessee shall be entitled to
received the entire amount of any award made for such taking
(whether paid by way of damages, rent or otherwise) and Lessor
hereby assigned such award to Lessee, unless the period of
governmental occupancy extends beyond the termination of the
then existing term of this Lease, in which case the award
shall be apportioned between Lessor and Lessee as of the date
of such termination and, in such apportionment, Lessor shall
receive the full amount, if any, of any portion of the award
which represents the cost of restoration at the termination of
any such governmental occupancy. Lessee covenants that at the
termination of any such governmental occupancy, it will, at
its sole cost and expense, restore the building as nearly as
may be reasonably possible to the condition in which the same
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was prior to such taking. However, Lessee shall not be required to do
such restoration work if on or prior to the date of such termination
of governmental occupancy, the term of this Lease shall have
terminated or if such date of termination of governmental occupancy
shall occur less than three (3) years prior to the termination of the
initial term of this Lease, in which event the award shall be
allocated under the provisions of paragraph (b) hereof.
Notwithstanding the above, if a portion of the
Premises indispensable to Lessee's operations is taken by the
right of eminent domain for governmental occupancy for a
limited period, Lessor and Lessee shall treat the taking as a
taking of a Substantial Portion.
E. Early Delivery of Possession. Lessee may continue to
occupy the premises and improvements until the condemnor takes physical
possession. However, at any time following notice of intended total taking, or
within the time limits specified to delivering possession in the provision on
substantial taking, Lessee may elect to deliver possession of the premises
before actual taking. The election shall be made by notice declaring the
election and covenanting to pay all rents required under this Lease to the date
of taking. Lessee's right to a portion of or compensation from an award shall
then accrue as of date that Lessee goes out of possession.
20. NOTICES. Any communication required under this Lease shall be
in writing, and shall be effective (a) when delivered in person to the
recipient named below, (b) one day after timely deposit with a responsible
overnight courier to the recipient named below, or (c) three days after deposit
with the U.S. Postal Service, postage prepaid, certified mail, return receipt
requested:
Lessor: RANDALL AND SUSAN STEELE
442 Weyer Road
Modesto, CA 95351
Lessee: STANISLAUS BREWING COMPANY, INC.
3454 Shoemake
Modesto, CA 95355
Attn: Garith Helm
Either party may, by notice as provided in this paragraph, require
subsequent notices to be given to another person or to a different address.
21. ENCUMBRANCE OF LEASEHOLD
A. Encumbrance Subject to Conditions. Lessee may
without the prior consent of Lessor at any time or from time to
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time during the term of this Lease, mortgage or otherwise encumber its interest
in this Lease, in the leasehold estate created hereunder, and/or the buildings
and improvements thereon upon and subject to the following conditions:
(1) No deed of trust, mortgage or other
encumbering instrument (collectively "Leasehold Mortgage")
shall extend to or otherwise affect the fee, reversionary
interest or estate of Lessor in and to the Premises. The
Leaseholder Mortgage and all rights acquired under it shall be
subject to each and all of the covenants, conditions and
restrictions stated in this Lease and to all rights and
interests of Lessor, except as otherwise provided in this
Lease. Should there be any conflict between the provisions of
the Lease and of any Leasehold Mortgage executed by Lessee,
the provisions of this Lease shall control.
(2) Either prior to or concurrent with the
recordation of the Leasehold Mortgage, Lessee shall cause a
fully conformed copy thereof and of the note secured thereby
to be delivered to Lessor together with a written notice
containing the name and post office address of the mortgagee,
trustee, beneficiary or other holder of the beneficial
interest in the Leasehold Mortgage (collectively "Leasehold
Mortgagee").
(3) Lessor Agrees that it will not terminate this
Lease because of any default or breach by Lessee if the
Leasehold Mortgagee, or the trustee under such Leasehold
Mortgage, within ninety (90) days after service of written
notice on the Leasehold Mortgagee by Lessor of Lessor's
intention to terminate this Lease for such breach or default,
shall:
(a) (i) Cure any monetary breach or
default specifically including, but not limited to,
the payment of rent or commence diligent performance
of curative measures of any breach not curable within
the ninety (90) day period; (ii) diligently take any
action to obtain possession of the leasehold estate
(including possession by receiver) and to cure such
default or breach in the case of default or breach
which cannot be cured unless and until the Leasehold
Mortgagee has obtained possession; or, if the default
or breach is not so curable, commence and thereafter
pursue to completion the steps and proceedings for
foreclosure by sale, or by exercise of power of sale
under the Leasehold Mortgage, of the leasehold
estate. In the event Lessee cures such breach or
default, the Leasehold Mortgagee shall
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not be required to continue any action for possession
or any foreclosure action; and
(b) Keep and perform all of the
covenants and conditions of this Lease requiring the
payment of expenditure of money by the Lessee until
such time as the leasehold estate created hereunder
shall be sold upon foreclosure, or by the exercise of
a power of sale, or shall be released or reconveyed
under the Leasehold Mortgage; provided, however, that
if the Leasehold Mortgagee shall fail or refuse to
comply with the conditions of this Paragraph, then
Lessor shall be released from the covenants of
forbearance herein contained with respect to such
breach of default.
(c) Notwithstanding the above, in the
event Leasehold Mortgagee completes the foreclosure
proceedings mentioned above, Leasehold Mortgagee
shall have the right to sublet or assign its interest
in the leasehold estate without the prior consent of
Lessor.
4. If for any reason the Leasehold Mortgagee
cannot complete the foreclosure proceedings mentioned above,
Lessor agrees, if requested by Leasehold Mortgagee, should the
Lease be terminated prior to the expiration of the term
thereof for any reason, to immediately thereafter enter into a
new Lease with the Leasehold Mortgagee upon the same rental
and other terms and conditions as in the original Lease;
provided, however, that as a condition to Lessor's obligation
to enter into any such lease, subject to the provisions of
Paragraph 21(F) deferring the payment of rent, all defaults
under the original Lease must be remedied and Lessor must be
compensated for all reasonable expenses, including attorneys'
fees incident to the execution and delivery of such new lease.
If the parties cannot agree as to the reasonableness of such
expenses, then the matter shall be submitted to arbitration
before an arbitrator to be mutually agreed upon, or in lieu of
such agreement, by an arbitrator appointed by the Presiding
Judge of the Stanislaus Superior Court at the request of
either party. The term of such new lease shall be equal to
the unexpired term of the original Lease. The new lease shall
be subject to all existing subleases under which the
sublessees are not in default. Any such new lease as herein
contemplated may, at the option of the Leasehold Mortgagee and
with the Lessor's prior written consent, which consent shall
not be unreasonably withheld, be executed by a nominee or
assignee of the Leasehold Mortgagee without the
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Leasehold Mortgagee assuming the obligations of Lessee thereunder, so
long as said nominee or assignee does assume such obligation.
Notwithstanding anything to the contrary expressed or implied in the
Lease or in any deed of trust executed by Lessor, any new lease made
pursuant to this paragraph shall be prior to any mortgage, deed of
trust, or other lien or encumbrance on the fee title to the real
property created by lessor, and shall be accompanied by a conveyance
of title to the improvements (free of any mortgage, deed of trust,
lien or encumbrance created by Lessor for a term of years equal to the
term of the new lease), but said conveyance shall be subject to all
the terms of the new lease, including the reversionary rights of
lessor to said improvements. Nothing herein contained shall be deemed
to impose any obligations on the part of Lessor to deliver physical
possession of the property to the Leasehold Mortgagee or its nominee
or assignee.
B. Lessor's Consent. As to any Leasehold Mortgage,
Lessor hereby consents to terms that provide (i) for an assignment of Lessee's
share of the net proceeds from any award or other compensation resulting from a
total or partial (other than temporary) taking of the Premises by condemnation,
(ii) for the entry of the Leasehold Mortgagee upon the Premises during business
hours, with reasonable notice to Lessor or Lessee, to view the state of the
Premises, (iii) that a default by Lessee under this Lease shall constitute a
default under the Leasehold Mortgage, (iv) for an assignment of Lessee's right,
if any, to terminate, cancel, modify, change, supplement, alter or amend this
Lease, (v) for an assignment of any sublease to which the Leasehold Mortgage is
subordinated, and (vi) effective upon any default in any such Leasehold
Mortgage, (1) for the foreclosure of the Leasehold Mortgage pursuant to a power
of sale, by judicial proceedings or other lawful means and the subsequent sale
of the leasehold estate to the purchaser at the foreclosure sale and a sale by
such purchaser if the purchasers is the Leasehold Mortgagee, (2) for the
appointment of a received, irrespective of whether the Leasehold Mortgagee
accelerates the maturity of all indebtedness secured by the Leasehold Mortgage,
(3) for the right of the Leasehold Mortgagee or the receiver to enter and take
possession of the Premises to manage and operate the same and to collect the
subrentals, issues and profits therefrom and to cure any default under the
Leasehold Mortgage or any default by Lessee under this Lease, and (4) for an
assignment of Lessee's right, title and interest in and to any deposit of cash,
securities or other property which may be held to secure the performance of
covenants, conditions and agreements contained in this Lease, the premiums for
or dividend upon any insurance provided for the benefit of any Leasehold
Mortgagee or required by the terms of this Lease, as well as in all refunds or
rebates of taxes or assessments upon or other charges against the Premises,
whether paid or to be paid.
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<PAGE> 47
C. No Voluntary Surrender of Lease. For the benefit of
the holder of any Leasehold Mortgage, Lessor agrees not to accept a voluntary
surrender of this Lease at any time while such Leasehold Mortgage shall remain
a lien on the leasehold.
D. Notification of Default. Lessor shall send to any
Leasehold Mortgagee by certified or registered mail a notice of any default by
Lessee under this Lease at the same time as and whenever any such notice of
default shall be given by Lessor to Lessee, addressed to such Leasehold
Mortgagee as the address last furnished to Lessor. No notice by Lessor shall
be deemed to have been given unless and until a copy thereof shall have been so
given to such Leasehold Mortgagee. Lessee irrevocably directs that Lessor
accept, and Lessor agrees to accept, performance and compliance by any such
Leasehold Mortgagee of and with any term, covenant, agreement, provisions,
condition or limitation on Lessee's part to be kept, observed or performed
hereunder with the same force and effect as though kept, observed or performed
by Lessee.
E. No Prior Consent. The prior written consent of
Lessor shall not be required for:
(1) A transfer of this Lease at foreclosure sale
under the Leasehold Mortgage, under judicial foreclosure or by
an assignment in lieu of foreclosure; or
(2) Any subsequent transfer by the Leasehold
Mortgagee if the Leasehold Mortgagee is the purchaser at such
foreclosure sale; provided that in either such event the
Leasehold Mortgagee forthwith gives notice to the Lessor in
writing of any such transfer, setting forth the name and
address of the transferee, the effective date of such transfer
and including the express agreement of the transferee assuming
and agreeing to perform all of the obligations of this Lease,
together with a copy of the document by which such transfer
was made. Any such transferee shall be liable to perform the
obligations of the Lessee under this Lease only so long as
such transferee holds title to the leasehold, provided that
upon any conveyance of title, such transferee expressly
assumes and agrees to perform all of the obligations of this
Lease. Any subsequent transfer of the leasehold shall be
subject to the conditions relating to assignment as set forth
in this Lease.
F. Deferral of Rent. If Lessee defaults under the terms
of any Leasehold Mortgage or similar secured transaction and the Leasehold
Mortgagee acquires Lessee's leasehold estate, whether by exercising its power
of sale, by judicial foreclosure or by an assignment in lieu of foreclosure or
of exercise of power
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<PAGE> 48
of sale, Lessor agrees to defer the receipt of the rents falling due during the
three (3) months following the Leasehold Mortgagees' acquisition conditioned on
the following:
(1) Payment of all taxes assessments and
insurance premiums required by this Lease to be paid by Lessee
are current or are brought current by Leasehold Mortgagee and
are kept current by Leasehold Mortgagee;
(2) Payment of all utility charges are current or
are brought current and are kept current;
(3) Leasehold Mortgagee performs all of Lessee's
obligations for maintaining the Premises and leasehold
improvements in good order and repair; and
(4) All income and rents from the operation of
the Premises or leasehold improvements are held by Leasehold
Mortgagee in trust for Lessor.
Leasehold Mortgagee shall within sixty (60) days of the expiration of
said three (3) months period cure any rent defaults of Lessee and pay in full
the rents deferred for the three (3) month period following the Leasehold
Mortgagee's acquisition.
G. Recorded Request for Notice of Default. Upon and
immediately after the recording of the Leasehold Mortgage, Lessee, at Lessee's
expense, shall cause to be recorded in the office of the County Recorder of the
county in which the Premises is located, a written request duly executed and
acknowledged by Lessor for a copy of any notice of default and of any notice of
sale under the Leasehold Mortgage as provided by the statutes of the State of
California.
H. No Merger. In the event that the title to Lessor's
estate and to Lessee's estate shall be acquired by the same person, firm or
entity, other than as a result of termination of this Lease, no merger shall
occur if the effect of such merger would impair the lien of any Leasehold
Mortgage.
I. Delivery of Documents. Lessor agrees that, upon
request of the Leasehold Mortgagee, it will execute and deliver to any person,
firm or entity a certificate stating that this Lease is in full force and
effect and that the documents creating or evidencing the leasehold estate are
true and correct copies and not incomplete, provided that such be the case.
J. Insurance. Lessor agrees that any policy of hazard
insurance in favor of Lessor shall contain an endorsement waiving the insurer's
right of subrogation or as against the Leasehold Mortgagee and Lessee.
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<PAGE> 49
K. Modification of Lease. (1) Should Lessee allow any
encumbrance pursuant to this Paragraph 21, Lessor and Lessee agree they will
not modify this Lease in any way without the prior written consent of the
beneficiary of such encumbrance; (2) In the event that in connection with any
financing or refinancing of the leasehold estate by Lessee any Leasehold
Mortgagee requests any changes or additions to this Lease, Lessor and Lessee
shall amend this Lease to include such changes or additions provided that such
changes or additions do not impair Lessor's rights hereunder, materially
increase Lessor's obligations hereunder or decrease the value of this Lease.
2. SUBORDINATION.
A. Subordination. This Lease, at Lessor's option, shall
be subordinate to any mortgage, Deed of Trust, or any other hypothecation for
security now or hereafter placed upon the real property of which the leased
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 leased 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
the provisions of this Lease, unless this Lease is otherwise terminated
pursuant to its terms. If any mortgagee, or trustee shall elect to have this
lease prior to the lien of its mortgage or Deed of Trust, and shall give
written notice thereof to Lessee, this lease shall be prior or subsequent to
the date of said mortgage or Deed of Trust or the date of recording thereof.
B. Execution of Documents. Lessee agrees to execute any
documents required to effectuate such subordination or to make this Lease prior
to any lien of any mortgage or Deed of Trust, as the case may be so long as
Lessee receives reasonable written assurance of non-disturbance, and failing to
do so within ten (10) days after written demand, does hereby make, constitute
and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's
name, place and stead to do so.
It is understood by all parties, that Lessee's failure to
execute the subordination documents referred to above may cause the Lessor
serious financial damage by causing the failure of a financing or sale
transaction.
Lessee shall attorn to any purchaser at any foreclosure sale,
or to any grantee or transferee designated in any Deed given in lieu of
foreclosure.
23. RIGHT OF FIRST REFUSAL TO BUY. Lessor hereby grants to Lessee
the exclusive right, at Lessee's option, to purchase fee title to the Premises
at any time during the term of this Lease
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<PAGE> 50
upon the same terms and conditions and at the same price as any bona fide offer
which Lessor desires to accept for the purchase of fee title to the Premises
received by lessor. Upon receipt of a bona fide offer which is acceptable to
Lessor and each time any such offer is received, Lessor shall modify Lessee in
writing, by certified or registered mail, of the full details of such offer,
including price, terms, length of escrow, warranties of seller, and other terms
and conditions, whereupon Lessee shall have thirty (30) days from the date of
receipt of such notice in which to elect to exercise Lessee's right to
purchase. No sale or voluntary transfer of the fee title to the Premises shall
be binding unless and until the foregoing requirements are fully complied with.
In the event Lessee elects to exercise its right to purchase as granted herein
above, then Lessee may do so by notifying Lessor (or such accepted person or
entity) in writing by certified mail of its acceptance within such thirty (30)
day period. Lessee hereby acknowledges approval of soils report or other
studies at the Commencement date of this Lease and agrees that said purchase
shall be "as-is". Should Lessee decline to exercise its right of first refusal
upon the presentation of the details of the offer to Lessee, then Lessor (or
such excepted person or entity) shall be free to accept the offer of the said
third party, provided that Lessor (or such excepted person or entity) shall
have no right to grant any more liberal terms to the offeror than those first
offered Lessee, and provided, further, that the sale transaction contemplated
by said offer must be completed and title transferred to the offeror within six
(6) months of the date Lessee declined to exercise its right to purchase.
24. BANKRUPTCY. If at any time during the term of this Lease
there shall be filed by or against Lessee in any court pursuant to any statute
either or the United States or of any State a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or
trustee of all or a portion of Lessee's property, or if a receiver or trustee
takes possession of any of the assets of Lessee, or if the leasehold interest
herein passes to a receiver, or if Lessee makes an assignment for the benefit
of creditors or petitions for or enters into an arrangement (any of which are
referred to herein as "a bankruptcy event"), then the following provisions
shall apply:
A. Time Period. At all events any receiver or trustee
in bankruptcy shall either expressly assume or reject this Lease within
forty-five (45) days following the entry of an "Order for Relief".
B. Assumption; Assurances. On the event of an
assumption of the Lease by a debtor or by a trustee, such debtor or trustee
shall within fifteen (15) days after such assumption (1) cure any default or
provide adequate assurances that defaults will be promptly cured; and (2)
compensate Lessor for all
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<PAGE> 51
pecuniary loss or provide adequate assurances that compensation will be made
for actual pecuniary loss; and (3) provide adequate assurance of future
performance.
C. Lessor's Obligations. Where a default exists in the
Lease, the trustee or debtor assuming the Lease may not require Lessor to
provide services or supplies incidental to the Lease before its assumption by
such trustee or debtor, unless Lessor is compensated under the terms of the
Lease for such services and supplies provided before the assumption of such
Lease.
D. Assignment by Trustee; Payment to Lessor. The debtor
or trustee may only assign this Lease if adequate assurance of future
performance by the assignee is provided, whether or not there has been a
default under this Lease. Any consideration paid by any assignee in excess of
the rental reserved in the Lease shall be the sole property of, and paid to,
Lessor. Upon assignment by the debtor or trustee the obligations of the Lease
shall be deemed to have been assumed and the assumptor shall execute an
assignment agreement on request of Lessor.
E. Lessor's Consideration. The Lessor shall be entitled
to the fair market value for the Premises and the services provided by Lessor
(but in no event less than the rental reserved in the Lease) subsequent to the
commencement of a bankruptcy event.
F. Lessor's Remedies. Lessor specifically reserves any
and all remedies available to Lessor in Paragraph 11 hereof or at law or in
equity in respect of a bankruptcy event by Lessee to the extent such remedies
are permitted by law.
25. MISCELLANEOUS.
A. Further Execution of Documents. The parties will at
any time, at the request of either one, promptly execute and acknowledge
duplicate originals of an instrument, in recordable form, which will constitute
a short form of Lease, setting forth a description of the Premises, the term of
this Lease, and any other portions thereof, excepting the rental provisions, as
either party may request and shall execute other documents reasonably
requested, such as estoppel certificates or other items requested.
B. Cumulative Rights. Each and all of the various
rights, power, options, recourses and remedies of Lessor and Lessee contained
or provided for in this Lease shall be construed as cumulative and no one of
them as exclusive of the other, or as exclusive of any remedies allowed by law.
C. Enforcement Delay. No delay of Lessor or Lessee in
enforcing any right, remedy, privilege or recourse accorded to
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<PAGE> 52
Lessor or Lessee either by the express terms hereof by law, shall affect,
diminish, suspend or exhaust any of such rights, remedies, privileges or
recourse.
D. Inurement. Subject to the provisions of this Lease
relating to assignment, each and all of the covenants, agreements, obligations,
conditions and provisions of this Lease shall inure to the benefit of and shall
bind (as the case may be) not only the parties hereto, but each and all of the
heirs, executors, administrators, successors and assigns for the respective
parties hereto, or any of them; and whenever and wherever a reference is made
to Lessor, or to Lessee, such reference shall be deemed to include the
respective heirs, administrators, executors, successors and assigns of Lessor
or Lessee, as the case may be; and all of the promises, covenants, agreements,
obligations, conditions and provisions contained in this Lease shall be
construed to be and as, covenants running with the land.
E. Language of Lease. The language in all parts of this
Lease shall in all cases be construed as a whole and simply according to its
fair meaning and not strictly for nor against either Lessor or Lessee, and the
construction of this Lease and any of its various provisions shall be
unaffected by any claim, whether or not justified, that it has been prepared,
wholly or in substantial part, by or on behalf of either party.
F. California Law. This Lease shall be governed by and
construed in accordance with the laws of the State of California.
G. Table of Contents and Paragraph Headings. The table
of contents at the beginning of this Lease and the Paragraph headings are for
convenience only and are not a part of this Lease, and do not in any way limit
or amplify the terms and provisions of this Lease.
H. Severability. The invalidity or unenforceability of
any provision of this Lease shall not affect the validity or enforceability of
the remainder of this Lease.
I. Sublessee. Any act required to be performed by
Lessee pursuant to the terms of this Lease may be performed by any sublessee
occupying all or any part of the Premises and the performance of such act shall
be deemed to be performed by Lessee and shall be acceptable as Lessee's act by
Lessor.
J. Entire Agreement. This Lease contains all agreements
of the parties with respect to any matter mentioned herein. This Lease may be
modified in writing only, signed by the parties.
K. Waiver of Provisions. No waiver of Lessor of any
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<PAGE> 53
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 of 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.
L. Month to Month Tenancy. If Lessee remains in
possession of the Premises or any part thereof after the expiration of the term
hereof or any extension thereof, with the consent of Lessor, such occupancy
shall be a tenancy from month to month at a rental calculated by the same
method used to determine the final monthly rent during the term hereof, plus
all other charges payable hereunder, and upon all of the terms hereof.
M. Covenants and Conditions of Lease. Each provision of
this Lease performable by Lessee shall be deemed both a covenant and a
condition.
N. Right of Entry. Lessor and Lessor's agents shall
have the right to enter the Premises at reasonable times during business hours
for the purposes of inspecting the same or showing the same to prospective
purchasers. Lessor may at any time during the last year of the term or this
Lease place on or about the Premises any ordinary "For Sale" signs, and the
same shall be without rebate of rent or liability to Lessee.
O. In the Event of a Sale. The terms "Lessor" as used
herein means the owner of the Premises for the time being only. If, during the
term of this Lease, Lessor shall sell its interest in the Premises, then from
and after the effective date of the sale or conveyance, Lessor shall be
released and discharged from any and all obligations and responsibility under
this Lease, except those already accrued.
P. Time is of the Essence. Time is of the essence of
this Lease with respect to each and every article, section and subsection
hereof.
Q. Corporate Authority. If Lessee is a corporation,
each individual executing this Lease on behalf of said corporation, represents
and warrants that he is duly authorized to execute and deliver this Lease on
behalf of said corporation in accordance with a duly adopted resolution of the
Board of Directors of said corporation or in accordance with the Bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. Further, Lessee shall, within thirty (30) days after execution
of this Lease, deliver to
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<PAGE> 54
Lessor a certified copy of a resolution of the Board of Directors of said
corporation authorizing or ratifying the execution of this Lease.
R. Waiver of California Code Sections. Lessee waives
(for itself and all persons claiming under Lessee) the provisions of Civil Code
Sections 1932(2) and 1933(4) with respect to the destruction of the leased
Premises, Code of Civil Procedure Section 1265.130, allowing either party to
petition the Superior Court to terminate this Lease in the event of a partial
taking of the Premises by condemnation as herein defined. This waiver applies
to future statues enacted in addition or in substitution to the statutes
specified herein.
S. Relationship of Parties. It is not the intention of
the parties to form a partnership or joint venture and nothing contained in
this Lease shall be deemed or construed by the parties or any third party to be
a partnership or joint venture agreement.
T. Preparation and Submissions of Draft. The preparation
and submission of a draft of this Lease by either party to the other shall not
constitute an offer nor shall either party be bound to any terms of this Lease
or the entirety of the Lease itself until both parties have fully executed a
final document and an original signature document has bene received by both
parties. Until such time as described in the previous sentence, either party is
free to terminate negotiations with no obligations to the other.
U. Commission. Lessor shall pay a leasing commission in
the amount of $53,100.00, to be paid fifty percent (50%) to Paul M. Zagaris,
Inc. Realtor and Bob Wood Associates, to be payable in accordance with a
separate Commission Agreement executed concurrently herewith between Lessor and
Realtor. Both parties warrant that there are no other commissions or fees to be
paid herewith, and hereby agree to indemnify the other against any cost,
liability, or attorneys' fees incurred as a result of any third party making
such a claim for a commission or finder's fees resulting from this transaction,
not expressly provided for in this Lease.
V. Exhibits. All exhibits referred to are attached to
this Lease, incorporated by reference, and referenced below:
Exhibit "A" Premises
Exhibit "B" Plans and Specifications
Exhibit "C" Parcel Map
Exhibit "D-1" Letter from Sidney A. Israels
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<PAGE> 55
Dated: December 30, 1987
Exhibit "D-2" Letter from Stan T. Yamamoto
Dated: January 6, 1988
IN WITNESS WHEREOF, the parties hereto have executed these presents as
of the day and year first above written.
"LESSOR"
/s/ RANDALL LYLE STEELE
------------------------------
RANDALL LYLE STEELE
/s/ SUSAN STEELE
------------------------------
SUSAN STEELE
"LESSEE"
STANISLAUS BREWING COMPANY, INC.
A California Corporation
By: /s/ GARITH HELM
---------------------------
Garith Helm
President
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<PAGE> 56
AMENDMENT TO GROUND LEASE
The progress thus far regarding construction of the St. Stan's Brewery is
satisfactory and fulfills my requirements regarding the lease to this date.
All other terms and conditions as identified in the lease shall remain in full
force.
I also extend the completion date of paragraph 3 d to read:
"the Lessee's Improvements shall be completed on or before January 1, 1991."
"LESSOR"
/s/ RANDALL LYLE STEELE
------------------------------
RANDALL LYLE STEELE
"LESSEE"
------------------------------
STANISLAUS BREWING CO., INC.
A California Corporation
By: /s/ GARITH HELM
---------------------------
Garith Helm
its President
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<PAGE> 1
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
<PAGE> 2
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
<PAGE> 3
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
<PAGE> 4
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
<PAGE> 5
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
<PAGE> 6
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
<PAGE> 7
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.
<PAGE> 8
(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 December 31, 1996
("Employment Agreement"), by and among BEVERAGE WORKS, INC., a California
corporation ("Employer"), and FREDERIK G.M. RODENHUIS ("Employee"). This
Agreement shall be effective as of the date of the Employer's initial public
offering.
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 Fifty-Two Thousand Dollars ($152,000)
payable in bi-monthly installments of six thousand, three hundred thirty-three
($6,333) 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.
3.4 Bonuses. The Board of Directors, (or a management compensation
committee of the board of directors, if any), may award a cash bonus to
Employee at the board's or committee's discretion.
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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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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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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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:
/s/ FREDERIK G.M. RODENHUIS
--------------------------------------
FREDERIK G.M. RODENHUIS
EMPLOYER:
BEVERAGE WORKS, INC.
a California corporation
/s/ LYLE MAUL
--------------------------------------
By: LYLE MAUL
----------------------------------
Title: COO & CFO
-------------------------------
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into on December 31, 1996
("Employment Agreement"), by and among BEVERAGE WORKS, INC., a California
corporation ("Employer"), and LYLE R. MAUL ("Employee"). This Agreement shall
be effective as of the close of the Employer's initial public offering.
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 Fifty Thousand Dollars ($150,000)
payable in bi-monthly installments of Six Thousand, Two Hundred Fifty ($6,250)
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.
3.4 Bonuses. The Board of Directors, (or a management
compensation committee of the board of directors, if any), may award a cash
bonus to Employee at the board's or committee's discretion.
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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<PAGE> 6
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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<PAGE> 8
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:
/s/ LYLE R. MAUL
-------------------------------------
LYLE R. MAUL
EMPLOYER:
BEVERAGE WORKS, INC.
a California corporation
/s/ FREDERIK G.M. RODENHUIS
-------------------------------------
By: FREDERIK G.M. RODENHUIS
----------------------------------
Title: CEO
-------------------------------
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<PAGE> 1
EXHIBIT 10.18
BEVERAGE WORKS, INC.
1996 INCENTIVE COMPENSATION PLAN
This BEVERAGE WORKS, INC. 1996 INCENTIVE COMPENSATION PLAN (the
"Plan") is adopted by Beverage Works, Inc., a California corporation (the
"Corporation") in order to attract, motivate and retain eligible employees.
The 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.
Incentive compensation provided under the Plan is intended to qualify
as performance based compensation under Section 162(m) of the Internal Revenue
Code of 1986, as amended, and the Plan shall be interpreted consistently with
such intent. Existence of this Plan is not intended to preclude the
Corporation from providing additional incentive compensation to eligible
employees or incentive compensation under other plans, agreements or
arrangements to an employee, whether such employee is eligible to participate
in the Plan or actually participates in the Plan.
I. Definitions
A. "Award" means the amount of money payable to a Participant who
has received an IC Agreement.
B. "Board" means the Board of Directors of the Corporation.
C. "Code" means the Internal Revenue Code of 1986, as amended.
D. "Committee" means the committee appointed pursuant to Article
II to administer the Plan.
E. "Corporation" means Beverage Works, Inc., a California
corporation.
F. "Fiscal Year" means the fiscal year of the Corporation.
G. "IC Agreement" means the incentive compensation agreement
evidencing the terms of a Participant's participation in the Plan.
H. "Modified EBITDA" means the consolidated net income of the
Corporation and its subsidiaries before interest, federal and state income
taxes, depreciation and amortization determined in accordance with U.S.
Generally Accepted Accounting Principles ("GAAP"), applied consistent with past
practices of the Corporation, provided, however, to the extent included in the
consolidated net income of the Corporation, excluding the effect of the
following items:
(1) the gain or loss from any sale, exchange or other
disposition of assets other than in the ordinary course of business consistent
with past practice;
<PAGE> 2
(2) any extraordinary gain or loss;
(3) any gain, loss, income or expense resulting from a
change in the Corporation's accounting methods, principles or practices or a
change in GAAP or any GAAP election or treatment not made or utilized by the
Corporation in its audited financial statements for its fiscal year 1996;
(4) any reserves or adjustments to reserves which are not
consistent with past practices of the Corporation;
(5) cash bonuses paid pursuant to this Plan; and
(6) compensation paid to the members of the board of
directors.
I. "Participant" means an eligible employee of the Corporation
that has received an IC Agreement under the Plan.
J. "Plan" means this Incentive Compensation Plan.
II. Administration
The regularly appointed compensation committee of the Board shall
serve as the Committee that administers the Plan unless the Board shall appoint
another compensation committee of members of the Board to administer the Plan.
In all cases, the Committee 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, and
applicable guidance issued thereunder.
The Committee shall have the full power and authority, subject to
provisions of the Plan, to select employees to receive IC Agreements, determine
the terms of IC Agreements, promulgate rules and regulations as it deems
appropriate for the proper administration of the Plan, interpret the terms of
the Plan, certify whether the Performance Goals and the material terms of an IC
Agreement are met prior to payment of any amount under the Plan, and to
otherwise take any and all action as it deems to be necessary or appropriate in
connection with the operation of the Plan. Decisions and selections of the
Committee shall be made by a majority of its members, and if made pursuant to
the terms of the Plan shall be final.
Action of the Committee may be evidenced by approved minutes of a
meeting of the Committee, or a document executed by any member of the Committee
or an officer of the Corporation authorized by the Committee to execute
documents on the Committee's behalf.
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<PAGE> 3
III. Participation
A. Eligibility. Only officers and key employees (as determined
by the Committee) of the Corporation shall be eligible to participate in the
Plan and receive an IC Agreement under the Plan.
B. Designation of Participants. The Committee shall select those
eligible employees who shall receive an IC Agreement under the Plan. The IC
Agreement shall be in writing, shall specify the period to which the IC
Agreement relates, and shall include any other material terms of the IC
Agreement.
IV. Incentive Compensation Agreement
A. Performance Periods. IC Agreements under the Plan shall be
for at least one Fiscal Year and for a total of no more than four (4)
consecutive Fiscal Years. The Committee shall specify the number of Fiscal
Years applicable to each IC Agreement. An IC Agreement for a Fiscal Year must
be established not later than ninety (90) days after the beginning of the first
day of such Fiscal Year.
B. Performance Goals. The right to receive an Award and amount
of an Award is conditioned on the Corporation's performance with respect to
Modified EBITDA of the Corporation for the relevant Fiscal Year.
C. Calculation of Award. The Award to a Participant is
determined based on the Corporation's attainment of Modified EBITDA specified
in the Participant's IC Agreement for the relevant Fiscal Year. A
Participant's Award for the entire period covered by an IC Agreement is
determined in accordance with the following steps:
Step 1. Based on the Modified EBITDA, determine a Participant's
Percentage Award under the IC Agreement. The Percentage Award shall not exceed
the following table:
<TABLE>
<CAPTION>
PERCENTAGE TOTAL MAXIMUM
MODIFIED EBITDA AWARD AUTHORIZED
- ---------------------------- ---------- --------------
<S> <C> <C>
(IS LESS THAN OR EQUAL TO) 0 0% 0%
(IS GREATER THAN) 0 but (IS LESS THAN OR EQUAL TO) $1,000,000 2% 8.45%
(IS GREATER THAN) $1,000,000 but (IS LESS THAN OR EQUAL TO) $2,000,000 2% 8.45%
(IS GREATER THAN) $2,000,000 but (IS LESS THAN OR EQUAL TO) $4,000,000 2% 8.45%
(IS GREATER THAN) $4,000,000 4% 12.45%
</TABLE>
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<PAGE> 4
Step 2. Determine the Participant's Award, if any, under the following
formula: Modified EBITDA x Percentage Award = Award
D. Total Maximum Authorized. The total percentage of Modified
EBITDA that may be awarded under this Plan to all Participants for any Fiscal
Year is stated in Step 1 of Paragraph C under the column "Total Maximum
Authorized."
V. Payment of Awards.
A. Certification and Payment. No payment of any Award shall be
made to a Participant until the Committee has certified in writing that the
material terms of an IC Agreement have been met and the Participant is entitled
to payment. The amount of an Award to a Participant for a Fiscal Year shall be
determined not later than the last day of February following the end of such
Fiscal Year. The full amount shall be payable not later than such
determination date.
B. Employment on Payment Date Generally Required. No Participant
shall receive payment of an amount with respect to an Award unless such
Participant is an active employee of the Corporation (or a subsidiary) as of
the 180th day of the Fiscal Year. A Participant so employed on or after the
180th day of a Fiscal Year but not so employed as of the last day of such
Fiscal Year shall be entitled to an Award prorated based on the number of days
employed for such Fiscal Year divided by the number of days of such Fiscal
Year. A Participant who dies or is disabled during the Fiscal Year shall
continue to receive amounts payable under an IC Agreement for such Fiscal Year.
For purposes of this paragraph, a Participant shall be disabled if the
participant is determined to be disabled under the Participant's employment
agreement with the Corporation.
VI. Amendment or Termination
The Board reserves the right to amend, suspend, or terminate the Plan
or adopt a new plan at any time; provided that no such amendment shall without
the consent of the Participant affect the payment of any IC Agreement to such
Participant. In case any one or more of the provisions contained in the Plan
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 the Plan.
VII. Miscellaneous
A. Nonassignment. The interest of any Participant under the Plan
shall not be assignable either by voluntary or involuntary assignment or by
operation of law, except by will or the laws of descent and distribution.
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<PAGE> 5
B. Interpretation. This Plan is intended to provide Participants
with the opportunity to receive incentive compensation that is deductible by
the Corporation without regard to the limitations of Section 162(m)(1) of the
Code and shall be construed accordingly. The Plan shall otherwise be governed
by the laws of the State of California and construed in accordance therewith.
C. No Employment Right. The granting of an IC Agreement confers
on no employee the right to employment or continued employment by the
Corporation. The right of the Corporation to terminate the employment of a
Participant shall not be diminished or affected by reason of receipt of an IC
Agreement under the Plan.
VIII. Effective Date
This Plan is adopted effective as of January 1, 1997, provided that no
payment of an Award shall be made under the Plan unless the Plan is approved by
the shareholders of the Corporation.
BEVERAGE WORKS, INC.
/s/ FREDERIK G.M. RODENHUIS /s/ LYLE R. MAUL
-------------------------------- -----------------------------------
Frederik G.M. Rodenhuis Lyle R. Maul
Chief Executive Officer Secretary
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<PAGE> 1
EXHIBIT 10.23
KEG MANAGEMENT AGREEMENT
This Keg Management Agreement ("Agreement") dated effective as of December 2,
1996, is between MicroStar Keg Management, L.L.C., a Delaware Limited Liability
Company whose address is 8567 154th Avenue N.E., Redmond, Washington 98052
("MicroStar") and HERITAGE Brewing Company, whose address is 9800 Sepulveda
Blvd, Los Angeles, California, 90045 (referred to herein and in the Exhibits
hereto either as "Brewing Company" or "HERITAGE").
RECITATIONS AND DEFINITIONS
1. MicroStar is engaged in the logistical management of stainless steel kegs,
primarily for the craft beer/micro-brewing industry and has developed
proprietary concepts, arrangements and systems for the ownership, licensing of
the use of, tracking and retrieval of kegs.
2. Brewing Company is engaged in the business of brewing premium and/or special
quality or custom beers and desires to more efficiently service existing markets
while simultaneously expanding its business in both existing and potential new
market areas.
3. Brewing Company desires to utilize the services of MicroStar in order to
avoid the capital outlay and manpower/administrative costs and risks associated
with keg ownership, thereby enabling Brewing Company to direct additional
resources to its brewing business.
4. For purposes of this Agreement the term "kegs" shall mean and refer to beer
kegs which are either a) straight-sided with a single opening and an American
Sankey-type neck, having a full U.S. half-barrel capacity, with chimes
constructed of spring steel, within the relationship of chime thickness to
sidewall thickness of .092 inches to .052 inches, which meet the "Anheuser-Busch
drop test" standard, or b) kegs having a twenty (20) liter capacity that are
manufactured by Spartanburg Steel Products, Inc.
In consideration of the premises and of the mutual covenants and
agreements of the parties as hereinbelow set forth, the parties have agreed as
follows:
SECTION 1. PROCUREMENT OF KEGS, DELIVERY, AND ACCEPTANCE.
1.1. Purchase Agreement.
a. MicroStar will acquire from Brewing Company any kegs which
Brewing Company now or hereafter may own and desire to make subject to this
Agreement, provided that such kegs conform to the definition of "keg" set forth
in this Agreement and are of a condition and quality acceptable to MicroStar.
The purchase price for any and all kegs purchased from Brewing Company shall be
separately agreed upon in writing after verification of condition and quality
and the quantity of kegs shall be subject to acquisition audit verification by
MicroStar. The final acquisition inventory of kegs shall be approved in writing
by authorized representatives of MicroStar and Brewing Company. Payment by
MicroStar for the kegs so purchased from
<PAGE> 2
Brewing Company shall be made when MicroStar has verified that such kegs may be
sold and assigned to MicroStar free of any lien or encumbrance and the subject
kegs have been physically marked by MicroStar with its proprietary markings,
which shall be done at Brewing Company's facilities in lots no smaller than one
hundred (100) kegs. Placement of physical markings shall be performed by
MicroStar's field personnel as expeditiously as possible and shall be initiated
no more frequently than once per month, until all kegs so sold by Brewing
Company to MicroStar shall have been identified. An appropriate Bill of Sale
identifying the kegs acquired by MicroStar shall be executed and delivered
contemporaneously with the payment by MicroStar.
b. In the event that Brewing Company does not presently own kegs (as
herein defined) or does not own a sufficient quantity of kegs to conduct and/or
expand its business, or in the event that Brewing Company does not desire to
subject its entire existing inventory of owned kegs to this Agreement, Brewing
Company shall provide MicroStar with a projection of its anticipated keg
requirements during a ninety (90) day time period commencing thirty (30) days
after the effective date of this Agreement. Contemporaneously, with the
furnishing of such ninety (90) day projection, Brewing Company shall submit its
initial request for deliveries of kegs and MicroStar will thereupon obtain and
provide the requisite quantity of kegs in accordance with the provisions of
Section 2.2 hereof.
1.2. Incidents of Ownership and Control
All kegs purchased by MicroStar from Brewing Company and/or
otherwise obtained and provided by MicroStar for purposes of this Agreement
shall be owned and subject to the exclusive right of control and disposition of
MicroStar, subject however to the rights of Brewing Company hereunder as a
licensee of the right to use such kegs for the purposes and in the manner
contemplated by this Agreement.
SECTION 2. LICENSE OF KEG USE
2.1 Basic Use Fee
Brewing Company shall pay a use fee of fifteen dollars ($15.00) per
keg, per filling, which shall be invoiced and payable on net thirty (30) day
terms for each keg delivered to the Brewing Company location(s) designated by
Brewing Company. With respect to kegs so utilized by Brewing Company which are
filled by Brewing Company and delivered to the wholesalers identified in Exhibit
"A" hereto (whose proximity of location to Brewing Company facilitates
MicroStar's retrieval administration) the use fee shall be adjusted by rebate or
credit to Brewing Company in the amount of seven and 50/100ths dollars ($7.50)
per keg. In the event Brewing Company currently incurs no freight expense for
the return of kegs from certain wholesalers identified on Exhibit "A" and if
Brewing Company further agrees to continue to directly assume all cost of
freight (if any) for the return of all kegs from such specific wholesaler(s),
Brewing Company may designate up to three (3) wholesalers from among those
listed on Exhibit "A" with respect to whom Brewing Company will assume any and
all freight expenses associated with the shipment of empty kegs from such
wholesaler(s) to Brewing Company. For each full keg sold by Brewing Company to
such designated local wholesaler, the applicable adjustment by rebate or credit
to Brewing Company will be ten dollars ($10.00) per
KEG MANAGEMENT AGREEMENT
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keg (resulting in an effective use fee to Brewing Company hereunder of five
dollars ($5.00) per keg). With respect to kegs used by Brewing Company in
on-site pub operations, the use fee shall be five dollars ($5.00) per keg, per
filling. Invoices for such fees will be based upon the monthly report of sales
submitted by Brewing Company to applicable state authorities in relation to its
on-site pub operations, a copy of which shall be furnished to MicroStar at the
time such report is filed. The use fee is subject to an increase of up to ten
percent (10%) during any given twelve (12) consecutive month time period in the
event of an increase of twenty-five percent (25%) or more in national or
applicable regional trucking charges incurred by MicroStar in relation to the
performance of this Agreement during any such twelve (12) consecutive month time
period. In the event that the use fee hereunder is increased by more than ten
percent (10%) during any such twelve (12) consecutive month time period, Brewing
Company shall have the right to cancel this Agreement and to purchase the kegs
covered hereby in accordance with the provisions of Section 7.4 hereof.
2.2 Delivery of Kegs per Brewing Company's Requirements
Brewing Company shall notify MicroStar of Brewing Company's specific
keg delivery date requirements by written notice, including facsimile
transmittal or other notification arrangements approved in writing by Brewing
Company and MicroStar, to be received not less than thirty (30) days prior to
Brewing Company's requested delivery dates. Such notice shall include a
specification of all requested keg quantities in lots of two hundred (200) or
more. MicroStar will forward a written confirmation of its receipt of Brewing
Company's notice of requirements by facsimile or U.S. Mail prior to the close of
the business day following the date of MicroStar's receipt of such notice.
Brewing company shall use its best efforts to ensure that Brewing Company's
inventory of MicroStar kegs does not exceed Brewing Company's actual thirty (30)
day requirements. In the event that Brewing Company's requirements at any time
or for any reason (e.g. seasonal product demand, business expansion, etc.) will
exceed its most recently specified prior requirements by twenty percent (20%) or
more and/or relate to deliveries to new locations of Brewing Company or
wholesalers, Brewing Company shall be required to provide ninety (90) days
advance written notice to MicroStar of such requirements. MicroStar shall
endeavor to effectuate the delivery of the requested kegs to Brewing Company at
its designated locations within the continental United States in accordance with
Brewing Company's timely notification of keg requirements. Delivery shall be
deemed to conform to the requirements of this Agreement if the actual time of
delivery is within seventy-two (72) hours prior or subsequent to the
specifically requested delivery time and the quantities so delivered are within
a ten percent (10%) variance of the specifically requested quantity of kegs. In
the event that MicroStar is unable to meet the foregoing requirements of a
conforming delivery to Brewing Company, MicroStar shall impose no use fee with
respect to any such non-conforming keg shipment.
SECTION 3. ARRANGEMENTS AND AGREEMENTS WITH WHOLESALERS
3.1. Notification and Compliance Obligations of Brewing Company
a. Brewing Company will join with MicroStar in the issuance of a
notice to all wholesalers to whom Brewing Company delivers product in kegs
subject to this Agreement that
KEG MANAGEMENT AGREEMENT
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such kegs shipped by Brewing Company are owned by MicroStar as of the effective
date specified in such notice (being the date on which keg ownership was
acquired by MicroStar hereunder). Such notice will further evidence the
authority of MicroStar to collect and administer the deposits required to be
made by wholesalers in accordance with this Agreement, to perform audits as
contemplated by this Agreement, and to retrieve all kegs delivered to the
wholesaler. The form of notice of terms and conditions applicable to wholesalers
is attached hereto as Exhibit "B" and is intended to apprise wholesalers of the
rights and responsibilities of MicroStar pursuant to this agreement and to
express and evidence the agreement of wholesalers to the specified terms and
conditions applicable to wholesalers.
Brewing Company will require in pertinent negotiations and
agreements with its wholesalers that all wholesalers agree to remit to MicroStar
a security deposit based upon the amount of fifteen dollars ($15.00) per keg, to
be billed by and paid to MicroStar to cover the loss (based on a charge of one
hundred twenty-five dollars ($125.00) per keg) of any keg owned by MicroStar
which cannot be located by such wholesaler. As set forth in the form of notice
of terms and conditions attached as Exhibit "B", wholesalers shall be required
to acknowledge that periodic charges to and withdrawals from the security
deposit will be made by MicroStar for kegs which cannot be located and that
credit memos will be issued whenever kegs are returned and whenever kegs
previously classified as lost are located. Wholesalers will be invoiced in the
amount of $125.00 as a "loss" call whenever any loss is charged to the deposit
and will receive a credit memo and refund of a previously billed lost keg charge
whenever such "lost" keg for which a loss charge was made is located and
returned.
b. Pursuant to the notice of terms and conditions to wholesalers,
all wholesalers shall be required to provide a monthly written report of
movement of MicroStar kegs in a form prescribed by MicroStar, including
inventory by brewer (including Brewing Company and any other brewers contracting
with MicroStar who deliver product to the affected wholesaler), empty kegs on
hand and kegs in the retail system. Wholesalers shall also agree to respond to
weekly verbal inquiries by MicroStar representatives concerning the extent of
empty MicroStar kegs in the wholesaler's system. MicroStar shall be authorized
to conduct periodic audits of the wholesaler's inventory of MicroStar kegs,
including kegs in the retail system, which audits will be performed either
quarterly or semi-annually, depending upon the extent of the wholesaler's
inventory and any discrepancies ascertained as a result of prior audits, etc.
c. In the event that a wholesaler to whom Brewing Company delivers
product fails to remit the security deposit of fifteen dollars ($15.00) per keg
to MicroStar within ninety (90) days after MicroStar's date of invoice for such
deposit, then Brewing Company agrees to promptly issue Brewing Company's own
invoice to the affected wholesaler and to use reasonable efforts to collect the
applicable deposit and remit the same to MicroStar.
SECTION 4. TERM AND EXCLUSIVITY OF AGREEMENT
4.1. Term of Agreement
KEG MANAGEMENT AGREEMENT
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This Agreement shall be for an initial term of five (5) years. Upon
the expiration of the initial term the parties agree to negotiate in good faith
in an effort to conclude mutually acceptable terms for continuation of the
arrangements effectuated by this Agreement.
4.2 Exclusivity of Arrangements
Except in the instance of Brewing Company's retention of any
pre-existing owned keg inventory for its own local market use, during the
initial and any extended term of this Agreement, Brewing Company shall use
MicroStar as the exclusive source of all beer kegs utilized in its brewing
operation. Without limitation of the foregoing, Brewing Company agrees that
during the term of this agreement or any extension hereof, Brewing Company shall
not conclude or enter into any agreement or understanding with any third-party
regarding sale of any of its Sankey kegs or regarding the purchase, lease or
licensing of any kegs (whether of the Sankey type or otherwise) for use in
Brewing Company's business.
SECTION 5: CLEANING OF KEGS
5.1. Cleaning Responsibilities of Brewing Company
Brewing Company acknowledges the responsibility to clean all kegs
delivered to Brewing Company by MicroStar in accordance with the minimum washing
standards for either a sterilizing sequence (steam) or a sanitizing sequence
(oxine) and to implement the quality control checks prescribed by MicroStar, as
specifically set forth in Exhibit "C" hereto.
SECTION 6: INFORMATION AND RECORDS/ACCOUNTING PROCEDURES
6.1. Responsibilities of Brewing Company
During the term of this Agreement, Brewing Company shall provide
MicroStar with copies of all bills of lading from all of its brewery locations
for all draft beer shipments to wholesalers within twenty-four (24) hours of the
time of shipment. Additionally, Brewing Company shall maintain accurate records
reflecting monthly beginning and ending inventories of kegs, keg locations and
verification of deliveries of kegs from MicroStar to Brewing Company and of all
deliveries to wholesalers, and shall provide copies of such records to MicroStar
on a monthly basis. Brewing Company agrees to report all requisite information
on such forms as MicroStar may from time-to-time prescribe and furnish for such
purposes.
Brewing Company shall not utilize any MicroStar-owned kegs in its
operations which are not specifically subject to this agreement. Brewing Company
shall be charged the sum of one hundred twenty-five dollars ($125.00) per keg
for any keg subject to this agreement which an audit substantiates to have been
lost while under Brewing Company's control and the sum of five hundred dollars
($500.00) per keg per occurrence in the event of any instances of unauthorized
use of MicroStar kegs in Brewing Company's operations which are not subject to
this agreement.
6.2. Responsibilities of MicroStar
KEG MANAGEMENT AGREEMENT
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MicroStar shall provide to Brewing Company such information and
records as may be appropriate to substantiate all use fees, and all charges and
credits associated with the deposit arrangements to be established between
Brewing Company and wholesalers in accordance with the provisions of Section
3.1.b. hereof.
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6.3. Audit Rights of the Parties
MicroStar and Brewing Company each shall have the right to review
and audit at reasonable intervals the records and information maintained or
acquired by the other party hereto for the purpose of determining, verifying or
analyzing any deliveries, retrievals, charges or credits arising in the course
of performance of this Agreement. Any expenses incurred by a party in relation
to record keeping or reporting of information contemplated by this Agreement,
shall be borne by the party charged with maintaining such records and providing
such information. Expenses incurred by a party in relation to audits performed
hereunder shall be borne by the party undertaking such audit.
6.4. Accounting Procedures
MicroStar shall specify and may periodically supplement or revise
the basic accounting procedures to be implemented by the parties in relation to
the transactions contemplated by this Agreement. The initial accounting
procedures formulated by MicroStar are set forth in Exhibit "D" hereto.
SECTION 7: MISCELLANEOUS
7.1. Amendment and Supplementation
This Agreement may be amended or supplemented only by a written
instrument executed by MicroStar and Brewing Company.
7.2. Third-Party Beneficiary Status of MicroStar Under Agreements
between Brewing Company and Wholesalers
To the extent necessary to accord MicroStar the full scope of
entitlements, rights and authorities in relation to Brewing Company's agreements
and arrangements with wholesaler as contemplated hereby, MicroStar shall be
recognized as a third-party beneficiary of such agreements and arrangements.
7.3. Force Majeure
In the event that any obligation hereunder, other than the
obligation to remit any payment due hereunder, cannot be timely performed due to
circumstances beyond the reasonable control of a party hereto, the time period
for the performance of such obligation shall be reasonably extended until the
conditions precluding, impairing or delaying performance have been resolved.
7.4. Changes in Economic Conditions/Right of Termination
In the event that as a result of business or economic developments
occurring after the effective date hereof, the transactions contemplated by this
Agreement cannot be
KEG MANAGEMENT AGREEMENT
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implemented by a party hereto without undue cost, loss or detriment to such
party, the party experiencing such adverse consequences shall have the right,
upon notification to the other party of the particulars of such developments, to
cancel this Agreement effective thirty (30) days after the giving of such
written notice. In the event of any such termination, Brewing Company shall
repurchase kegs from MicroStar in a quantity and at a price to be separately
agreed upon in writing at the time the purchase price for kegs purchased from
Brewing Company is determined pursuant to Section 1, 1.1.a.. In the event of
Brewing Company's exercise of the foregoing right of termination for economic
reasons, Brewing Company shall agree not to utilize the services of any company
engaged in performing the same or substantially similar services to those of
MicroStar for a period of three (3) years from the date of such termination.
7.5. Choice of Law
This Agreement and the performance hereof shall be construed in
accordance with, and governed by the internal laws of the state of Colorado.
7.6. Ad Valorem or Use Taxes
Any ad valorem, personal property, use or similar taxes imposed as a
result of Brewing Company's physical custody or use of MicroStar-owned kegs
shall be the responsible of Brewing Company.
7.7. Notices
Notice and communications required or permitted hereunder shall be
in writing and any communication hereunder shall be deemed to be duly made if
actually delivered, transmitted by facsimile, or mailed, prepaid to the parties
as follows:
MicroStar Keg Management, L.L.C. ______________________
8567 154th Ave. N.E. ______________________
Redmond, Washington 98052 ______________________
Attention: Robert M. Imeson Attention:____________
7.8. Captions
The headings and captions in this Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
7.9. Exhibits
All Exhibits attached to or referred to in this Agreement are
incorporated into and made a part of this Agreement.
KEG MANAGEMENT AGREEMENT
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THIS AGREEMENT is executed on the date set forth below each party's
respective signature to be effective however as of the day of December, 1996.
MICROSTAR KEG MANAGEMENT, L.L.C.
By:
-----------------------------------------
Name: Robert M. Imeson
---------------------------------------
Title: Manager and Chief Executive Officer
--------------------------------------
------
Date:
---------------------------------------
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By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Date:
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KEG MANAGEMENT AGREEMENT
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EXHIBIT "B" TO KEG MANAGEMENT AGREEMENT
MICROSTAR KEG MANAGEMENT, L.L.C.
P.O. Box 3139
Redmond, Washington 98073
December 2, 1996
TO: ALL WHOLESALERS PURCHASING FROM HERITAGE BREWING COMPANY ("HERITAGE")
RE: KEG MANAGEMENT AGREEMENT CONCLUDED BETWEEN HERITAGE BREWING COMPANY AND
MICROSTAR KEG MANAGEMENT, L.L.C.; TERMS AND CONDITIONS APPLICABLE TO WHOLESALERS
HERITAGE Brewing Company delivers its products in kegs to ____________________
("Wholesaler"). HERITAGE and MicroStar Keg Management, L.L.C. ("MicroStar")
hereby notify Wholesaler that effective December 2, 1996 all shipments from
Heritage Brewing Company will be made in kegs owned by MicroStar and subject to
MicroStar's administration and retrieval rights and responsibilities under a Keg
Management Agreement between HERITAGE Brewing Company and MicroStar dated
December 2, 1996 ("the Keg Management Agreement").
Pursuant to the Keg Management Agreement, HERITAGE Brewing Company is required
to obtain Wholesaler's agreement to the terms and conditions applicable to the
MicroStar-owned kegs and to the administrative services being performed by
MicroStar for HERITAGE Brewing Company. The pertinent requirements applicable to
Wholesaler are as follows:
1) DEPOSITS. A deposit computed based upon the amount of $15.00 per keg
("the Deposit") for each MicroStar keg delivered to Wholesaler will be billed to
Wholesaler by MicroStar and shall be payable directly to MicroStar. The Deposit
shall serve as security to MicroStar against the loss of any keg owned by
MicroStar, based on a charge of $125.00 per keg, for any keg the location of
which cannot be ascertained. Periodic charges to and withdrawals from the
Deposit will be made for kegs which cannot be located. Similarly, credit memos
will be issued whenever kegs are returned and whenever kegs previously
classified as lost are located. Wholesaler will be invoiced in the amount of
$125.00 as a loss call whenever any loss is charged to the Deposit and will
receive a credit memo and refund of the loss call whenever a previously lost keg
for which a loss charge was made is located and returned.
2) AUDITS. Wholesaler shall be required to provide a monthly written
report of the movement of MicroStar kegs in the form(s) prescribed by MicroStar,
including inventory by brewer (including HERITAGE Brewing Company and any other
brewers contracting with MicroStar who deliver product to Wholesaler), empty
kegs on hand and kegs in the retail system. Wholesaler also agrees to respond to
weekly verbal inquiries by MicroStar representatives concerning the extent of
empty MicroStar kegs in Wholesaler's system. MicroStar shall be authorized to
conduct periodic audits of Wholesaler's inventory of MicroStar kegs, including
kegs in the retail system, which audits will be performed either quarterly or
semi-annually, depending upon the extent of Wholesaler's inventory and any
discrepancies ascertained as a result of prior audits, etc. A summary of the
accounting procedures applicable to Wholesaler is set forth in Attachment "A"
hereto.
Wholesaler's acceptance of deliveries of MicroStar kegs from HERITAGE Brewing
Company will evidence Wholesaler's agreement to the foregoing terms, conditions
and policies.
Please confirm receipt of this notice and Wholesaler's agreement to the
foregoing terms by signing below and returning a copy of this notice and
agreement to MicroStar at the address shown above.
HERITAGE BREWING COMPANY MICROSTAR KEG MANAGEMENT, L.L.C.
By:____________________________________ By:_____________________________
ACKNOWLEDGED AND AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN:
WHOLESALER:
<PAGE> 11
By:____________________________________
KEG MANAGEMENT AGREEMENT
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EXHIBIT "A" TO KEG MANAGEMENT AGREEMENT
List of Local Wholesalers
Wine Warehouse, City of Commerce, Cal.
.Southern Wines & Spirits, Cerritos, Cal.
<PAGE> 13
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
MICROSTAR KEG MANAGEMENT, L.L.C.
ACCOUNTING PROCEDURES
STANDARD ACCOUNTING PROCEDURES:
MicroStar provides kegs which meets quality standard on a per usage basis
at a rate of $15.00 with certain adjustments rebate for local (as agreed)
shipments.
Procedure: The ongoing standard policy is as follows:
1. Brewing Company shall order kegs 30 days prior to any requested delivery
date. Brewing Company will be required to provide ninety (90) days advance
written notice to MicroStar for all orders which are 20% or more in excess of
normal order quantity. All orders will be confirmed by fax or US mail by
close of next business day. All Order(s) shall be deemed incomplete if not
confirmed by MicroStar.
2. Brewing Company will be invoiced $15.00 per keg upon the receipt of each
delivery of kegs (30 day terms). This invoicing is generated by shipment date
and cross checked with the bill of lading returned by Brewing Company and
trucking company invoice. In the event of delinquent payment of any invoice,
MicroStar has the right to suspend deliveries of kegs and/or to require
future payments to be made prior to delivery of kegs.
3. Brewing Company must provide MicroStar with a bill of lading for all
shipments from Brewing Company to its wholesaler(s) within 24 hours of
shipment. This bill of lading will be required for inventory control and will
generate an invoicing of deposit to wholesaler. Brewing Company is held
responsible for lost/unaccounted for kegs and misuse of kegs under Brewing
Company's control (subject to $125 per lost keg fee or a $500 penalty for
unauthorized use).
4. If Brewing Company effectuates a local shipment to agreed upon wholesaler(s),
a $7.50 credit rebate will be provided to the Brewing Company by MicroStar.
In the event Brewing Company currently incurs no freight expense for the
return of kegs from certain wholesalers identified on Exhibit "A" to the Keg
Management Agreement and if Brewing Company further agrees to continue to
directly assume all cost of freight (if any) for the return of all kegs from
such specific wholesaler(s), Brewing Company may designate up to three (3)
wholesalers from among those listed on Exhibit "A" with respect to whom
Brewing Company will assume any and all freight expenses associated with the
shipment of empty kegs from such wholesaler(s) to Brewing Company. For each
full keg sold by Brewing Company to such designated local wholesaler, the
applicable adjustment by rebate
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
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or credit to Brewing Company will be ten dollars ($10.00) per keg (resulting
in an effective use fee to Brewing Company hereunder of five dollars ($5.00)
per keg). This information concerning local shipments and return of kegs from
specific wholesalers shall be cross checked against the bill of lading and/or
the signed loading report. Such credit will be applied to next Brewing
Company's next invoice for kegs or, if a net credit is generated, the credit
will be refunded during normal processing within 30 days. With respect to
kegs used by Brewing Company in on-site pub operations, the use fee shall be
five dollars ($5.00) per keg, per filling. Invoices for such fees will be
based upon the monthly report of sales submitted by Brewing Company to
applicable state authorities in relation to its on-site pub operations, a
copy of which shall be furnished to MicroStar at the time such report is
filed.
5. MicroStar will invoice wholesaler for a deposit of $15.00 per keg from the
bill of lading or, if no bill of lading, a signed loading report as provided
by Brewing Company.
6. MicroStar will credit wholesaler for each empty keg shipped from the
wholesaler by and at the direction of MicroStar. The credit will be generated
by the bill of lading on shipment and will be corrected for any errors for
incorrect shipments including wrong kegs being shipped, mistakes in number of
kegs and the damage of kegs at wholesaler level. The information on shipment
errors will be provided by Brewing Company upon Brewing Company's receipt of
such kegs.
7. Brewing Company is required to provide a written monthly keg movement report
including opening inventory, number of kegs received from MicroStar during
the month, shipments out (summarized by wholesaler) and ending inventory.
Brewing Company will also provide MicroStar or its representative with state
and federal tax reports for purpose of cross checking shipments upon request.
8. Brewing Company shall be subject to inspection and audit of inventory by
MicroStar with 24 hour notice.
9. Wholesaler will provide a weekly report on empty and full kegs in their
system.
10.Wholesaler will provide monthly written reports on MicroStar forms for
inventory of empty, full and at retail.
11.Wholesaler will be subject to audit at least twice a year.
12.Brewing Company will be responsible for inventorying kegs received from
MicroStar as to the number of kegs received, verification of MicroStar
ownership of kegs and identification of any damaged kegs.
13.Wholesaler refund credits will be adjusted for wrong kegs shipped to Brewing
Company or damage which occurs at its level.
<PAGE> 15
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
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EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT
MINERAL WASHING/STERILIZING SEQUENCE (STEAM)
WASH HEAD
Purge out ullage beer with air until clear. 3 sec.
Pre-rinse keg with fresh or recovered water. 8 sec.
Purge out ore-rinse water with air. 5 sec.
Hot caustic or acid wash. 12 sec.
Low flow hot caustic or acid wash 12 sec.
Purge out hot caustic or acid to recovery tank with air. 6 sec.
Final rinse keg with hot water. 12 sec.
Low flow hot water rinse. 12 sec.
Purge out hot water rinse with steam. 18 sec.
Pressurize to 20 p.s.i.g. with steam. 1 sec.
Release pressure from process head. 1 sec.
STERILIZE HOLD STATION
Steam 60 sec.
RACKING HEAD
Steam conn. head and keg neck. 5 sec.
Steam pressure release from keg. 5 sec.
Gas purge keg. 8 sec.
Counter pressurize to 20 p.s.i.g. 2 sec.
Product fill. 50 sec.
Spear out. 1 sec.
Water scavenge and/or gas scavenge. 5 sec.
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
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EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT
MINERAL WASHING/SANITIZING SEQUENCE (OXINE)
WASH HEAD
Purge out ullage beer with air until clear. 3 sec.
Pre-rinse keg with Oxine water. 8 sec.
Purge out Oxine water with air. 5 sec.
Hot caustic or acid wash. 12 sec.
Low flow hot caustic or acid wash 12 sec.
Purge out hot caustic or acid to recovery tank with air. 6 sec.
Final rinse keg with Oxine water. 12 sec.
Low flow Oxine water rinse. 12 sec.
Oxine water fill. 18 sec.
Spear out. 1 sec.
Purge head. 1 sec.
SANITIZE HOLD STATION
Oxine sanitize hold. 60 sec.
RACKING HEAD
Gas purge Oxine water from keg. 10 sec.
Gas counter pressurize to 20 p.s.i.g. 2 sec.
Product fill. 50 sec.
Spear out. 1 sec.
Oxine water scavenge and/or gas scavenge 4 sec.
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
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EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT
KEG PLANT
QUALITY CONTROL CHECKS
A. DETERGENT TANK TITRATION
The detergent set, detergent tank(s), Quality Control checks should be made
before starting and at least twice during each eight (8) hour operating shift.
Adjust frequency to meet the Quality Control department "comfort level". The
acid titration level (phosphoric) should be in the range of 0.25% to maximum of
0.4% v/v and alkali titration level (caustic) in the range of 1.5 to 2.0% v/v.
B. KEG WATER CARRY-OVER AND TITRATION CHECKS
1) After the keg has completed the wash head(s) sequence(s), the keg must be
allowed to continue through the sterilizing sequence and then rejected (stopped)
immediately prior to commencing the racking head(s) sequence(s). When the keg is
retrieved at the discharge end of the machine, the keg can be cooled down by
placing a cold water hose over the outer surfaces (if steam is used). A Quality
Control keg coupler or funnel coupler (with the C02 and beer check valves
removed) is then used to tap the keg. The keg must be inverted to remove the
contents via the C02 port of the coupler by allowing the keg to drain or forcing
the contents out with air or C02. The condensate or rinse residuals in a 50
liter or 1/2 half barrel keg normally measures between 40 to 80 ml.. A limit of
100 ml. should be set as a maximum allowable limit. If the levels are in excess
of these amounts then the machine operation must be checked together with that
of the steam quality and relevant steam main condensate traps.
2) The condensate obtained from the keg can be titrated to ensure that there is
no acid and/or alkali carry-over from the wash heads.
NOTE 1: For this check the pH. of the condensate should be a known factor if
steam is used for purging.
NOTE 2: This check should be carried out once a day for each machine lane and
then reduced to the Quality Control department "comfort level".
3) Another keg is used to do a similar check after it has been allowed to
complete the sequences through the racker head(s) up to the point of immediately
prior to commencing the beer filling sequence. Reject the keg prior to starting
the beer filling sequence and remove the conveyor
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
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after discharging from the machine. When checking for the quantity of condensate
present in the keg, it should be less than 15 ml.
NOTE: This check should be carried out once a day for each machine lane and then
reduced to the Quality Control department "comfort level".
C. MICROBIOLOGICAL CHECKS TO THE KEG
Introduce a liter of sterile liquid, (preferably beer), into a keg having
completed the sequence as described in Procedure 3) above, via a sterilized keg
valve and "funnel" coupler. This allows the keg to be checked for microbial
integrity by removing 250 ml. of the sterile liquid into a sterile flask. Split
the sample into two, 100 ml. samples via Millipore type membranes, plate and
incubate the membranes on agar suitable for aerobic and anaerobic organisms.
Methods of doing this vary slightly. The main objective, however, is to ensure
that consistency in sampling is maintained, i.e. having introduced the sterile
liquid into the keg, each keg should be rotated a set number of times to ensure
all surfaces have been covered equally before it is extracted. A known quantity
should always go into the keg and a known quantity should always be extracted,
filtered and plated.
NOTE 1: This procedure should be carried out at least once every two weeks.
NOTE: 2: Funnel couplers can be purchased via IDD to suit your keg valve type.
D. AFTER A C.I.P. SEQUENCE
After the C.I.P. sequence, the process mains, bright beer tank and racker
connection head(s), can be swabbed and checked for visual cleanliness to ensure
that the cleaning operation frequencies are effective and adequate.
NOTE: This should be carried out at least once a week.
E. BEER STABILITY SAMPLING
Samples are taken from the bright beer tank and keg at a frequency laid down by
the brewery Quality Control department. A suitable stability test is to set
aside a keg of beer from the leg line after filling and "forcing" the contents
by leaving the keg in an environment of 70(degree) F. (21(degree)C). Taste, odor
and clarity tests can then be taken after 72 hours and at regular durations
thereafter as desired to suit the Quality Control departments standards.
SUMMARY
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
Page 1
<PAGE> 20
It is possible to determine the following about the keg machine function and
cleaning procedures from the aforementioned.
1) The wash water and detergent is being cleared from the keg by the final C02
or steam purge sequence on the final wash head.
2) The final rinse water on the final wash head is removing the detergent
residual from the keg.
3) The C02 purge is removing the condensate trace from the keg on the racker
head prior to filling with beer.
4) The microbial integrity, via steam sterilizing or Oxine (Cl02) sanitizing of
the keg is being achieved.
5) The separate plant C.I.P. sequence is effective in removing all traces of
beer protein and other residuals from the keg plant connection head(s) and
piping system(s).
6) The cleanliness and microbial integrity is being maintained by the separate
plant C.I.P. regime.
If you have any questions, please contact Jeff Gunn at IDD Process & Packaging,
Inc. 1-800-621-4144 or 805-529-9890.
JWG/9/16/94
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
Page 1
<PAGE> 21
BILL OF SALE
For and in consideration of the sum of eighty two thousand three hundred
sixty four dollars ($82,364) paid by MicroStar Keg Management, L.L.C. to
Heritage Brewing Company the receipt of which is hereby acknowledged, Heritage
Brewing Company, whose address 9800 South Sepulveda Blvd, Suite 720, Los
Angeles, California 90045, has bargained, sold and delivered, and by these
presents does bargain, sell and deliver unto the said MicroStar Keg Management,
L.L.C., a Delaware limited liability company whose address is P.O. Box 3129,
Redmond, Washington 98052, 983 kegs which are specifically identified by
manufacturer, serial number (where available), date of manufacture (where
available), MicroStar-assigned UPC number and other information as scheduled on
Exhibit "A" attached hereto and made a part hereof.
BREWING COMPANY hereby binds itself, its successors and assigns to warrant
and defend title to the aforesaid personal property unto MicroStar Keg
Management, L.L.C.. its successors and assigns, against the lawful claims of any
and all persons whomsoever.
EXECUTED this 13th day of December, 1996.
HERITAGE BREWING COMPANY
By:_____________________________
Name:___________________________
Title:__________________________
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
Page 1
<PAGE> 22
EXHIBIT "A"
to
Bill of Sale
from
HERITAGE BREWING COMPANY to MicroStar Keg Management, L.L.C.
dated December 13, 1996
<TABLE>
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KEG SERIAL MICROSTAR-
KEG MANUFACTURER DATE OF NUMBER ASSIGNED UPC LOCATION AT TIME OF
MANUFACTURE (IF AVAILABLE) NUMBER PURCHASE
===============================================================================================
<S> <C> <C> <C> <C>
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</TABLE>
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
Page 2
<PAGE> 23
Signed for identification:
HERITAGE BREWING COMPANY MICROSTAR KEG MANAGEMENT, L.L.C.
By:________________________________ By:___________________________________
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
Page 2
<PAGE> 1
Exhibit 10.24
OFFICE LEASE
BY AND BETWEEN
EDWARDS THEATRES CIRCUIT, INC.
AS LANDLORD
AND
BEVERAGE WORKS, INC.
AS TENANT
<PAGE> 2
Table of Contents
Article 1 LEASE OF PREMISES . . . . . . . . . . . . . . . . . . 1
Article 2 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 1
Article 3 EXHIBITS AND ADDENDA . . . . . . . . . . . . . . . . 2
Article 4 DELIVERY OF POSSESSION . . . . . . . . . . . . . . . 2
Article 5 RENT . . . . . . . . . . . . . . . . . . . . . . . . 2
Article 6 INTEREST AND LATE CHARGES . . . . . . . . . . . . . . 5
Article 7 SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . 5
Article 8 TENANT'S USE OF THE PREMISES . . . . . . . . . . . . 6
Article 9 SERVICES AND UTILITIES . . . . . . . . . . . . . . . 6
Article 10 CONDITION OF THE PREMISES . . . . . . . . . . . . . . 7
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE . . . . . . . . 7
Article 12 ALTERATIONS AND ADDITIONS . . . . . . . . . . . . . . 8
Article 13 LEASEHOLD IMPROVEMENTS; TENANTS PROPERTY . . . . . . 9
Article 14 RULES AND REGULATIONS . . . . . . . . . . . . . . . . 9
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD . . . . . . . . . 9
Article 16 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . 10
Article 17 HOLDING OVER . . . . . . . . . . . . . . . . . . . . 11
Article 18 SURRENDER OF PREMISES . . . . . . . . . . . . . . . . 11
Article 19 DESTRUCTION OR DAMAGE . . . . . . . . . . . . . . . . 11
Article 20 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . 12
Article 21 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 12
Article 22 TENANT'S INSURANCE . . . . . . . . . . . . . . . . . 13
Article 23 WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . 13
Article 24 SUBORDINATION AND ATTORNMENT . . . . . . . . . . . . 13
Article 25 TENANT ESTOPPEL CERTIFICATES . . . . . . . . . . . . 14
Article 26 TRANSFER OF LANDLORD'S INTEREST . . . . . . . . . . . 14
Article 27 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 14
Article 28 BROKERAGE FEES . . . . . . . . . . . . . . . . . . . 16
Article 29 NOTICES . . . . . . . . . . . . . . . . . . . . . . . 16
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS . . . . . . . . 16
Article 31 RELOCATION OF PREMISES . . . . . . . . . . . . . . . 16
Article 32 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . 17
Article 33 OBSERVANCE OF LAW . . . . . . . . . . . . . . . . . . 17
Article 34 FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . 17
Article 35 CURING TENANT'S DEFAULTS . . . . . . . . . . . . . . 17
Article 36 SIGN CONTROL . . . . . . . . . . . . . . . . . . . . 17
Article 37 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 17
(i)
<PAGE> 3
This Lease between EDWARDS THEATRES CIRCUIT, INC., a California
Corporation ("Landlord"), and BEVERAGE WORKS INC., a Corporation ("Tenant"), is
dated NOVEMBER 22, 1996.
1. LEASE OF PREMISES
In consideration of the Rent (as defined at Section 5.4) and
the provisions of this Lease, Landlord leases to Tenant and Tenant leases from
Landlord the Premises shown by diagonal lines on the floor plan attached hereto
as Exhibit "A", and further described at Section 21. The Premises are located
within the Building and Project described in Section 2m. Tenant shall have the
non-exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and invitees, to use of the Common Areas (as defined
at Section 2e).
2. DEFINITIONS
As used in this Lease the following terms shall have the
following meanings:
a. Base Rent (initial): Ten Thousand Nine Hundred Seventy
Five and 20/100 Dollars ($10,975.20) per year.
b. Base Year: The calendar year of 1996.
c. Broker(s)
Landlord's: Edwards Theatres Circuit, Inc.
Tenant's: Edwards Theatres Circuit, Inc.
In the event that Edwards Theatres Circuit, Inc.
represents both Landlord and Tenant, Landlord and Tenant hereby confirm that
they were timely advised of the dual representation and that they consent to
the same, and that they do not expect said broker to disclose to either of them
the confidential information of the other party.
d. Commencement Date: December 1, 1996.
e. Common Areas: the building lobbies, common corridors
and hallways, restrooms, garage and parking areas, stairways, elevators, and
other generally understood public or common areas. Landlord shall have the
right to regulate or restrict the use of the Common Areas.
f. Expense Stop: (fill in if applicable): N/A.
g. Expiration Date: November 30, 1999, unless otherwise
sooner terminated in accordance with the provisions of this Lease.
h. Index (Section 5.2): United States Department of
Labor, Bureau of Labor Statistics Consumer Price Index for All Urban
Consumers. Los Angeles, Riverside and Orange Counties Average, Subgroup "All
Items" (1967=100).
i. Landlord's Mailing Address: Edwards Theatres Circuit,
Inc., 300 Newport Center Drive, Newport Beach, CA 92660.
Tenant's Mailing Address: 200 Newport Center Drive,
Suite 205, Newport Beach, CA 92660.
j. Monthly Installments of Base Rent (initial): Nine
Hundred Fourteen and 60/100 Dollars ($914.60) per month.
1
<PAGE> 4
k. Parking: Tenant shall be permitted, upon payment of the
then prevailing monthly rate (as set by Landlord from time to time) to park N/A
cars on a non-exclusive basis in the area(s) designated by the Landlord for
parking. Tenant shall abide by any and all parking regulations and rules
established from time to time by Landlord or Landlord's parking operator.
Landlord reserves the right to separately charge Tenant's guests and visitors
for parking.
l. Premises: That portion of the Building containing
approximately 538 square feet of Usable Area, shown by diagonal lines on
Exhibit "A", located on the second floor of the Building and known as Suite 205.
m. Project: the building of which the Premises are a part
(the "Building") and any other buildings or improvements on the real property
(the "Property") located at 200 Newport Center Drive, Newport Beach, CA 92660
and further described at Exhibit "B". The Project is known as 200 Newport
Center Drive.
n. Rentable Area: as to both the Premises and the
Project, the respective measurements of floor area as may from time to time be
subject to lease by Tenant and all tenants of the Project, respectively, as
determined by Landlord and applied on a consistent basis throughout the Project.
o. Security Deposit (Section 7): Eighteen Hundred Twenty
Nine and 20/100 Dollars ($1,829.20).
p. State: the State of California.
q. Tenant's First Adjustment Date (Section 5.2): the
first day of the calendar month following the Commencement Date plus Twelve
(12) months.
r. Tenant's Proportionate Share: 2.08%. Such share is a
fraction, the numerator of which is the Rentable Area of the Premises, and the
denominator of which is the Rentable Area of the Project, as determined by
Landlord from time to time. The Project consists of One building(s) containing
a total Rentable Area of 25,928 square feet.
s. Tenant's Use Clause (Article 8): General Office Use.
t. Term: the period commencing on the Commencement Date
and expiring at midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are
incorporated by reference in this Lease:
a. Exhibit "A" - Floor Plan showing the Premises.
b. Exhibit "B" - Site Plan of the Project.
[STRUCK OUT TEXT]
d. Exhibit "D" - Rules and Regulations.
4. DELIVERY OF POSSESSION.
[STRUCK OUT TEXT]
5. RENT.
5.1 Payment of Base Rent. Tenant agrees to pay the Base
Rent for the Premises. Monthly
2
<PAGE> 5
installments of Base Rent shall be payable in advance on the first day of each
calendar month of the Term. If the Term begins (or ends) on other than the
first (or last) day of a calendar month, the Base Rent for the partial month
shall be prorated one per diem basis. Tenant shall pay Landlord the first
Monthly Installment of Base Rent when Tenant executes the Lease.
5.2 Adjusted Base Rent.
a. The Base Rent (and the corresponding Monthly
Installments of Base Rent) set forth at Section 8 as shall be adjusted annually
(the "Adjustment Date"), commencing on Tenant's First Adjustment Date.
Adjustments, if any, shall be based upon increases (if any) in the Index. The
Index in publication three (3) months before the Commencement Date shall be the
"Base Index." The Index in publication three (3) months before each Adjustment
Date shall be the "Comparison Index." As of each Adjustment Date, the Base Rent
payable during the ensuing twelve-month period shall be determined by
increasing the initial Base Rent by a percentage equal the percentage increase,
if any, in the Comparison Index over the Base Index. If the Comparison Index
for any Adjustment Date is equal to or less than the Comparison Index for the
preceding Adjustment Date (or the Base Index, in the case of the First
Adjustment Date), the Base Rent for the ensuing twelve-month period shall
remain the amount of Base Rent payable during the preceding twelve-month
period. When the Base Rent payable as of each Adjustment Date is determined,
Landlord shall promptly give Tenant written notice of such adjusted Base Rent
and the manner in which it was computed. The Base Rent as so adjusted from time
to time shall be the "Base Rent" for all purposes under this Lease.
b. If at any Adjustment Date the Index no longer
exists in the form described in this Lease, Landlord may substitute any
substantially equivalent official index published by the Bureau of Labor
Statistics or its successor. Landlord shall use any appropriate conversion
factors to accomplish such substitution. The substitute index shall then become
the "Index" hereunder.
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term
reflect any increase in Project Operating Costs, Tenant agrees to pay to
Landlord as Rent, Tenant's Proportionate Share of all increases in costs,
expenses and obligations attributable to the Project and its operation, all as
provided below.
b. If, during any calendar year during the Term,
Project Operating Costs exceed the Project Operating Costs for the Base Year,
Tenant shall pay to Landlord, in addition to Base Rent and all other payments
due under this Lease, an amount equal to Tenant's Proportionate Share of such
excess Project Operating Costs in accordance with the provisions of this
Section 5.3b.
(1) The term "Project Operating Costs" shall
include all those items described in the following subparagraphs (a) and (b).
(a) All taxes, assessments, water
and sewer charges and other similar governmental charges levied on or
attributable to the Building or Project or their operation, including without
limitation, (i) real property taxes or assessments levied or assessed against
the Building or Project, (ii) assessments or changes levied or assessed against
the Building or Project by any redevelopment agency, (iii) any tax measured by
gross rentals received from the leasing of the Premises, Building or Project,
excluding any net income, franchise, capital stock, estate or inheritance taxes
imposed by the State of federal government or their agencies, branches, or
departments; provided that if at any time during the Term any governmental
entity levies, assesses or imposes on Landlord any (1) general or special, ad
valorem or specific, excise, capital levy or other tax, assessment, levy or
charge directly on the Rent received under this Lease or on the rent received
under any other leases of space in the Building or Project, or (2) any license
fee, excise or franchise tax, assessment, levy or charge measured by or based,
in whole or in part, upon such rent, or (3) any transfer, transaction, or
similar tax, assessment, levy or charge based directly or indirectly upon the
transaction represented by this Lease or such other leases, or (4) any
occupancy, use, per capita or other tax, assessment, levy or charge based
directly or indirectly upon the use or occupancy of the Premises or other
premises within the Building or Project, then any such taxes, assessments,
levies and charges shall be deemed to be included in the term Project Operating
Costs. If at any time during the Term the assessed valuation of, or taxes on,
the Project are not based on a completed Project having at least eighty-five
percent (85%) of the Rentable Area occupied, then the "taxes" component of
Project Operating Costs shall be adjusted by Landlord to reasonably approximate
the taxes which would have been payable if the Project were completed and at
lease eighty-five (85%) occupied.
3
<PAGE> 6
(b) Operating costs incurred by
Landlord in maintaining and operating the Building and Project, including
without limitation the following: costs of (1) utilities; (2) supplies; (3)
insurance (including public liability, property damage, earthquake, and fire
and extended coverage insurance for the full replacement cost of the Building
and Project) as required by Landlord or its lenders for the Project; (4)
services of independent contractors; (5) compensation (including employment
taxes and fringe benefits) of all persons who perform duties connected with the
operation, maintenance, repair or overhaul of the Building or Project, and
equipment, improvements and facilities located within the Project, including
without limitation engineers, janitors, painters, floor waxers, window washers,
security and parking personnel and gardeners (but excluding persons performing
services not uniformly available to or performed for substantially all building
or Project tenants); (6) operation and maintenance of a room for delivery and
distribution of mail to tenants of the Building or Project as required by the
U.S. Postal Service (including, without limitation, an amount equal to the fair
market rental value of the mail room premises); (7) management of the Building
or Project, whether managed by Landlord or an independent contractor
(including, without limitation, an amount equal to the fair market value of any
on-site manager's office); (8) rental expenses for (or a reasonable
depreciation allowance on) personal property used in maintenance, operation or
repair of the Building or Project; (9) costs, expenditures or charges (whether
capitalized or not) required by any governmental or quasi-governmental
authority; (10) amortization of capital expenses (including financing costs)
(i) required by governmental entity for energy conservation or life safety
purposes, or (ii) made by Landlord to reduce Project Operating Costs; and (11)
any other costs or expenses incurred by Landlord under this Lease and not
otherwise reimbursed by tenants of the Project. If at any time during the Term,
less than eighty-five percent (85%) of the Rentable Area of the Project is
occupied, the "operating costs" component of Project Operating Costs shall be
adjusted by Landlord to reasonably approximate the operating costs which would
have been at least eighty-five percent (85%) occupied.
(2) Tenant's Proportionate Share of Project
Operating Costs shall be payable by Tenant to Landlord as follows:
(a) Beginning with the calendar
year following the Base Year and for each calendar year thereafter ("Comparison
Year"), Tenant shall pay Landlord an amount equal to Tenant's Proportionate
Share of the Project Operating Costs incurred by Landlord in the Comparison
Year which exceeds the total amount of Project Operating Costs payable by
Landlord for the Base Year. This excess is referred to as the "Excess Expenses."
(b) To provide for current payments
of Excess Expenses. Tenant shall, at Landlord's request, pay as additional rent
during each Comparison Year, an amount equal to Tenant's Proportionate Share of
the Excess Expenses payable during such Comparison Year, as estimated by
Landlord from time to time. Such payments shall be made in monthly installments
commencing on the first day of the month following the month in which Landlord
notifies Tenant of the amount it is to pay hereunder and continuing until the
first day of the month following the month in which the Landlord gives Tenant a
new notice of estimated Excess Expenses. It is the intention hereunder to
estimate from time to time the amount of the Excess Expenses of each Comparison
Year and Tenant's Proportionate Share thereof, and then to make an adjustment
in the following year based on the actual Excess Expenses incurred for that
Comparison Year.
(c) On or before April 1 of each
Comparison Year (or as soon thereafter as is practical), Landlord shall deliver
to Tenant a statement setting forth Tenant's Proportionate Share of the Excess
Expenses for the preceding Comparison Year. If Tenant's Proportionate Share of
the actual Excess Expenses for the previous Comparison Year exceeds the total
of the estimated monthly payments made by Tenant for such year, Tenant shall
pay Landlord the amount of the deficiency within ten (10) days of the receipt
of the statement. If such total exceeds Tenant's Proportionate Share of the
actual Excess Expenses for such Comparison Year, then Landlord shall credit
against Tenant's next ensuing monthly installment(s) of additional rent an
amount equal to the difference until the credit is exhausted. If a credit is
due from Landlord on the Expiration Date, Landlord shall pay Tenant the amount
of the credit. The obligations of Tenant and Landlord to make payments required
under this Section 5.3 shall survive the Expiration Date.
(d) Tenant's proportionate Share of
Excess Expenses in any Comparison Year having less than 365 days shall be
appropriately prorated.
(e) If any dispute arises as the
amount of any additional rent due hereunder, Tenant shall have the right after
reasonable times to inspect Landlord's accounting office and, if after such
inspection Tenant still disputes the amount of additional rent owed, a
certification as to the proper amount shall be made by Landlord's certified
public accountant, which certification shall be final and conclusive. Tenant
agrees to pay the cost of such certification unless it is determined that
Landlord's original statement overstated Project Operating Costs by
4
<PAGE> 7
more than five percent (5%).
(f) If this Lease sets forth an Expense
Stop at Section 2f, then during the Term Tenant shall be liable for Tenant's
Proportionate Share of any actual Project Operating Costs which exceed the
amount of the Expense Stop. Tenant shall make current payments of such excess
during the Term in the same manner as is provided for payment of Excess
Expenses under the applicable provisions of Section 5.3b(2)(b) and (c) above.
5.4 Definition of Rent. All costs and expenses which
Tenant assumes or agrees to pay to Landlord under this Lease shall be deemed
additional rent (which, together with the Base Rent is sometimes referred to as
the "Rent"). The Rent shall be paid to the Building manager (or other person)
and at such place, as Landlord may from time to time designate in writing,
without any prior demand therefore and without deduction or offset, unlawful
money of the United States of America.
5.5 Rent Control. If the amount of Rent or any other
payment due under this Lease violates the terms of any governmental
restrictions on such Rent or payment, then the Rent or payment due during the
period of such restrictions shall be the maximum amount allowable under those
restrictions. Upon termination of the restrictions, Landlord shall, to the
extent it is legally permitted, recover from Tenant the difference between the
amounts received during the period of the restrictions and the amounts Landlord
would have received had there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and
any other charges to be paid by Tenant hereunder, Tenant shall reimburse
Landlord upon demand for any and all taxes payable by Landlord (other than net
income taxes) which are not otherwise reimbursable under this Lease, whether
or not now customary or within the contemplation of the parties, where such
taxes are upon, measured by or reasonably attributable to (a) the cost or value
of Tenant's equipment, furniture, fixtures and other personal property located
in the Premises, or the cost or value of any leasehold improvements made in or
to the Premises by or for Tenant, other than Building Standard Work made by
Landlord, regardless of whether title to such improvements is held by Tenant or
Landlord; (b) the gross or net Rent payable under this Lease, including,
without limitation, any rental or gross receipts tax levied by any taxing
authority with respect to the receipt of the Rent hereunder; (c) the
possession, leasing, operation, manage, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion thereof; or (d) this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises. If it becomes unlawful for Tenant to
reimburse Landlord for any costs as required under this Lease, the Base Rent
shall be revised to net Landlord the same net Rent after imposition of any tax
of other charge upon Landlord as would have been payable to Landlord but for
the reimbursement being unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or
charges which Tenant is obligated to pay under the terms of this Lease, the
unpaid amounts shall bear interest at the maximum rate then allowed by law.
Tenant acknowledges that the late payment of any Monthly Installment of Base
Rent will cause Landlord to lose the use of that money and incur costs and
processing and accounting expenses, the exact amount of which is extremely
difficult to ascertain. Therefore, in addition to interest, if any such
installment is not received by Landlord within ten (10) days from the date it
is due, Tenant shall pay Landlord a late charge equal to ten percent (10%) of
such installment. Landlord and Tenant agree that this late charge represents a
reasonable estimate of such costs and expenses and is fair compensation to
Landlord for the loss suffered from such nonpayment by Tenant. Acceptance of
any interest or late charge shall not constitute a waiver of Tenant's default
with respect to such nonpayment by Tenant nor prevent Landlord from exercising
any other rights or remedies available to Landlord under this Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set
forth at Section 2.0 upon execution of this Lease, as security for Tenant's
faithful performance of its obligations under this Lease. Landlord and Tenant
agree that the Security Deposit may be commingled with funds of Landlord and
Landlord shall have no obligation or liability for payment of interest on such
deposit. Tenant shall not mortgage, assign, transfer or encumber the Security
Deposit without the prior written consent of Landlord and any attempt by Tenant
to do so shall be void, without force or effect and shall not be binding upon
Landlord.
If Tenant fails to pay any Rent or other amount when due and
payable under this Lease, or fails to perform any of the terms hereof, Landlord
may appropriate and apply or use all or any portion of the Security Deposit for
5
<PAGE> 8
Rent payments or any other amount then due and unpaid, for payment of any
amount for which Landlord has become obligated as a result of Tenant's default
or breach, and for any loss or damage sustained by Landlord as a result of
Tenant's default or breach, and Landlord may so apply or use this deposit
without prejudice to any other remedy Landlord may have by reason of Tenant's
default or breach. If Landlord so uses any of the Security Deposit, Tenant
shall, within ten (10) days after written demand therefore, restore the
Security Deposit to the full amount originally deposited; Tenant's failure to
do so shall constitute an act of default hereunder and Landlord shall have the
right to exercise any remedy provided for at Article 27 hereof. Within fifteen
(15) days after the Term (or any extension thereof) has expired or Tenant has
vacated the Premises, whichever shall last occur, and provided Tenant is not
then in default on any of its obligations hereunder, Landlord shall return the
Security Deposit to Tenant, or, if Tenant has assigned its interest under this
Lease, to the last assignee of Tenant. If Landlord sells its interest in the
Premises, Landlord may deliver this deposit to the purchaser of Landlord's
interest and thereupon be relieved of any further liability or obligation with
respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purpose set forth
in Tenant's Use Clause. Tenant shall not use or occupy the Premises in
violation of law or any covenant, condition or restriction affecting the
Building or Project or the certificate of occupancy issued for the Building or
Project, and shall, upon notice from Landlord, immediately discontinue any use
of the Premises which is declared by any governmental authority having
jurisdiction to be a violation of law or the certificate of occupancy. Tenant,
at Tenant's own cost and expense, shall comply with all laws, ordinances,
regulations, rules and/or any directions of any governmental agencies or
authorities having jurisdiction which shall, by reason of the nature of
Tenant's use or occupancy of the Premises, impose any duty upon Tenant or
Landlord with respect to the Premises or its use or occupation. A judgment of
any court of competent jurisdiction or the admission by Tenant in any action or
proceeding against Tenant that Tenant has violated any such laws, ordinances,
regulations, rules and/or directions in the use of the Premises shall be deemed
to be a conclusive determination of that fact as between Landlord and Tenant.
Tenant shall not do or permit to be done anything which will invalidate or
increase the cost of any fire, extended coverage or other insurance policy
covering the Building or Project and/or property located therein, and shall
comply with all rules, orders, regulations, requirements and recommendations
of the Insurance Services Office or any other organization performing a similar
function. Tenant shall promptly upon demand reimburse Landlord for any
additional premium charged for such policy by reason of Tenant's failure to
comply with the provisions of the Article. Tenant shall not do or permit
anything to be done in or about the Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Building or
Project, or injure or annoy them, or use or allow the Premises to be used for
any improper, immoral, unlawful of objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, Landlord
agrees to furnish to the Premises during generally recognized business days,
and during hours determined by Landlord in its sole discretion, and subject to
the Rules and Regulations of the Building or Project, electricity for normal
desk top office equipment and normal copying equipment, and heating,
ventilation and air conditioning ("HVAC") as required in Landlord's judgment
for the comfortable use and occupancy of the Premises. If Tenant desires HVAC
at any other time, Landlord shall use reasonable notice from Tenant and Tenant
shall pay Landlord's charges therefor on demand. Landlord shall also maintain
and keep lighted the common stairs, common entries and restrooms in the
Building. Landlord shall not be in default hereunder or be liable for any
damages directly or indirectly resulting from, nor shall the Rent be abated by
reason of (i) the installation, use or interruption of use of any equipment in
connection with the furnishing of any of the foregoing services, (ii) failure
to furnish or delay in furnishing any such services where such failure or delay
is caused by accident or any condition or event beyond the reasonable control
of Landlord, or by the making of necessary repairs or improvements to the
Premises, Building or Project, or (iii) the limitation, curtailment or
rationing of, or restrictions on, use of water, electricity, gas or any other
form of energy serving the Premises, Building or Project. Landlord shall not
be liable under any circumstances for a loss of or injury to property or
business, however occurring, through or in connection with or incidental to
failure to furnish any such services. If Tenant uses heat generating machines
or equipment in the Premises which affect the temperature otherwise maintained
by the HVAC system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation, operation and maintenance thereof shall be paid by Tenant to
Landlord upon demand by Landlord.
Tenant shall not, without the written consent of Landlord, use
any apparatus or device in the Premises,
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including without limitation, electronic data processing machines, punch card
machines using in excess of 120 volts, which consumes more electricity than is
usually furnished or supplied for the use of premises as general office space,
as determined by Landlord. Tenant shall not connect any apparatus with electric
current except through existing electrical outlets in the Premises. Tenant shall
not consume water or electric current in excess of that usually furnished or
supplied for the use of Premises as general office space (as determined by
Landlord), without first procuring the written consent of Landlord, which
Landlord may refuse, and in the event of consent, Landlord may have installed a
water meter or electrical current meter in the Premises to measure the amount of
water or electric current consumed. The cost of any such meter and of its
installation, maintenance and repair shall be paid for by the Tenant and Tenant
agrees to pay to Landlord promptly upon demand for all such water and electric
current consumed as shown by said meters, at the rates charged for such services
by the local public utility plus any additional expense incurred in keeping
account of the water and electric current so consumed. If a separate meter is
not installed, the excess cost for such water and electric current shall be
established by an estimate made by a utility company or electrical engineer
hired by Landlord at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's
right to require at any time separate metering of utilities furnished to the
Premises. In the event utilities are separately metered, Tenant shall pay
promptly upon demand for all utilities consumed at utility rates charged by the
local public utility plus any additional expense incurred by Landlord in
keeping account of the utilities so consumed. Tenant shall be responsible for
the maintenance and repair of any such meters at its sole cost.
Landlord shall furnish elevator service, lighting replacement
for building standard lights, restroom supplies, window washing and janitor
services in a manner that such services are customarily furnished to comparable
office buildings in the area.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed
conclusive evidence that as of the date of taking possession the Premises are
in good order and satisfactory condition, except for such matters as to which
Tenant gave Landlord notice on or before the Commencement date. No promise of
Landlord to alter, remodel, repair or improve the Premises, the Building or the
Project and no representation, express or implied, respecting any matter or
thing relating to the Premises, Building, project or this Lease (including,
without limitation, the condition of the Premises, the Building or the Project)
have been made to Tenant by Landlord or its Broker or Sales Agent, other than
as may be contained herein or in separate exhibit or addendum signed by
Landlord and Tenant.
11. CONSTRUCTION, REPAIRS, AND MAINTENANCE.
a. Landlord's Obligation. [Struck out text] Landlord shall
maintain in good order, condition and repair the Building and all other portions
of the Premises not the obligation of Tenant or of any other tenant in the
Building.
b. Tenant's Obligations.
[Struck out text]
(2) Tenant at Tenant's sole expense shall expect
for services furnished by Landlord pursuant to Article 9 hereof, maintain the
Premises in good order, condition and repair, including the interior of
surfaces of the ceilings, walls and floors, all doors, all interior windows, all
plumbing, pipes and fixtures, electrical wiring, switches and fixtures,
Building Standard furnishings and special items and equipment installed by or at
the expense of Tenant.
(3) Tenant shall be responsible for all repair and
alterations in and to the Premises, Building and Project and the facilities and
systems thereof, the need for which arises out of (i) Tenant's use or occupancy
of the premises, (ii) the installation, removal, use or operation of Tenant's
Property (as defined in Article 13) in the Premises, (iii) the moving of
Tenant's Property into or out of the Building, or (iv) the act, omission,
misuse or negligence of Tenant, its agents, contractors, employees or invitees.
(4) If Tenant fails to maintain the Premises in
good order, condition and repair, Landlord shall give Tenant notice to do such
acts as are reasonably required to so maintain the Premises. If Tenant fails
to promptly commence such work and diligently prosecute it to completion, then
Landlord shall have the right to do such
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acts and expend such funds at the expense of Tenant as are reasonably required
to perform such work. Any amount so expended by Landlord shall be paid by
Tenant promptly after demand with interest at the prime commercial rate then
being charged by Bank of America NT & SA plus two percent (2%) per annum, from
the date of such work, but not to exceed the maximum rate then allowed by law.
Landlord shall have no liability to Tenant for any damage, inconvenience, or
interference with the use of the Premises by Tenant as a result of performing
any such work.
c. Compliance with Law. Landlord and Tenant shall each do
all acts required to comply with all applicable laws, ordinances, and rules of
any public authority relating to their respective maintenance obligations as set
forth herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of
any statute now or hereafter in effect which would otherwise afford the right to
make repairs at Landlord's expense or to terminate this Lease because of
Landlord's failure to keep the Premises in good order, condition and repair.
e. Load and Equipment Limits. Tenant shall not place a load
upon any floor of the Premises which exceeds the load per square foot which such
floor was designed to carry, as determined by Landlord or Landlord's structural
engineer. The cost of any such determination made by Landlord's structural
engineer shall be paid for by Tenant upon demand. Tenant shall not install
business machines or mechanical equipment which cause noise or vibration to such
a degree as to be objectionable to Landlord or other Building tenants.
f. Except as otherwise expressly provided in this Lease,
Landlord shall have no liability to Tenant nor shall Tenant's obligations under
this Lease be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or permitted
by this Lease or by any other Tenant's lease or required by law to make in or to
any portion of the Project, Building or the Premises. Landlord shall
nevertheless use reasonable efforts to minimize any interference with Tenant's
business in the Premises.
g. Tenant shall give Landlord prompt notice of any damage to
or defective condition in any part or appurtenance of the Building's mechanical,
electrical, plumbing, HVAC or other systems serving, located in, or passing
through the Premises.
h. Upon the expiration or earlier termination of this Lease,
Tenant shall return the Premises to Landlord clean and in the same condition as
on the date Tenant took possession, except for normal wear and tear. Any damage
to the Premises, including any structural damage, resulting from Tenant's use or
from the removal of Tenant's fixtures, furnishings and equipment pursuant to
Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS
a. Tenant shall not make any additions, alterations or
improvements to the Premises without obtaining the prior written consent of
Landlord. Landlord's consent may be conditioned on Tenant's removing any such
additions, alterations or improvements upon the expiration of the Term and
restoring the Premises to the same condition as on the date Tenant took
possession. All work with respect to any addition, alteration or improvement
shall be done in a good and workmanlike manner by properly qualified and
licensed personnel approved by Landlord, and such work shall be diligently
prosecuted to completion. Landlord may, at Landlord's option, require that any
such work be performed by Landlord's contractor, in which case the cost of such
work shall be paid for before commencement of the work. Tenant shall pay to
Landlord upon completion of any such work by Landlord's contractor, an
administrative fee of fifteen percent (15%) of the cost of the work.
b. Tenant shall pay the costs of any work done on the
Premises pursuant to Section 12a, and shall keep the Premises, Building and
Project free and clear of liens of any kind. Tenant shall indemnify, defend
against and keep Landlord free and harmless from all liability, loss damage,
costs, attorneys' fees and any other expense incurred on account of claims by
any person performing work or furnishing materials or supplies for Tenant or
any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this Lease,
free and clear of all attachment or judgment liens. Before the actual
commencement of any work for which a claim or lien may be filed, Tenant shall
give Landlord notice of the intended
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commencement date a sufficient time before that date to enable Landlord to post
notices of non-responsibility or any other notices which Landlord deems
necessary for the proper protection of Landlord's interest in the Premises,
Building or the Project, and Landlord shall have the right to enter the
Premises and post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that
Tenant provide to Landlord, at Tenant's expense, a lien and completion bond in
an amount equal to at lease one and one-half (1 1/2) times the total estimated
cost of any additions, alterations or improvements to be made in or to the
Premises, to protect Landlord against any liability for mechanic's and
materialmen's liens and to insure timely completion of the work. Nothing
contained in this Section 12c shall relieve Tenant of its obligation under
Section 12b to keep the Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided
in Section 12a, all additions, alterations and improvements made to the
Premises shall become the property of Landlord and be surrendered with the
Premises upon the expiration of the Term; provided, however, Tenant's
equipment, machinery and trade fixtures which can be removed without damage to
the Premises shall remain the property of Tenant and may be removed, subject to
the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances
attached to or built into the Premises at the commencement of or during the
Term, whether or not by or at the expense of Tenant ("Leasehold Improvements"),
shall be and remain a part of the Premises, shall be the property of Landlord
and shall not be removed by Tenant, except as expressly provided in Section 13b.
b. All movable partitions, business and trade fixtures,
machinery and equipment, communications equipment and office equipment located
in the Premises and acquired by or for the account of Tenant, without expense
to Landlord, which can be removed without structural damage to the Building,
and all furniture, furnishings and other articles of movable personal property
owned by Tenant and located in the Premises (collectively "Tenant's Property")
shall be and shall remain the property of Tenant and may be removed by Tenant
at any time during the Term; provided that if any of Tenant's Property is
removed, Tenant shall promptly repair any damage to the Premises or to the
Building resulting from such removal.
14. RULES AND REGULATION.
Tenant agrees to comply with (and cause its agents, contractors,
employees and invitees to comply with) the rules and regulations attached hereto
as Exhibit "D" and with such reasonable modification thereof and additions
thereto as Landlord may from time to time make. Landlord shall not be
responsible for any violation of said rules and regulations by other tenants or
occupants of the Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without
liability to Tenant for (a) damage or injury to property, person or business,
(b) causing an actual or constructive eviction from the Premises, or (c)
disturbing Tenant's use or possession of the Premises:
a. To name the Building and Project and to change the name
or street address of the Building or Project;
b. To install and maintain all signs on the exterior and
interior of the Building and Project;
c. To have pass keys to the Premises and all doors within
the Premises, excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior
notice to Tenant, to inspect the Premises, and to show the Premises to any
prospective purchaser or mortgagee of the Project, or to any assignee of any
mortgage on the Project, or to others having an interest in the Project or
Landlord, and during the last six months of the Term, to show the Premises to
prospective tenants thereof; and
e. To enter the Premises for the purpose of making
inspections, repairs, alterations, additions or improvements to the Premises or
the Building (including, without limitation, checking, calibrating, adjusting
or balancing
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controls and other parts of the HVAC system), and to take all steps as may be
necessary or desirable for the safety, protection, maintenance or preservation
of the Premises of the Building or Landlord's interest therein, or as may be
necessary or desirable for the operation or improvement of the Building or in
order to comply with laws, orders or requirements of governmental or other
authority. Landlord agrees to use its best efforts (except in an emergency) to
minimize interference with Tenant's business in the Premises in the course of
any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of
the Premises shall be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of
Landlord, assign or hypothecate this Lease or any interest herein or sublet the
Premises or any part thereof, or permit the use of the Premises by any party
other than Tenant. Any of the foregoing acts without such consent shall be void
and shall, at the option of Landlord, terminate this Lease. This Lease shall
not, nor shall any interest of Tenant herein, be assignable by operation of law
without written consent of Landlord.
b. If at any time or from time to time during the Term
Tenant desires to assign this Lease or sublet all or any part of the Premises,
Tenant shall give notice to Landlord setting forth the terms and provisions of
the proposed assignment or sublease, and the identity of the proposed assignee
or subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request. Landlord shall have
the option, exercisable by notice given to Tenant within twenty (20) days after
Tenant's notice is given, either to sublet such space from Tenant at the rental
and on other terms set forth in this Lease for the term set forth in Tenant's
notice, or, in the case of an assignment, to terminate this Lease. If Landlord
does not exercise such option, Tenant may assign the Lease or sublet such space
to such proposed assignee or subtenant on the following further conditions:
(1) Landlord shall have the right to approve such
proposed assignee or subtenant, which approval shall not be reasonably withheld;
(2) The assignment or sublease shall be on the same
terms set forth in the notice given to Landlord;
(3) No assignment or sublease shall be valid and no
assignee or sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to Landlord;
(4) No assignee or sublessee shall have a further
right to assign or sublet except on the terms herein contained; and
(5) Any sums or other economic consideration
received by Tenant as a result of such assignment or subletting, however
denominated under the assignment or sublease, which exceed, in the aggregate,
(i) the total sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to any portion of the Premises
subleased), plus (ii) any real estate brokerage commissions or fees payable in
connection with such assignment or subletting, shall be paid to Landlord as
additional rent under this Lease without affecting or reducing any other
obligations of Tenant hereunder.
c. Notwithstanding the provisions of paragraphs a and b
above, Tenant may assign this Lease or sublet the Premises or any portion
thereof, without Landlord's consent and without extending any recapture or
termination option to Landlord, to any corporation which controls, is controlled
by or is under common control with Tenant, or to any corporation resulting from
a merger or consolidation with Tenant, or to any person or entity which acquires
all the assets of Tenant's business as a going concern, provided that (i) the
assignee or sublessee assumes, in full, the obligations of Tenant under this
Lease, (ii) Tenant remains fully liable under this Lease, and (iii) the use of
the Premises under Article 8 remains unchanged.
d. No subletting or assignment shall release Tenant of
Tenant's obligation under this Lease or alter the primary liability of Tenant to
pay the Rent and to perform all other obligations to be performed by Tenant
hereunder. The acceptance of Rent by Landlord from any other person shall not
be deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
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assignment or subletting. In the event of default by an assignee or subtenant
of Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee, subtenant or successor. Landlord may consent to subsequent
assignments of the Lease or sublettings or amendments or modifications to the
Lease with assignees of Tenant, without notifying Tenant, or any successor of
Tenant, and without obtaining its or their consent thereto and any such actions
shall not relieve Tenant of liability under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or
requests the consent of Landlord to any assignment or subletting or if Tenant
requests the consent of Landlord for any act that Tenant proposes to do, then
Tenant shall, upon demand, pay Landlord an administrative fee of One Hundred
Fifty and No/100ths Dollars ($150.00) plus any attorneys' fees reasonably
incurred by Landlord in connection with such act or request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession
of the Premises with Landlord's permission (express or implied), Tenant shall
become a tenant from month to month only, upon all the provisions of this Lease
(except as to term and Base Rent), but the "Monthly Installments of Base Rent"
payable by Tenant shall be increased to one hundred fifty percent (150%) of the
Monthly Installments of Base Rent payable by Tenant at the expiration of the
Term. Such monthly rent shall be payable in advance on or before the first day
of each month. If either party desires to terminate such month to month
tenancy, it shall give the other party not less than thirty (30) days' advance
written notice of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to
Landlord on the Expiration Date, in broom-clean condition and in as good
condition as when Tenant took possession, except for (i) reasonable wear and
tear, (ii) loss by fire or other casualty, and (iii) loss by condemnation.
Tenant shall, on Landlord's request, remove Tenant's Property on or before the
Expiration Date and promptly repair all damage to the Premises or Building
caused by such removal.
b. If Tenant abandons or surrenders the Premises, or is
dispossessed by process of law or otherwise, any of Tenant's Property left on
the Premises shall be deemed to be abandoned, and, at Landlord's option, title
shall pass to Landlord removal, including repairing any damage to the Premises
or Building caused by such removal, shall be paid by Tenant. On the Expiration
Date Tenant shall surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building
necessary for Tenant's occupancy is damaged by fire, earthquake, act of God, the
elements or other casualty, Landlord shall, subject to the provisions of this
Article, promptly repair the damage, if such repairs can, in Landlord's
opinion, be completed within (90) ninety days. If Landlord determines that
repairs can be completed within ninety (90) days, this Lease shall remain in
full force and effect, except that if such damage is not the result of the
negligence or willful misconduct of Tenant or Tenant's agents, employees,
contractors, licensees or invitees, the Base Rent shall be abated to the extent
Tenant's use of the Premises is impaired, commencing with the date of damage
and continuing until completion of the repairs required of Landlord under
Section 19d.
b. If in Landlord's opinion, such repairs to the Premises
or portion of the Building necessary for Tenant's occupancy cannot be completed
within ninety (90) days, Landlord may elect, upon notice to Tenant given within
thirty (30) days after the date of such fire or other casualty, to repair such
damage, in which event this Lease shall continue in full force and effect, but
the Base Rent shall be partially abated as provided in Section 19a. If Landlord
does not so elect to make such repairs, this Lease shall terminate as of the
date of such fire or other casualty.
c. If any other portion of the Building or Project is
totally destroyed or damaged to the extent that in Landlord's opinion repair
thereof cannot be completed within ninety (90) days, Landlord may elect upon
notice to Tenant given within thirty (30) days after the date of such fire or
other casualty, to repair such damage, in which event this Lease shall continue
in full force and effect, but the Base Rent shall be partially abated as
provided in Section 19a. If Landlord does not elect to make such repairs, this
Lease shall terminate as of the date of such fire or other casualty.
d. If the Premises are to be repaired under this Article,
Landlord shall repair at its cost any injury or damage to the Building and
Building Standard Work in the Premises. Tenant shall be responsible at its sole
cost and
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expense for the repair, restoration and replacement of any other Leasehold
Improvements and Tenant's Property. Landlord shall not be liable for any loss of
business, inconvenience or annoyance arising from any repair or restoration of
any portion of the Premises, Building or Project as a result of any damage from
fire or other casualty.
e. This Lease shall be considered an express agreement
governing any case of damage to or destruction of the Premises, Building or
Project by fire or other casualty, and any present or future law which purports
to govern the rights of Landlord and Tenant in such circumstances in the
absence of express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully
taken by condemnation or in any other manner for any public or quasi-public
purpose, this Lease shall terminate as of the date of such taking, and Rent
shall be prorated to such date. If less than the whole of the Building or
Premises is so taken, this Lease shall be unaffected by such taking, provided
that (i) Tenant shall have the right to terminate this Lease by notice to
Landlord given within ninety (90) days after the date of such taking if twenty
percent (20%) or more of the Premises is taken and the remaining area of the
Premises is not reasonably sufficient for Tenant to continue operation of its
business, and (ii) Landlord shall have the right to terminate this Lease by
notice to Tenant given within ninety (90) days after the date of such taking. If
either Landlord or Tenant so elects to terminate this Lease, the Lease shall
terminate on the thirtieth (30th) day after either such notice. The Rent shall
be prorated to the date of termination. If this Lease continues in force upon
such partial taking, the Base Rent and Tenant's Proportionate Share shall be
equitably adjusted according to the remaining Rentable Area of the Premises and
Project.
b. In the event of any taking, partial or whole, all of
the proceeds of any award, judgment or settlement payable by the condemning
authority shall be the exclusive property of Landlord, and Tenant hereby
assigns to Landlord all of its right, title and interest in any award, judgment
or settlement from the condemning authority. Tenant, however, shall have the
right, to the extent that Landlord's award is not reduced or prejudiced, to
claim from the condemning authority (but not from Landlord) such compensation
as may be recoverable by Tenant in its own right for relocation expenses and
damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which
does not result in a termination of this Lease, Landlord shall restore the
remaining portion of the Premises as nearly as practicable to its condition
prior to the condemnation or taking, but only to the extent of Building
Standard Work. Tenant shall be responsible at its sole cost and expense for the
repair, restoration and replacement of any other Leasehold Improvements and
Tenant's Property.
21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless
against and from liability and claims of any kind for loss or damage to property
of Tenant or any other person, or for any injury to or death of any person,
arising out of: (1) Tenant's use and occupancy of the Premises, or any work,
activity or other things allowed or suffered by Tenant to be done in, on or
about the Premises; (2) any breach or default by Tenant of any of Tenant's
obligations under this Lease; or (3) any negligent or otherwise tortious act or
omission of Tenant, its agents, employees, invitees or contractors. Tenant shall
at Tenant's expense, and by counsel satisfactory to Landlord in any action or
proceeding arising from any such claim and shall indemnify Landlord against all
costs, attorneys' fees, expert witness fees and any other expenses incurred in
such action or proceeding. As a material part of the consideration for
Landlord's execution of this Lease, Tenant hereby assumes all risk of damage or
injury to any person or property in, on or about the Premises from any cause.
b. Landlord shall not be liable for injury or damage which
may be sustained by the person or property of Tenant, its employees, invitees or
customers, or any other person in or about the Premises, caused by or resulting
from fire, steam, electricity, gas, water or rain which may leak or flow from or
into any part of the Premises, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, whether such damage or injury results from
conditions arising upon the Premises or upon other portions of the Building or
Project or from other sources. Landlord shall not be liable for any damages
arising from any act or omission of any other tenant of the Building or Project.
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22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder
shall be issued by responsible insurance companies acceptable to landlord and
Landlord's lender and qualified to do business in the State. Each policy shall
name Landlord, and at Landlord's request any mortgagee of Landlord, as an
additional insured, as their respective interests may appear. Each policy shall
contain (i) a cross-liability endorsement, (ii) a provision that such policy and
the coverage evidenced thereby shall be primary and non-contributing with
respect to any policies carried by Landlord and that any coverage carried by
Landlord shall be excess insurance, and (iii) a waiver by the insurer of any
right of subrogation against Landlord, its agents, employees and
representatives, which arises or might arise by reason of any payment under such
policy or by reason of any act or omission of Landlord, its agents, employees or
representatives. A copy of each paid up policy (authenticated by the insurer) or
certificate of the insurer evidencing the existence and amount of each insurance
policy required hereunder shall be delivered to Landlord before the date Tenant
is first given the right of possession of the Premises, and thereafter within
thirty (30) days after any demand by Landlord therefor, Landlord may, at any
time and from time to time, inspect and/or copy any insurance policies required
to be maintained by Tenant hereunder. No such policy shall be cancelable except
after twenty (20) days' written notice to Landlord and Landlord's lender. Tenant
shall furnish Landlord with renewals or "binders" of any such policy at least
ten (10) days prior to the expiration thereof. Tenant agrees that if Tenant does
not take out and maintain such insurance, Landlord may (but shall not be
required to) procure said insurance on Tenant's behalf and charge the Tenant the
premiums together with a twenty-five percent (25%) handling charge, payable upon
demand. Tenant shall have the right to provide such insurance coverage pursuant
to blanket policies obtained by the Tenant, provided such blanket policies
expressly afford coverage to the Premises, Landlord, Landlord's mortgagee and
Tenant as required by this Lease.
b. Beginning on the day Tenant is given access to the
Premises for any purpose and continuing until expiration of the Term, Tenant
shall procure, pay for and maintain in effect policies of casualty insurance
covering (i) all Leasehold Improvements (including any alterations, additions or
improvements as may be made by Tenant pursuant to the provisions of Article 12
hereof), and (ii) trade fixtures, merchandise and other personal property from
time to time in, on or about the Premises, in an amount not less than one
hundred percent (100%) of their actual replacement cost from time to time,
providing protection against any peril included within the classification "Fire
and Extended Coverage" together with insurance against sprinkler damage,
vandalism and malicious mischief. The proceeds of such insurance shall be used
for the repair or replacement of the property so insured. Upon termination of
this Lease following a casualty as set forth herein, the proceeds under (ii)
above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the
Premises for any purpose and continuing until expiration of the term, Tenant
shall procure, pay for and maintain in effect workers' compensation insurance
as required by law and comprehensive public liability and property damage
insurance with respect to the construction of improvements on the Premises, the
use, operation or condition of the Premises and the operations of Tenant in, on
or about the Premises, providing personal injury and broad form property damage
coverage for not less than One Million Dollars ($1,000,000.00) combined single
limit for bodily injury, death and property damage liability.
d. Not less than every three (3) years during the Term,
Landlord and Tenant shall mutually agree to increases in all of Tenant's
insurance policy limits for all insurance to be carried by Tenant as set forth
in this Article. In the event Landlord and Tenant cannot mutually agree upon
the amounts of said increases, then Tenant agrees that all insurance policy
limits as set forth in this Article shall be adjusted for increases in the cost
of living in the same manner as is set forth in Section 5.2 hereof for the
adjustment of the Base Rent.
23. WAIVER OF SUBROGATION.
Landlord and Tenant waive all rights of recovery against the
other and against the officers, employees, agents and representatives of the
other, on account of loss by or damage to the waiving party of its property of
others under its control, to the extent that such loss or damage is insured
against under any fire and extended coverage insurance policy which either may
have in force at the time of the loss or damage. Tenant shall, upon obtaining
the policies of insurance required under this Lease, give notice to its
insurance carrier or carriers that the foregoing mutual waiver of subrogation
is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee of
first deed of trust beneficiary of Landlord, or ground lessor of Landlord,
Tenant shall, in writing, subordinate its rights under this Lease to the lien
of any first mortgage or first deed of trust, or to the interest of any lease
in which Landlord is lessee, and to all advances made or
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hereafter to be made thereunder. However, before signing any subordination
agreement, Tenant shall have the right to obtain from any lender or lessor or
Landlord requesting such subordination, an agreement in writing providing that,
as long as Tenant is not in default hereunder, this Lease shall remain in effect
for the full Term. The holder of any security interest may, upon written notice
to Tenant, elect to have this Lease prior to its security interest regardless of
the time of the granting or recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of
foreclosure or termination of the lease in which Landlord is lessee, Tenant
shall attorn to the purchaser, transferee or lessor as the case may be, and
recognize that party as Landlord under this Lease provided such party acquires
and accepts the Premises subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant
shall execute and deliver to Landlord or Landlord's designee, a written
statement certifying (a) that this Lease is unmodified and in full force and
effect, or is in full force and effect as modified and stating the
modifications; (b) the amount of Base Rents and the date to which Base Rent and
additional rent have been paid in advance; (c) the amount of any security
deposited with Landlord; and (d) that Landlord is not in default hereunder or,
if Landlord is claimed default. Any such statement may be relied upon by
purchaser, assignee or lender. Tenant's failure to execute and deliver such
statement within the time required shall at Landlord's election be a default
under this Lease and shall also be conclusive upon Tenant that: (1) this Lease
is in full force and effect and has not been modified except as represented by
Landlord; (2) there are no uncured defaults in Landlord's performance and that
Tenant has no right of offset, counter-claim or deduction against Rent; and (3)
not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the
Premises, Building or Project, and assignment of this Lease by Landlord,
Landlord shall be and is hereby entirely freed and relieved of any and all
liability and obligations contained in or derived from this Lease arising out
of any act, occurrence or omission relating to the Premises, Building, Project
or Lease occurring after the consummation of such sale or transfer, providing
the purchaser shall expressly assume all of the covenants and obligations of
Landlord under this Lease. If any security deposit or prepaid rent has been
paid by Tenant, Landlord may transfer the security deposit or prepaid Rent to
Landlord's successor and upon such transfer, Landlord shall be relieved of any
and all further liability with respect thereto.
27. DEFAULT.
27.1 Tenant's Default. The occurrence of any one or more of
the following events shall constitute a default and breach of this Lease by
Tenant:
a. If Tenant abandons or vacates the Premises; or
b. If Tenant fails to pay any Rent or any other
charges required to be paid by Tenant under this Lease and such failure
continues for five (5) days after such payment is due and payable; or
c. If Tenant fails to promptly and fully perform
any other covenant, condition or agreement contained in this Lease and such
failure continues for thirty (30) days after written notice thereof from
Landlord to Tenant; or
d. If a writ of attachment or execution is levied
on this Lease or on any of Tenant's Property; or
e. If Tenant makes a general assignment for the
benefit of creditors, or provides for an arrangement, composition, extension or
adjustment with its creditors; or
f. If Tenant files a voluntary petition for relief
or if a petition against Tenant in a proceeding under the federal bankruptcy
laws or other insolvency laws is filed and not withdrawn or dismissed within
forty-five (45) days thereafter, or if under the provisions of any law providing
for reorganization or winding up of corporations, any court of competent
jurisdiction assumes jurisdiction, custody or control of Tenant or any
substantial part of its property and such jurisdiction, custody or control
remains in force unrelinquished, unstayed or unterminated for a period of
forty-five (45) days; or
g. If in any proceeding or action in which Tenant
is a party, a trustee, receiver, agent or custodian is appointed to take charge
of the Premises or Tenant's Property (or has the authority to do so) for the
purpose
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of enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more
than one (1) person or entity, if any partner of the partnership or other
person or entity is involved in any of the acts or events described in
subparagraphs d through g above.
27.2 Remedies. In the event of Tenant's default hereunder
then in addition to any other rights or remedies Landlord may have under any
law, Landlord shall have the right, at Landlord's option, without further
notice or demand of any kind to do the following:
a. Terminate this Lease and Tenant's right to
possession of the Premises and reenter the Premises and take possession
thereof, and Tenant shall have no further claim to the Premises or under this
Lease; or
b. Continue this Lease in effect, reenter and
occupy the Premises for the account of Tenant, and collect any unpaid Rent or
other charges which have or thereafter become due and payable; or
c. Reenter the Premises under the provisions of
subparagraph b, and thereafter elect to terminate this Lease and Tenant's
right to possession of the Premises.
If Landlord reenters the Premises under the provisions
of subparagraphs b or c above, Landlord shall not be deemed to have terminated
this Lease or the obligation of Tenant to pay any Rent or other charges
thereafter accruing, unless Landlord notifies Tenant in writing of Landlord's
election to terminate this Lease. In the event of any reentry or retaking of
possession by Landlord, Landlord shall have the right, but not the obligation,
to remove all or any part of Tenant's Property in the Premises and to place
such property in storage at a public warehouse at the expense and risk of
Tenant. If Landlord elects to relet the Premises for the account of Tenant,
the rent received by Landlord from such reletting shall be applied as follows:
first, to the payment of any indebtedness other than Rent due hereunder from
Tenant to Landlord; second to the payment of any costs of such reletting;
third, to the payment of the cost of any alterations or repairs to the
Premises; fourth to the payment of Rent due and unpaid hereunder, and the
balance, if any, shall be held by Landlord and applied in payment of future
Rent as it becomes due. If that portion of Rent received from the reletting
which is applied against the Rent due hereunder is less than the amount of the
Rent due, Tenant shall pay the deficiency to Landlord promptly upon demand by
Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall
also pay to Landlord, as soon as determined, any costs and expenses incurred by
Landlord in connection with reletting or in making alterations and repairs to
the Premises, which are not covered by the rent received from the reletting.
Should Landlord elect to terminate this Lease under the
provisions of subparagraph a or c above, Landlord may recover as damages from
the Tenant the following:
1. Past Rent. The worth at the time of the award
of any unpaid Rent which had been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of
the 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 Tenant proves could have been reasonably avoided; plus
3. Rent After Award. The worth at the time of the
award of the amount by which the unpaid Rent for the balance of the Term after
the time of award exceeds the amount of the rental loss that Tenant proves
could be reasonably avoided; plus
4. Proximately Caused Damages. Any other amount
necessary to compensate Landlord for all detriment proximately caused by
Tenant'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, any costs or expenses (including attorneys' fees), incurred by
landlord in (a) retaking possession of the Premises, (b) maintaining the
Premises after Tenant's default, (c) preparing the Premises for reletting to a
new tenant, including any repairs or alterations, and (d) reletting the
Premises, including broker's commissions.
"The worth at the time of the award" as used in
subparagraphs 1 and 2 above, is to be
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computed by allowing interest at the rate of ten percent (10%) per annum. "The
worth at the time of the award" as used in subparagraph 3 above, is to be
compupted by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term,
covenant or condition of this Lease shall not be deemed a waiver of such term,
covenant or condition or of any subsequent breach of the same or any other
term, covenant or condition. Acceptance of Rent by Landlord subsequent to any
breach hereof shall not be deemed a waiver of any preceding breach other than
the failure to pay the particular Rent so accepted, regardless of Landlord's
knowledge of any breach at the time of such acceptance of Rent. Landlord shall
not be deemed to have waived any term, covenant or condition unless Landlord
gives Tenant written notice of such waiver.
27.3 Landlord's Default If Landlord fails to perform any
covenant, condition or agreement contained in this Lease within thirty (30)
days after receipt of written notice from Tenant specifying such default, or if
such default cannot reasonably be cured within thirty (30) days, if Landlord
fails to commence to cure within that thirty (30) day period, then, Landlord
shall be liable to Tenant for any damages sustained by Tenant as a result of
Landlord's breach; provided, however, it is expressly understood and agreed
that if Tenant obtains a money judgment against Landlord resulting from any
default or other claim arising under this Lease, that judgment shall be
satisfied only out of the rents, issues, profits, and other income actually
received on account of Landlord's right title and interest in the Premises,
Building or Project, and no other real, personal or mixed property of Landlord
(or of any of the partners which comprise Landlord, if any) wherever situated,
shall be subject to levy to satisfy such judgment. If, after notice to
Landlord or default, Landlord (or any first mortgagee or first deed of trust
beneficiary of Landlord) fails to cure the default, Landlord (or any first
mortgagee or first deed of trust beneficiary of Landlord) fails to cure the
default as provided herein, then Tenant shall have the right to cure that
default at Landlord's expense. Tenant shall not have the right to terminate
this Lease or to withhold, reduce or offset any amount against any payments of
Rent or any other charges due and payable under this Lease except as otherwise
specifically provided herein.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any
real estate broker or agent in connection with this Lease or its negotiation
except those noted in Section 2.c. Tenant shall indemnify and hold Landlord
harmless from any cost, expense or liability (including costs of suit and
reasonable attorneys' fees) for any compensation, commission or fees claimed
by any other real estate broker or agent in connection with this Lease or its
negotiation by reason of any act of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be
given under this Lease shall be in writing and deemed duly served or given if
personally delivered or sent by certified or registered U.S. mail, postage
prepaid, and addressed as follows: (a) if to Landlord, to Landlord's Mailing
Address and to the Building manager, and (b) if to Tenant, to Tenant's Mailing
Address; provided, however, notices to Tenant shall be deemed duly served or
given if delivered or mailed to Tenant at the Premises. Landlord and Tenant
may from time to time by notice to the other designate another place for
receipt of future notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the even of imposition of federal, state or local government
controls, rules regulations, or restrictions on the use or consumption of
energy or other utilities during the Term, both Landlord and Tenant shall be
bound thereby. In the event of a difference in interpretation by Landlord and
Tenant of any such controls, the interpretation of Landlord shall prevail, and
Landlord shall have the right to enforce compliance therewith, including the
right of entry into the Premises to effect compliance.
31. RELOCATION OF PREMISES.
Landlord shall have the right to relocate the premises to
another part of the Building in accordance with the following:
a. The new premises shall be substantially the same in
size, dimensions, configuration, decor and nature as the Premises described in
this Lease, and if relocation occurs after the Commencement Date, shall be
placed in that condition by Landlord at its cost.
b. Landlord shall give Tenant at least thirty (30) days'
written notice of Landlord's intention to
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relocate the Premises.
c. As nearly as practicable, the physical relocation of
the Premises shall take place on a weekend and shall be completed before the
following Monday. If the physical relocation has not been completed in that
time, Base Rent shall abate in full from the time the physical relocation
commences to the time it is completed. Upon completion of such relocation, the
new premises shall become the "Premises" under this Lease.
d. All reasonable costs incurred by Tenant as a result of
the relocation shall be paid by Landlord.
e. If the new premises are smaller than the Premises as it
existed before the relocation, Base Rent shall be reduced proportionately.
f. The parties hereto shall immediately execute an
amendment to this Lease setting forth the relocation of the Premises and the
reduction of Base Rent, if any.
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its
obligations under this Lease, shall peaceably and quietly enjoy the Premises,
subject to the terms of this Lease and to any mortgage, lease, or other
agreement to which this Lease may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done
in or about the Premises which will in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and
expense, promptly comply with all laws, statutes, ordinances and governmental
rules, regulations and requirements now in force or which may hereafter be in
force, and with the requirements of any board of fire insurance underwriters or
other similar bodies now or hereafter constituted, relating to, or affecting
the condition, use of occupancy of the Premises, excluding structural changes
not related to or affected by Tenant's improvements or acts. The judgment of
any court of competent jurisdiction or the admission of Tenant in any action
against Tenant, whether Landlord is a party thereto or not, that Tenant has
violated any law, ordinance or governmental rule, regulation or requirement,
shall be conclusive of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by
Landlord or Tenant which is due to strikes, labor disputes, inability to obtain
labor, materials, equipment or reasonable substitutes therefor, acts of God,
governmental restrictions or regulations or controls, judicial orders, enemy or
hostile government actions, civil commotion, fire or other casualty, or other
causes beyond the reasonable control of the party obligated to perform
hereunder, shall excuse performances of the work by that party for a period
equal to the duration of that prevention, delay or stoppage. Nothing in this
Article 34 shall excuse or delay Tenant's obligation to pay Rent or other
charges under this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations
under this Lease, Landlord may (but shall not be obligated to) without waiving
such default, perform the same for the account at the expense of Tenant.
Tenant shall pay Landlord all costs of such performances promptly upon receipt
of a bill therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect, or inscribe any sign,
projection, awning, signal or advertisement of any kind to any part of the
Premises, Building or Project, including without limitation, the inside or
outside of windows or doors, without the written consent of Landlord. Landlord
shall have the right to remove any signs or other matter, installed without
Landlord's permission, without being liable to Tenant by reason of such
removal, and to charge the cost of removal to Tenant as additional rent
hereunder, payable within ten (10) days of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No
Payment by Tenant or receipt by Landlord of a lesser amount than the Rent
provided for in this Lease shall be deemed to be other than on account of the
earliest due Rent, nor shall any endorsement or statement on any check or
letter accompanying any check or payment as
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Rent be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of the
Rent or pursue any other remedy provided for in this Lease. In connection with
the foregoing, Landlord shall have the absolute right in its sole discretion to
apply any payment received from Tenant to any account or other payment of
Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to
this Lease is inconsistent with any provision herein, the provision contained
in the addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought
by either party against the other pertaining to or arising out of this Lease,
the finally prevailing party shall be entitled to recover all costs and
expenses, including reasonable attorneys' fees, incurred on account of such
action or proceeding.
d. Captions, Articles and Section Numbers. The captions
appearing within the body of this Lease have been inserted as a matter of
convenience and for reference only and in no way define, limit or enlarge the
scope or meaning of this Lease. All references to Article and Section numbers
refer to Articles and Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant
shall unreasonably withhold its consent to changes or amendments to this Lease
requested by the lender on Landlord's interest, so long as these changes do
not alter the basic business terms of this Lease or otherwise materially
diminish any rights or materially increase any obligations of the party from
whom consent to such charge or amendment is requested.
f. Choice of Law. This Lease shall be construed and
enforced in accordance with the laws of the State.
g. Consent. Notwithstanding anything contained in this
Lease to the contrary, Tenant shall have no claim, and hereby waives the right
to any claim against Landlord for money damages by reason of any refusal,
withholding or delaying by Landlord of any consent, approval or statement of
satisfaction, and in such event, Tenant's only remedies therefor shall be an
action for specific performance, injunction or declaratory judgment to enforce
any right to such consent, etc.
h. Corporate Authority. If Tenant is a corporation, each
individual signing this Lease on behalf of Tenant represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of the
corporation, and that this Lease is binding on Tenant in accordance with its
terms. Tenant shall, at Landlord's request, deliver a certified copy of a
resolution of its board of directors authorizing such execution.
i. Counterparts. This Lease may be executed in multiple
counterparts, all of which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this
Lease to Tenant shall be for examination purposes only, and does not and shall
not constitute a reservation of or option for Tenant to lease, or otherwise
create any interest of Tenant in the Premises or any other premises within the
Building or Project. Execution of this Lease by Tenant and its return to
Landlord shall not be binding on Landlord notwithstanding any time interval,
until Landlord has in fact signed and delivered this Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's
Representations. In order to induce Landlord to enter into this Lease Tenant
agrees that it shall promptly furnish Landlord from time to time, upon
Landlord's written request, with financial statements reflecting Tenant's
current financial condition. Tenant represents and warrants that all financial
statements, records and information furnished by Tenant to Landlord in
connection with this Lease are true, correct and complete in all respects.
l. Further Assurances. The parties agree to promptly sign
all documents reasonably requested to give effect to the provisions of this
Lease.
m. Mortgagee Protection Tenant agrees to send by certified
or registered mail to any first mortgagee or first deed of trust beneficiary of
Landlord whose address has been furnished to Tenant, a copy of any notice of
default served by Tenant on Landlord. If Landlord fails to cure such default
within the time provided for in this Lease, such mortgagee or beneficiary shall
have an additional thirty (30) days to cure such default; cannot reasonably
be cured
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within that thirty (30) day period, then such mortgagee or beneficiary shall
have such additional time to cure the default as is reasonably necessary under
the circumstances.
n. Prior Agreements; Amendments. This Lease contains all
of the agreements of the parties with respect to any matter covered or
mentioned in this Lease, and no prior agreement or understanding pertaining to
any such matter shall be effective for any purpose. No provisions of this
Lease may be amended or added to except by an agreement in writing signed by
the parties or their respective successors in interest.
o. Recording. Tenant shall not record this Lease without
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.
p. Severability. A final determination by a court of
competent jurisdiction that any provision of this Lease is invalid shall not
affect the validity of any other provision, and any provision so determined to
be invalid shall, to the extent possible, be construed to accomplish its
intended effect.
q. Successors and Assigns. This Lease shall apply to and
bind the heirs, personal representatives, and permitted successors and assigns
of the parties.
r. Time of the Essence. Time is of the essence of this
Lease.
s. Waiver. No delay or omission in the exercise of any
right or remedy of Landlord upon any default by Tenant shall impair such right
or remedy or be construed as a waiver of such default.
The receipt and acceptance by Landlord of delinquent Rent shall
not constitute a waiver of any other default; it shall constitute only a waiver
of timely payment for the particular Rent payment involved.
No act or conduct of Landlord, including, without limitation,
the acceptance of keys to the Premises, shall constitute an acceptance of the
surrender of the Premises by Tenant before the expiration of the Term. Only a
written notice from Landlord to Tenant shall constitute acceptance of the
surrender of the Premises and accomplish a termination of the Lease.
Landlord's consent to or approval of any act by Tenant
requiring Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and
shall not be a waiver of any other default concerning the same or any other
provision of the Lease.
The parties hereto have executed this Lease as of the dates set
forth below.
LANDLORD: TENANT:
Edwards Theatres Circuit, Inc. Beverage Works, Inc.
a California Corporation
By: [SIG] By: /s/ FREDERIK G.M. RODENHUIS
----------------------------- -------------------------------
Frederik G.M. Rodenhuis
Title: Corporate Secretary Title: President
----------------------------- -------------------------------
Date: Dec. 5, 1996 Date: 11-27-96
----------------------------- -------------------------------
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Exhibit 10.25
SUBLEASE AGREEMENT
The Deretin Group subleases three offices with full rights and use of a
conference room, kitchen, lobbies and storage area from a combined office area
comprised of thirteen offices, a conference room, kitchen, storage area and
lobby/secretarial space totaling approximately 3,000 square feet located at
9800 S. Sepulveda Blvd., Suite 720, Los Angeles, CA 90045 from K.E. McCarthy &
Associates and herein enters into agreement to sublease its office space,
rights and use to Beverage Works effective January 1, 1997 under the following
terms and conditions.
TERMS: The terms of the sublease provide for Beverage Works, Inc. to have
exclusive use of the three offices and shared access to all common areas
including conference rooms, kitchen and storage areas currently provided The
Deretin Group pursuant to the terms of their sublease. This sublease shall be
on a month to month basis.
TELEPHONE EQUIPMENT: The suite comes with a 16 line Panasonic XDP phone system
and includes telephone instruments in two offices, the conference room and all
common areas. Additional phone instruments are the responsibility of Beverage
Works. The cost of installing additional phone, data or fax lines shall be the
responsibility of Beverage Works.
OFFICE EQUIPMENT: The office space includes certain office equipment including
lobby furniture, conference room furniture, some office furniture, a copier,
typewriter, television with VCR, storage cabinets, fax machine, scanner, use of
two IBM compatible computers, HP Desk Jet Printer, Epson Stylus Color Printer
(compatible with IBM & MAC), two small refrigerators, coffee machine, micro
wave oven and common area plants.
RENT: The gross monthly rent shall be $1,280 per month which includes nightly
cleaning Monday through Friday, 24 hour a day seven day a week security,
building and common area maintenance and utilities, use of office and telephone
equipment, basic office supplies including copier paper and supplies and $80.00
per month for one monthly parking pass and either $40.00 of guest parking
stickers or an additional parking pass. The rent cannot be increased without a
minimum of 90 days notice. Rent is due by the 10th day of each month. Rent does
not include repair and maintenance of office equipment which will be billed as
incurred.
INSURANCE: The lease requires that the tenants have and provide proof of five,
theft and general liability insurance. Beverage Works shall be responsible to
pay for 25% of the cost of a policy if shared with K.E. McCarthy & Associates
or provide proof of its own policy acceptable to the landlord.
The parties acknowledge their understanding and acceptance of the terms and
conditions of this lease by signing below.
BEVERAGE WORKS, INC. THE DERETIN GROUP
/s/ FREDERIK RODENHUIS /s/ LYLE MAUL
- -------------------------- -----------------------
Frederik Rodenhuis Lyle Maul
<PAGE> 1
EXHIBIT 10.26
BEVERAGE WORKS, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION PLAN
1. PURPOSE. The purpose of this Plan is to promote the
interests of Beverage Works, Inc. and its affiliates and
stockholders by helping to attract and retain highly qualified non-
employee directors.
2. DEFINITIONS. Unless the context clearly indicates
otherwise, the following terms, when used in the Plan, shall have
the meanings set forth in this section:
A. "Annual Meeting" shall mean the Company's regular
annual meeting of shareholders.
B. "Board" shall mean the Board of directors of the
Company.
C. "Company" shall mean Beverage Works, Inc., a
California corporation, and any successor corporation.
D. "Director" shall mean a member of the Board.
E. "Non-Employee Director" shall mean a Director who is
not also an officer or salaried employee of the Company or any of
its subsidiaries.
F. "Plan" shall mean this Beverage Works, Inc. Non-
Employee Director Compensation Plan, as set forth herein and as it
may be amended from time to time.
G. "Shares" shall mean shares of the voting Common
Stock of the Company, no par value.
3. ANNUAL RETAINER. Each Non-Employee Director shall be paid for
each year of service a retainer at an annualized rate of Five Thousand Dollars
($5,000), payable in arrears in four equal quarterly installments on each of
June 1, September 1, December 1, and March 1 (each, "Payment Date") following
the Annual Meeting at which such director was elected or re-elected to the
Board, as the case may be. A Non-Employee Director who becomes a member of the
Board between Annual Meetings shall be paid the quarterly installment on each
Payment Date which falls between the date he becomes a member of the Board and
the date of the next Annual Meeting. A Non-Employee Director who resigns from
the Board between Annual Meetings shall be paid the quarterly installment for
the Payment Date next following the date of such resignation. Such annual
retainer may be increased by the Board from time to time in its discretion.
4. EXPENSES. Non-Employees Director shall be reimbursed for
reasonable travel expenses for board meetings and other pre-
<PAGE> 2
approved business expenses.
5. ISSUANCE OF DIRECTORS' WARRANTS.
A. On each Payment Date for which a Non-Employee Director
shall be entitled to an installment payment under the provisions of Section 3
herein, such Non-Employee Director shall also receive One Thousand Two Hundred
Fifty (1,250) warrants under the Directors' Warrant Agreement.
B. Directors' Warrants or the shares issuable upon exercise of
the Directors' Warrants shall not be issued unless such issuance shall comply
with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, applicable state securities laws, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange (including
Nasdaq) upon which the Company's common stock may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance. The Company may require the Non-Employee Director to represent and
warrant at the time of any such issuance that the Directors' Warrants and the
shares issuable upon exercise of the Directors' Warrants are being acquired only
for investment and without any present intention to sell or distribute such
securities if, in the opinion of counsel for the Company, such a representation
is required by any of the aforementioned relevant provisions of law.
C. The Company, during the term of this Plan, will at all
times reserve and keep available such number of shares of common stock as shall
be sufficient to satisfy the requirements of the Plan. Inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance of any Directors' Warrants or the shares issuable upon exercise of the
Directors' Warrants hereunder, shall relieve the Company of any liability in
respect of the failure to issue such Directors' Warrants or the shares issuable
upon exercise of the Directors' Warrants as to which such requisite authority
shall not have been obtained.
6. EFFECTIVE DATE. The Plan shall be effective upon the
later of the closing of the Company's first initial public offering
or approval by the Board ("Effective Date").
7. AMENDMENT AND TERMINATION OF THE PLAN. The Board in its
discretion may terminate the Plan or alter or amend the Plan or any part thereof
from time to time; provided, however, this Plan shall terminate no later than
two years from the Effective Date.
2
<PAGE> 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.
BEVERAGE WORKS, INC.
DIRECTORS' WARRANT AGREEMENT
RECITALS. This Directors' Warrant Agreement ("Agreement") dated January
____, 1997 certifies that the registered owners ("Holders") of the Directors'
Warrants (herein referred to as the "Directors' Warrants") to purchase up to,
subject to anti-dilution provisions herein, One Hundred Thousand (100,000)
shares of the common stock, no par value ("Shares"), of Beverage Works, Inc., a
California corporation (herein referred to as the "Company") entitles the
Holders to purchase from the Company, for a five (5) year period commencing on
the date hereof, one fully-paid and nonassessable Share for each Directors'
Warrant at an exercise price equal $5.20 (the "Exercise Price"), upon
presentation and surrender of the Directors' 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.
1. REGISTRATION. The Directors' Warrants shall be numbered and shall be
registered in the Directors' Warrant Register. The Company shall be entitled to
treat the Holder of any Directors' 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 Directors' Warrant on the part of any other person, and shall
not be liable for any registration of transfer of Directors' 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 Directors' 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,
<PAGE> 4
the Company shall countersign and deliver new Directors' Warrants to the person
entitled thereto.
3. FORM OF DIRECTORS' WARRANTS. The text of the Directors' 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 Directors' Warrants are subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The Directors'
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 Directors' Warrants may be manual or facsimile. Directors' 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 Directors' Warrants or did not hold such office on the date
of this Agreement. Directors' 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. Directors' 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 Directors' Warrant
desiring to exchange Directors' Warrant certificates shall make such request in
writing delivered to the Company, and shall surrender, properly endorsed, the
certificate or certificates evidencing the Directors' Warrant or Directors'
Warrants to be so exchanged. Thereupon, the Company shall countersign and
deliver to the person entitled thereto a new Directors' Warrant certificate or
certificates, as the case may be, as so requested.
5. TERM OF DIRECTORS' 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 the date of this Agreement until 3:00 P.M. New
York time, on January ___, 2002 (the date five (5) years from the date of this
Agreement) (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 Directors' Warrants, upon surrender, to
the Company at the principal office of the Company of the certificate or
certificates evidencing the Directors' 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 Directors' Warrants are then exercised.
2
<PAGE> 5
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
Directors' 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 Directors' Warrants, together with cash, as
provided in Section 15 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 Directors' Warrants and payment of the Exercise Price, as
aforesaid; provided, however, that if, at the date of surrender of such
Directors' Warrants and payment of such Exercise Price, the transfer books for
the Shares or other class of stock purchasable upon the exercise of such
Directors' Warrants shall be closed, the certificates for the Shares in respect
of which such Directors' 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 Directors' 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 Directors' 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 Directors' Warrants, a new certificate evidencing the
remaining Directors' Warrant or Directors' 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
Directors' 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 Directors' Warrants or certificates for Shares.
8. [RESERVED].
9. MUTILATED OR MISSING WARRANTS. In case any of the certificates
evidencing the Directors' 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 Directors' Warrant
certificate, or in lieu of and substitution for the Directors' 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
3
<PAGE> 6
or destruction of such Warrant and indemnity, if requested, also satisfactory to
them. Applicants for such substitute Directors' Warrant certificate shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
10. 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 Directors' 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 Directors' 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 Directors' Warrants surrendered in the exercise
of the rights thereby evidenced shall be cancelled by the Company.
11. 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 Directors'
Warrant immediately prior thereto shall be adjusted so that the Holder of each
Directors' 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 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
Directors' Warrant is adjusted, as herein provided, the Exercise Price per Share
payable upon exercise of each Directors' Warrant shall be adjusted by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Shares purchasable upon
the exercise of each Directors' Warrant immediately prior to such adjustment,
and of which the denominator shall be the number of Shares so purchasable
immediately thereafter. Whenever the number of Shares purchasable upon the
exercise of each Directors' Warrant or the Exercise Price
4
<PAGE> 7
is adjusted, as herein provided, the Company shall promptly mail by first class
mail, postage prepaid, to each Holder of a Directors' Warrant or Directors'
Warrants notice of such adjustment or adjustments setting forth the number of
Shares purchasable upon the exercise of each Directors' Warrant 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.
12. NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 11, no
adjustment in respect of any dividends shall be made during the term of the
Directors' Warrants or upon the exercise of the Directors' Warrants.
13. 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 Directors' 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 Directors' 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 Directors' 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 11.
The Company shall mail by first class mail, postage prepaid, to the Holder of
each Directors' Warrant, notice of the execution of any such agreement. The
provisions of this Section 13 shall similarly apply to successive
consolidations, mergers, sales, or conveyances.
14. STATEMENT ON WARRANTS. Irrespective of any adjustments in the
number or kind of Shares purchasable upon the exercise of the Directors'
Warrants, Directors' Warrants theretofore or thereafter issued may continue to
express the same number and kind of Shares as are stated in the Directors'
Warrants initially issuable pursuant to this Agreement.
15. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractional Shares on the exercise of Directors' Warrants. If more than one
Directors' 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 Directors' Warrants so presented. If any fraction of a
Share would, except for the provisions of this Section 15, be issuable on the
exercise of any Directors' Warrant (or specified
5
<PAGE> 8
portion thereof), the Company shall pay an amount in cash equal to the current
market price per Share multiplied by such fraction.
16. NO RIGHTS AS STOCKHOLDER. Nothing contained in this Agreement or in
any of the Directors' 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.
17. NOTICES. Any notice pursuant to this Agreement by the Company or
by the Holder of any Directors' 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
Directors' 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.
18. AMENDMENTS. The Company may from time to time supplement or amend
this Agreement, without the approval of any Holders of Directors' 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 Directors' Warrants and which shall
not materially adversely affect the interest of the Holders of Directors'
Warrants.
19. 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
6
<PAGE> 9
and condition of this Agreement to be performed and observed by the
Company.
20. RESTRICTED SECURITIES. The Directors' Warrants and the shares of
Common Stock issuable upon exercise of the Directors' Warrants have not been
registered under the Securities Act of 1933, as amended, and that the Directors'
Warrants and the Shares issuable upon exercise of the Directors' 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 Directors' Warrant certificates
and certificates evidencing Shares issuable upon exercise of the Directors'
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.
21. APPLICABLE LAW. This Agreement and each Directors' 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.
22. 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.
23. 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 Directors' 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 Directors' Warrants.
24. CAPTIONS. The captions of sections and paragraphs of this
Agreement have been inserted for convenience only and shall have no substantive
effect.
25. 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 Directors' 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
7
<PAGE> 10
the Company to all registered Holders.
BEVERAGE WORKS, INC. Attest:
- --------------------------- ------------------------------
By: Frederik G.M. Rodenhuis, By: Lyle R. Maul,
President Secretary
8
<PAGE> 11
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.
BEVERAGE WORKS, INC.
DIRECTORS' WARRANT CERTIFICATE
Certificate Number ___ ________ Warrants
This Warrant Certificate certifies that ____________________ is the
registered holder of the number of Warrants indicated above (herein referred to
as the "Warrants") to purchase shares of the Common Stock, no par value
("Shares"), of Beverage Works, Inc., a California corporation (herein referred
to as the "Company"). Each Warrant entitles the holder thereof to purchase from
the Company, for a five (5) year period commencing on _________________, 1996
one fully-paid and nonassessable Share at an exercise price of $5.20 (the
"Exercise Price") upon presentation and surrender of this 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. Payment of the Exercise Price shall be made in lawful money of the
United States of America. This Warrant Certificate is subject to terms,
provisions and conditions of the Directors' Warrant Agreement, which is
incorporated by reference and to which reference is hereby made for a full
description of the rights, limitations, obligations, duties and immunities
hereunder of the Company and the holder of the Warrant Certificates. This
Warrant Certificate, upon surrender to the Company, may be exchanged for another
Warrant Certificate or Warrant Certificates evidencing a like aggregate number
of Warrants. If this Warrant Certificate shall be exercised in part, the holder
hereof shall be entitled to receive upon surrender hereof, another Warrant
Certificate or Warrant Certificates evidencing the number of Warrants not
exercised.
COMPANY:
BEVERAGE WORKS, INC. Attest:
- --------------------------- ----------------------------
By: Frederik G.M. Rodenhuis, By: Lyle R. Maul,
President Secretary
EXHIBIT "A"
<PAGE> 12
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants, with right of
survivorship and not as tenants in common
UNIF GIFT MIN ACT -Uniform Gifts to Minors Act of ______(State)______
Additional abbreviations may also be used thought not in the above list.
ELECTION TO PURCHASE
The undersigned Registered Holder hereby irrevocably elects to exercise _____
Directors' Warrants represented by this Directors' Warrant certificate, and to
purchase the securities issuable upon the exercise of such Directors' Warrants,
and requests that certificates for such securities shall be issued in the name
of and be delivered to:
Name ____________________________________________________
Address ____________________________________________________
Taxpayer I.D. ____________________________________________________
Soliciting Broker ____________________________________________________
and if such number of Directors' Warrants shall not be all the Directors'
Warrants evidenced by this Directors' Warrant certificate, that a new Directors'
Warrant Certificate for the balance of such Directors' Warrants be registered in
the name of, and delivered to, the Registered Holder at the address stated
below:
Name ____________________________________________________
Address ____________________________________________________
Taxpayer I.D. ____________________________________________________
ASSIGNMENT
FOR VALUE RECEIVED __ HEREBY SELL, ASSIGN AND TRANSFER UNTO
Name ____________________________________________________
Address ____________________________________________________
Taxpayer I.D. ____________________________________________________
Directors' Warrants represented by the within Certificate and do hereby
irrevocably constitute and appoint_____________________________________
__________ attorney to transfer the said shares on the books of the within named
Corporation with full power of substitution in the premises.
SIGNATURE
Dated: __________________________
Signed: __________________________
In presence of
__________________________________ _______________________________
THE SIGNATURE TO THE ELECTION TO PURCHASE OR ASSIGNMENT MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS (LOSS) PER SHARE
For the Period Ending September 30, 1996:
<TABLE>
<CAPTION>
Number
Weighted of days
Number Number Shares
of Shares of Shares Outstanding
--------- --------- -----------
<S> <C> <C> <C>
JANUARY 1, 1996 TO MARCH 31, 1996
Shares at Beginning of Period 2,341,363 2,341,363
Shares Issued on February 3, 1996 6,500 4,143 58
--------- ---------
2,347,863 2,345,506
========= =========
APRIL 1, 1996 TO JUNE 30, 1996
Shares at Beginning of Period 2,347,863 2,347,863
Shares Issued Between April 1, 1996
and April 30, 1996 80,000 66,813 76
--------- ---------
2,427,863 2,414,676
========= =========
JULY 1, 1996 TO SEPTEMBER 30, 1996
Shares at Beginning of Period 2,427,863 2,427,863
Shares Issued September 9, 1996 30,000 7,174 22
--------- ---------
2,457,863 2,435,037
========= =========
WEIGHTED AVERAGE FOR PERIODS OUTSTANDING 2,398,406
COMMON SHARE EQUIVALENTS (INCREMENTAL AMOUNTS):
RESULTING FROM COMMON STOCK
ISSUED BELOW THE IPO PRICE 10,407
RESULTING FROM WARRANTS AND OPTIONS
ISSUED WITH EXERCISE PRICES BELOW
THE IPO PRICE 262,987
---------
Common shares and equivalents outstanding at September 30, 1996 2,671,800
=========
</TABLE>
<PAGE> 2
EXHIBIT 11
COMPUTATION OF EARNINGS (LOSS) PER SHARE
For the Period Ending December 31, 1995:
<TABLE>
<CAPTION>
Number
Weighted of days
Number Number Shares
of Shares of Shares Outstanding
--------- --------- -----------
<S> <C> <C> <C>
FROM AUGUST 2, 1995 TO SEPTEMBER 30, 1995
Shares issued to Founders on August 2, 1995 245,310 245,310
=========
OCTOBER 1, 1995 TO DECEMBER 31, 1995
Shares at Beginning of Period 245,310 245,310 91
Shares Issued on October 6, 1995 1,549,100 1,464,910 87
Shares Issued on November 8, 1995 142,276 83,510 54
Shares Issued on November 12, 1995 49,015 26,639 50
Shares Issued on November 12, 1995 5,333 2,897 50
Shares Issued on November 15, 1995 16,583 8,472 47
Shares Issued Between November 20, 1995
and December 31, 1995 333,746 58,043 16
--------- ---------
2,341,363 1,889,781
========= =========
WEIGHTED AVERAGE FOR PERIODS OUTSTANDING 1,067,546
COMMON SHARE EQUIVALENTS (INCREMENTAL AMOUNTS):
RESULTING FROM COMMON STOCK
ISSUED BELOW THE IPO PRICE 1,016,714
RESULTING FROM WARRANTS AND OPTIONS
ISSUED WITH EXERCISE PRICES BELOW
THE IPO PRICE 262,987
---------
Common shares and equivalents outstanding for the period
ending December 31, 1995 2,347,247
=========
</TABLE>
<PAGE> 3
BEVERAGE WORKS, INC
Computation of Incremental Shares and Warrants
December 31, 1995 and September 30, 1996
<TABLE>
<CAPTION>
Shares
Number Purchased Weighted
Number of Days Price Proceeds Estimated Under Shares Incremental
of Shares Outstanding Per Share Received IPO Price SAB 83 Purchased Shares
----------------------------------------------------------------------------------------------------
(a) (b) (c) (c) x (a) = (e) (d) / (e) = (f) x (b) / (a) - (f)
(d) (f) days in period =
(g)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AUGUST 2, 1995 TO
SEPTEMBER 30, 1995
Shares issued to
founders* 245,310 245,310 0
---------
OCTOBER 1, 1995 TO
DECEMBER 31, 1995
Shares at the beginning
of the period 245,310
Shares issued
October 6, 1995 1,549,100 87 $0.05 $ 77,455 $6.00 12,909 12,208 1,536,191
Shares issued
November 8, 1995 142,276 54 3.11 442,478 6.00 73,746 43,286 68,530
Shares issued
November 12, 1995 5,333 50 4.00 21,332 6.00 3,555 1,932 1,778
Shares issued
November 12, 1995 49,015 50 3.00 147,045 6.00 24,508 13,320 24,507
Shares issued
November 15, 1995 16,583 47 3.47 57,543 6.00 9,591 4,899 6,992
Shares issued between
November 20, 1995 and
December 31, 1995 333,746 16 4.00 1,334,984 6.00 222,497 38,695 111,249
---------- ---------
359,650 1,749,247
---------- ---------
Average of shares purchased - treasury stock method 302,480
Incremental shares - treated as outstanding since August 2 ,1995 1,781,780
---------
2,084,260
Weighted average shares for period 1,067,546
---------
Incremental shares for the period ended December 31, 1995 1,016,714
=========
JANUARY 1, 1996 TO
MARCH 31, 1996
Shares outstanding
at the beginning
of the period 2,341,363
Shares issued
February 3, 1996 6,500 58 5.20 33,800 6.00 5,633 3,551 867
---------- --------
2,344,914
----------
APRIL 1, 1996 TO
JUNE 30, 1996
Shares at the beginning
of the period 2,344,914
and April 30 ,1996 80,000 76 4.00 320,000 6.00 53,333 44,058 26,667
---------
2,388,972
---------
JULY 1, 1996 TO
SEPTEMBER 30, 1996
Shares at the beginning
of the period 2,388,972
Shares issued
September 9, 1996 30,000 22 5.00 150,000 6.00 25,000 5,979 5,000
--------- ---------
2,394,951 32,534
--------- ---------
Average of shares purchased - treasury stock method 2,376,279 1,781,780
=========
Incremental shares - treated as outstanding since August 2 ,1995 32,534
---------
2,408,813
Weighted average shares for period 2,398,406
---------
Incremental shares for the period ended September 30, 1996 10,407
=========
</TABLE>
* Such shares are not included in this calculation as these shares were issued
prior to the 12 months from the initial filing of the registration statement.
<PAGE> 4
BEVERAGE WORKS, INC
Computation of Incremental Shares and Warrants
December 31, 1995 and September 30, 1996
<TABLE>
<CAPTION>
Shares
Exercise Purchased
Number of Price Per Proceeds Estimated Under Incremental
Warrants Warrant Received IPO Price SAB 83 Shares
----------------------------------------------------------------------------------
(a) (c) (c) x (a) = (e) (d) / (e) = (a)- (f)
(d) (f)
<S> <C> <C> <C> <C> <C> <C>
Warrants issued October 31, 1995 15,583 $4.50 $ 70,124 $6.00 11,687 3,896
Warrants issued April 22, 1996 35,000 4.75 166,250 6.00 27,708 7,292
Options granted August 6, 1996 933,500 5.20 4,854,200 6.00 809,033 124,466
Options granted August 6, 1996 955,000 5.20 4,966,000 6.00 827,667 127,333
Unit Warrants issued September 9,
1996 * 15,000 7.00 --
-------
Incremental shares resulting from warrants and options
with exercise prices below the IPO price 262,987
=======
</TABLE>
* such are excluded from the computation as such warrants were granted with an
exercise price greater than the IPO price
<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
January 10, 1997
<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
January 10, 1997
<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
January 10, 1997
<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> 1,041,723
<SECURITIES> 0
<RECEIVABLES> 1,311
<ALLOWANCES> 0
<INVENTORY> 45,135
<CURRENT-ASSETS> 1,121,377
<PP&E> 1,326,716
<DEPRECIATION> 30,282
<TOTAL-ASSETS> 2,665,591
<CURRENT-LIABILITIES> 306,836
<BONDS> 0
0
0
<COMMON> 2,127,502
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,665,591
<SALES> 44,810
<TOTAL-REVENUES> 0
<CGS> 81,627
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 491,330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,320
<INCOME-PRETAX> (556,467)
<INCOME-TAX> (7,706)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (548,761)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> 0
</TABLE>
