<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE
SECURITIES EXCHANGE ACT 1934
For the quarterly period ended March 30, 1997
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
Commission file number 0-20845
MICHIGAN BREWERY, INC.
(Exact name of Registrant as specified in its charter)
Michigan 38-3196031
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
550 SOUTH WISCONSIN STREET
GAYLORD, MICHIGAN 49735
(517) 731-0401
(Address of principal executive offices and Registrant's
telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
As of May 9, 1997, there were outstanding 5,275,000 shares of common stock,
$.01 par value, of the registrant.
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TABLE OF CONTENTS
PAGE
NUMBER
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PART I . . . . FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . 1
ITEM 1. Financial Statements
Balance Sheets as of March 30, 1997
and December 29, 1996 . . . . . . . . . . . . . . 1
Statements of Operations for the three months
ended March 30, 1997 and for the three months
ended March 31, 1996 . . . . . . . . . . . . . . . 2
Statements of Cash Flows for the three months
ended March 30, 1997 and for the three months
ended March 31, 1996 . . . . . . . . . . . . . . . 3
Notes to Financial Statements . . . . . . . . . . . 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . 5
PART II. . . . OTHER INFORMATION . . . . . . . . . . . . . . . . . . . 9
ITEM 5. Other Information. . . . . . . . . . . . . . . . . . . . 9
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 9
<PAGE>
PART I
------
ITEM 1. Financial Statements
MICHIGAN BREWERY, INC.
BALANCE SHEETS
MARCH 30, DECEMBER 29,
ASSETS 1997 1996
---- ----
(UNAUDITED)
CURRENT ASSETS:
Cash $ 26,395 $ 28,468
Short-term investments 2,200,000 4,910,000
Inventories 205,899 155,785
Prepaids and other 167,563 150,151
------- -------
Total current assets 2,599,857 5,244,404
PROPERTY AND EQUIPMENT, net 12,755,095 10,012,881
OTHER ASSETS, net 57,096 74,408
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$15,412,048 $15,331,693
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 768,277 $ 286,871
Accrued expenses 149,328 132,299
Current maturities of long-term debt 251,412 250,780
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Total current liabilities 1,169,017 669,950
LONG-TERM DEBT, less current maturities 2,060,865 2,124,391
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000
shares authorized; 5,275,000 shares
issued and outstanding 52,750 52,750
Warrants 26,150 26,150
Class A warrants 127,500 127,500
Additional paid-in capital 13,034,544 13,034,544
Accumulated deficit (1,058,778) (703,592)
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Total shareholders' equity 12,182,166 12,537,352
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$15,412,048 $15,331,693
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The accompanying notes are an integral part of these balance sheets.
1
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MICHIGAN BREWERY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS
ENDED
--------------------------------
MARCH 30, 1997 MARCH 31, 1996
-------------- --------------
REVENUE:
Restaurant sales $1,029,745 $807,591
Wholesale beer and gift shop sales 87,007 83,118
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TOTAL REVENUE 1,116,751 890,709
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COSTS AND EXPENSES:
Cost of Sales 364,621 354,255
Restaurant salaries and benefits 322,543 278,578
Operating expenses 315,923 318,830
Depreciation and amortization 96,916 106,652
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TOTAL COSTS AND EXPENSES 1,100,003 1,058,315
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Restaurant Operating Income ( Loss) 16,748 (167,606)
General and Administrative expenses 360,916 137,210
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LOSS FROM OPERATIONS (344,168) (304,816)
Interest expense 58,941 85,569
Interest income (47,923) (2,942)
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NET LOSS ($355,186) ($387,443)
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--------- ---------
NET LOSS PER COMMON SHARE ($0.07) ($0.13)
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WEIGHTED AVERAGE SHARES OUTSTANDING 5,275,000 2,879,345
--------- ---------
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The accompanying notes are an integral part of these financial statements.
2
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MICHIGAN BREWERY, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
--------------------------------
MARCH 30, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($355,186) ($387,443)
Adjustments to reconcile net loss to cash
flows used in operating activities-
Depreciation and amortization 96,916 106,652
Change in operating assets and liabilities:
Inventories (50,114) 49,061
Prepaids and other (17,412) (14,309)
Accounts payable 481,406 (292,400)
Accrued expenses 17,029 1,377
------ -----
Net cash provided by (used in) operating activities 172,639 (537,062)
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INVESTING ACTIVITIES:
Purchases of property and equipment, net (2,828,678) (139,756)
Proceeds from sale of short-term investments 2,710,000 0
---------- --------
Net cash used in investing activities (111,818) (155,371)
-------- --------
FINANCING ACTIVITIES:
Payments on line-of-credit borrowings 0 (215,000)
Payments on debt to shareholders 0 (100,000)
Proceeds from long-term debt 0 750,000
Payments on long-term debt (62,894) (316,562)
Proceeds from issuance of common stock 0 617,537
Proceeds from issuance of warrants 0 7,500
Payment of financing costs 0 (303,480)
------- --------
Net cash provided by (used in) financing activities (62,894) 439,995
------- -------
INCREASE (DECREASE) IN CASH (2,073) (248,859)
CASH, beginning of period 28,468 339,062
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CASH, end of period $26,395 $90,203
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $62,304 $89,000
Income taxes paid
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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MICHIGAN BREWERY, INC.
Notes to Financial Statements
March 30, 1997
(1) The accompanying financial statements included herein have been prepared by
Michigan Brewery, Inc. (the Company), without audit, in accordance with
generally accepted accounting principles for interim financial information
and pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures made
are adequate to make the information not misleading.
The unaudited balance sheet as of March 30, 1997 and the unaudited
statements of operations for the three months ended March 30, 1997 and
March 31, 1996 and the unaudited statement of cash flows for the three
months ended March 30, 1997 include, in the opinion of management, all
adjustments, consisting solely of normal recurring adjustments, necessary
for a fair presentation of the financial results for the respective interim
periods and are not necessarily indicative of results of operations to be
expected for the entire fiscal year ending December 28, 1997. The
accompanying interim financial statements have been prepared under the
presumption that users of the interim financial information have either
read, or have access to, the audited financial statements and notes in the
Company's Form 10-KSB for the year ended December 29, 1996. Accordingly,
footnote disclosures which would substantially duplicate the disclosures
contained in the December 29, 1996 audited financial statements have been
omitted from these interim financial statements except for the disclosures
below. It is suggested that these interim financial statements be read in
conjunction with the financial statements and the notes thereto included in
the Company's Form 10-KSB for the year ended December 29, 1996.
(2) On June 13, 1996, the Securities and Exchange Commission declared effective
a Registration Statement on Form SB-2 relating to the initial public
offering of 2,450,000 units, each unit consisting of one share of common
stock and one redeemable Class A warrant. Following the effective date of
the Registration Statement, the Company issued 2,450,000 units at $5.00
per unit and the Company received net proceeds of $11.0 million on June 18,
1996. The financial statements reflect the effect of this offering net of
transaction related expenses.
On July 25, 1996, the underwriters exercised a portion of their
overallotment option and the Company issued 100,000 additional units at
$5.00 per unit. The Company received net proceeds of $447,500 on July 30,
1996.
(3) As of March 30, 1997, the Company had net operating loss carryforwards for
income tax purposes of approximately $1.1 million. These net operating
loss carryforwards expire in the year 2012. Because of the lack of
profitability, a full valuation allowance has been recorded against the net
deferred tax asset.
(4) The Company will adopt in fiscal year ending December 28, 1997, Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS
No. 128), which was issued in February 1997. SFAS No. 128 requires
disclosure of basic earnings per share (EPS) and diluted EPS, which
replaces the existing primary EPS and fully diluted EPS, as defined by
APB No. 15. Basic EPS is computed by dividing net income by the weighted
average number of shares of Common Stock outstanding during the year.
Dilutive EPS is computed similar to primary EPS as previously reported,
provided that, when applying the treasury stock method to common
equivalent shares, the Company must use its average share price for the
period rather than the more dilutive greater of the average share price
or end-of-period share price required by APB No. 15.
(5) The Company opened its second microbrewery/restaurant on March 17, 1997,
in Grand Rapids, Michigan, and is continuing construction on its third
location in Auburn Hills, Michigan, which is scheduled to open in the fall
of 1997.
4
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ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
This discussion and analysis contains certain forward-looking terminology
such as "believes", "anticipates", "expects", and "intends", or comparable
terminology. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected.
Potential purchasers of the Company's securities are cautioned not to place
undue reliance on such forward-looking statements, which are qualified in
their entirety by the cautions and risks described herein.
OVERVIEW
The Company was capitalized in 1994 to develop, own and operate
microbrewery/restaurants with the name Big Buck Brewery & Steakhouse (Big Buck
Breweries). Until May 1995 when the Gaylord Brewery opened, the Company had no
operations or revenues and its activities were devoted solely to development.
Future revenues and profits will depend upon various factors, including market
acceptance of Big Buck Breweries and general economic conditions. The Company's
present sources of revenue are the Gaylord and Grand Rapids Breweries. There
can be no assurances that the Company will successfully implement its expansion
plans, in which case the Company will continue to be dependent on the revenues
from the Gaylord and Grand Rapids Breweries. The Company also faces all of the
risks, expenses and difficulties frequently encountered in connection with the
expansion and development of a new business. Furthermore, to the extent that
the Company's expansion strategy is successful, it must manage the transition to
multiple site, higher volume operations, control increased overhead expenses and
hire additional personnel.
The Company's sales and earnings are expected to fluctuate based on seasonal
patterns. The Company anticipates that its highest earnings will occur in the
second and third quarters. Quarterly results in the future are likely to be
substantially affected by the timing of new Big Buck Brewery openings. Because
of the seasonality of the Company's business and the impact of new Big Buck
Brewery openings, results for any quarter are not necessarily indicative of the
results that may be achieved for a full fiscal year and cannot be used to
indicate financial performance for the entire year.
The Company closed on the purchase of the Grand Rapids Brewery site on December
2, 1996 for $1.4 million. The site includes an existing structure of
approximately 8,200 square feet and is located on 28th Street in Grand Rapids.
Seating capacity is approximately 250 for restaurant and bar combined. The
Grand Rapids Brewery opened on March 17, 1997.
On August 29, 1996, the Company purchased a 6.1 acre site on Opdyke Road in
Auburn Hills, Michigan for $2.65 million. The site is just off of Interstate 75
at exit 79. The new facility will encompass 26,372 square feet including
brewery, bar and restaurant. Seating capacity in the restaurant and bar will be
just under 650. Construction began in late December 1996 after receiving final
approval from the city of Auburn Hills. The Company anticipates opening this
Brewery during the third quarter of 1997.
5
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QUARTERS ENDED MARCH 30, 1997 AND MARCH 31, 1996
The following table is derived from the Company's statements of operations and
expresses the results from operations as a percent of total revenue:
THREE THREE
MONTHS MONTHS
ENDED ENDED
MARCH 30, MARCH 31,
1997 1996
---- ----
REVENUE:
Restaurant sales 92.2% 90.7%
Wholesale beer and gift shop sales 7.8% 9.3%
---- ----
Total revenue 100.0% 100.0%
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COST AND EXPENSES:
Cost of sales 32.7% 39.8%
Restaurant salaries and benefits 28.9% 31.3%
Operating expenses 28.3% 35.8%
Depreciation and amortization 8.7% 12.0%
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Total costs and expenses 98.6% 118.9%
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Restaurant Operating Income (Loss) 1.4% (18.9%)
General and Administrative expenses 32.3% 15.4%
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LOSS FROM OPERATIONS (30.9%) (34.3%)
Interest expense 5.3% 9.6%
Interest income (4.3%) (0.3%)
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NET INCOME (LOSS) (31.9%) (43.6%)
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RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 30, 1997 AND MARCH 31, 1996
REVENUES
Revenues increased $226,042 to $1,116,751 in the quarter ended March 30,
1997 from $890,709 in the quarter ended March 31, 1996. The increase in
revenues is primarily attributable to the opening of the Grand Rapids Brewery
on March 17, 1997, which had revenues for the two weeks it was open of
$161,049. The Gaylord Brewery's revenue was up 7.3% in the first quarter of
1997 compared to the first quarter of 1996.
COST OF SALES
Cost of sales, which consists of food, merchandise and brewery supplies,
increased $10,366 to $364,621 in the first quarter of 1997 from the first
quarter of 1996. As a percentage of revenues, cost of sales decreased to 32.7%
in the first quarter of 1997 from 39.8% for the first quarter of 1996. The
decrease was the result of menu pricing, operating efficiencies, effective
purchasing and improved kitchen management.
6
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RESTAURANT SALARIES AND BENEFITS
Restaurant salaries and benefits, which consist of restaurant management and
hourly employee wages and benefits, payroll taxes and workers' compensation
insurance, increased $43,965 to $322,543 in the first quarter of 1997 compared
to the first quarter in 1996. This increase was due to the additional labor
required to support increased operations. As a percentage of revenues,
restaurant salaries and benefits decreased to 28.9% in the first quarter of 1997
compared to 31.3% for the same period in 1996. The decreases were due to
improvements in training and scheduling.
OPERATING EXPENSES
Operating expenses, which include supplies, utilities, repairs and maintenance,
advertising and occupancy costs decreased $2,907 to $315,923 in the first
quarter of 1997 compared to the first quarter of 1996. As a percentage of
revenues, operating expenses decreased to 28.3% in the first quarter of 1997 as
compared to 35.8% for the same period in 1996. These decreases were due to
improved management and operating controls.
GENERAL AND ADMINISTRATIVE EXPENSES
Administrative and development expenses increased $223,706 to $360,916 in the
first quarter of 1997 compared to the first quarter of 1996. As a percentage of
revenues, such expenses increased to 32.3% in the first quarter of 1997 compared
to 15.4% for the same period in 1996. The increases in these expenses were the
result of hiring additional senior corporate management and additional
professional fees associated with being a publicly held company. As the Company
opens additional Breweries, these expenses as a percentage of revenues are
expected to decrease.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses decreased $9,736 to $96,916 in the
first quarter of 1997 compared to the first quarter of 1996. As a percentage
of revenues these expenses decreased to 8.7% in the first quarter of 1997
from 12.0% for the same period in 1996. The decreases in these expenses were
the result of the full amortization of costs related to the bridge financing
which took place in early 1996. The amortization of pre-opening costs began
in March 1997 for the Grand Rapids Brewery in the amount of $6,876. The
Company amortizes pre-opening costs for new restaurants over a twelve-month
period commencing upon the opening of a new restaurant.
INTEREST EXPENSE/INTEREST INCOME
Interest expense decreased $26,628 to $58,941 in the first quarter of 1997
compared to first quarter of 1996. As a percentage of revenues interest expense
decreased to 5.3% in the first quarter of 1997 from 9.6% for the same period in
1996. The decreases are due to the fact the pre-bridge and bridge financing
were paid off during 1996 with the proceeds of the Company's initial public
offering.
Interest income increased $44,981 to $47,923 in the first quarter of 1997
compared to $2,942 for the first quarter of 1996. The increase in interest
income is due to the investing of the remaining proceeds from the Company's
initial public offering completed in June 1996.
7
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LIQUIDITY AND CAPITAL RESOURCES
The Company generated $172,639 in cash for the three months ended March 30,
1997 and used $537,062 in cash for the three months ended March 31, 1996 from
operating activities. As of March 30, 1997, the Company had working capital
of $1.4 million. The Company expects that it will use a significant portion
of its capital resources to fund new Brewery development and construction.
Since inception, the Company's principal capital requirements have been the
funding of (i) the Company and the Big Buck Brewery format and (ii) the
construction of the Gaylord and Grand Rapids Breweries and the acquisition of
furniture, fixtures and equipment for such Breweries. Total capital
expenditures for the Gaylord and Grand Rapids Breweries were approximately
$5.8 million and $3.1 million, respectively.
The Company used $173,000 in cash from investing activities during the first
quarter ending March 30, 1997. Of this amount, the Company generated $2.7
million in cash from the sale of short-term investments and used $2.8 million
in cash for the payment of construction and equipment costs for the Grand
Rapids and Auburn Hills Breweries.
In July 1995, the Company secured a $1.9 million mortgage on the Gaylord
Brewery's land and building and a $800,000 equipment loan. These notes are
subject to monthly payments of principal and interest at 10.2% per annum and
are payable in full by October 1, 2000. These notes are collateralized by
all assets of the Company and are guaranteed by certain shareholders.
The Company opened the Grand Rapids Brewery on March 17, 1997. The cost of
the land, building, remodeling, equipment, furniture and fixtures was
approximately $3.1 million. On April 11, 1997, the Company completed the
sale and leaseback of the Grand Rapids land and building. The Company
anticipates it will develop and open the Auburn Hills Brewery and one
additional Big Buck Brewery during 1997. The Auburn Hills Brewery is
estimated to cost approximately $8.4 million. As of March 30, 1997, $4.0
million had been spent on land, construction and equipment deposits for the
Auburn Hills Brewery. The remaining Brewery scheduled to be opened in 1997
is anticipated to be a leased facility with an approximate cost between $1.3
and $1.5 million for equipment and leasehold improvements.
The Company intends to obtain real estate financing for $4.0 million of the
cost of developing and opening the new Breweries, which may include a sale
and leaseback of the Auburn Hills site. The Company believes that the
remaining net proceeds of the initial public offering, together with such
financing would be sufficient to finance these expansion plans, depending on
the definitive locations, site conditions, construction costs and size and
types of Breweries built. There are no assurances that a sale and leaseback
or any other real estate financing will be available on terms acceptable or
favorable to the Company, or at all. Without such additional financing, the
Company's development plans will be slower than planned or even unachievable.
8
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PART II - OTHER INFORMATION
ITEM 5. Other Information
On April 11, 1997, the Company sold the Grand Rapids site, including all
improvements thereto, to an unrelated third party pursuant to a real estate
purchase and leaseback agreement for $1.4 million. Pursuant to a separate
lease agreement, the Company leases the Grand Rapids site at a minimum annual
base rent of $140,000 and a maximum annual base rent of $192,500 over a
ten-year term. The lease may be extended at the option of the Company for two
additional five-year terms. In addition to the annual base rent, the Company
is obligated to pay an annual percentage rent in the amount of 5% on gross
sales at the site in excess of $2.9 million per year. In the event that such
annual gross sales do not exceed $2.9 million for any two consecutive years
during the lease term, the Company is obligated to repurchase the Grand
Rapids site for $1.4 million, plus $70,000 for each lease year on a pro rata
basis. The Company has the option to purchase the property from the lessor
after the seventh full lease year for $1.4 million, plus $70,000 for each
lease year on a pro rata basis. The lessor has the option to require the
Company to purchase the property after the seventh full lease year at the
same price.
The lessor may terminate the lease in the event of a default which is
not cured within the applicable grace period. A default is defined as (i) the
Company's failure to make a rental payment within 30 days after receipt of
written notice that a payment is past due or (ii) the Company's failure to
perform its obligations under the lease (other than rent payments) within 30
days after written notice of a curable violation, provided, however that if
such default cannot be cured within the 30-day period, a default will be
deemed to have occurred only if the Company has failed to commence a cure
within such 30-day period.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 10.1 - Real Estate Purchase and Leaseback Agreement
between Eyde Brothers Development Co., Landlord,
and Michigan Brewery, Inc., Tenant
Exhibit 10.2 - Lease Agreement between Eyde Brothers Development
Co., Landlord, and Michigan Brewery, Inc., Tenant
Exhibit 11 - Computation of Net Loss Per Common Share
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
None
9
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MICHIGAN BREWERY, INC.
Date: May 9, 1997 By: /s/ Anthony P. Dombrowski
-----------------------------
Anthony P. Dombrowski
Chief Financial Officer and
Treasurer
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10.1 Real Estate Purchase and Leaseback Agreement
between Eyde Brothers Development Co., Landlord,
and Michigan Brewery, Inc., Tenant
10.2 Lease Agreement between Eyde Brothers Development Co.,
Landlord, and Michigan Brewery, Inc., Tenant
11 Computation of Net Loss Per Common Share
27 Financial Data Schedule
<PAGE>
REAL ESTATE PURCHASE AND LEASEBACK AGREEMENT
THIS AGREEMENT, made and entered by and between Michigan Brewery, Inc., a
Michigan corporation, whose address is 550 S. Wisconsin, P.O. Box 1430, Gaylord,
MI 49735 hereinafter referred to as "Seller" and Eyde Brothers Development
Company, a Michigan co-partnership whose address is 6250 W. Michigan Avenue,
Lansing, MI 48917 hereinafter referred to as "Purchaser".
WITNESSETH:
That the Seller hereby agrees to sell and lease back from Purchaser, and the
Purchaser hereby agrees to purchase and lease back to Seller the following
described real estate, hereinafter called the "Property", situated in the City
of Grand Rapids, County of Kent, State of Michigan, and further described as
follows:
SEE EXHIBIT "A" ATTACHED HERETO
together with all improvements and appurtenances thereto and all of the right,
title and interest of the Seller in and to the land lying in the streets and
roads abutting the Property, but excluding all personal property located
thereon, all in accordance with the terms and provisions hereinafter set forth.
PURCHASE PRICE: The purchase price shall be One Million Four Hundred Thousand
and no/100 Dollars ($1,400,000.00) payable by cashier's check or federal
funds wire transfer at closing.
USE OF THE PROPERTY: Seller intends leaseback to the Property from Purchaser,
and to construct and operate a microbrewery/restaurant as drawn on plans
and specifications prepared by Seller's licensed architect, including off
street parking and serving of food and all legal beverages on the Premises,
hereinafter referred to as Use.
This statement of contemplated Use shall be used solely in connection with
interpretation of conditions, representations and warranties set forth
herein, and shall not be construed to limit or defeat any contemplated Use
of the Property by the Seller.
DUE DILIGENCE PERIOD: Purchaser acknowledges that it has had sufficient
opportunity to inspect the Property to conduct such due diligence as
Purchaser deemed necessary to the Property, and that Purchaser is satisfied
with the condition of the Property and all improvements thereon.
<PAGE>
UTILITIES: In order for the Seller to utilize the Property for its
contemplated Use, all necessary utilities, including, without limiting
same, electricity, water, sanitary and storm sewers and gas must be
available, at costs and with capacities acceptable to Seller as shown on
EXHIBIT "B" at or within the property line. If said utilities are not at or
within the property line of the Premises as above required, Seller shall
bring such utilities to the Premises at its sole cost and expense. The
obtaining of such utilities prior to closing is a condition precedent to
the obligation of the parties to close.
PERMITS: Seller will use best efforts to obtain at its sole cost and expense,
all necessary licenses, permits and other authorizations to utilize the
Premises for its contemplated Use as stated herein. Such approvals shall
be, without limiting same, curb cuts for reasonable ingress and egress to
the Premises, the right to erect signs acceptable to Seller, all building
and necessary construction permits and the appropriate alcoholic beverage
license issued directly by the appropriate governmental authorities at fees
set by statute, ordinance or regulation. Purchaser agrees to cooperate
with Seller (at no cost to Purchaser) and the state, county or municipal
authorities to obtain such permits and will execute any documents necessary
in this regard. The obtaining of all licenses and permits prior to closing
is a condition precedent to the obligation of the parties to close.
TITLE: Seller shall order a commitment for title insurance for the Property
from Transnation Title Insurance Company or a similar national reputable
title company acceptable to Seller. Prior to closing, such title
commitment must reveal marketable and insurable title in Seller and must be
free from all standard exceptions. Purchaser shall have a period of ten
(10) days after receipt of the above title commitment in which to give
written notice to Seller specifying Purchaser's objection to the status of
title to the Premises ("Objection Period"). At the end of the Objection
Period, Purchaser shall have no further right to object to the status of
Seller's title to the Property. In the event the above referenced title
insurance commitment shall reflect defects or other conditions which would
prevent an insurable and marketable title or prevent the Seller's
contemplated Use of the Property, Purchaser shall advise Seller, and Seller
shall proceed diligently and at its own expense to clear title to the
Premises within thirty (30) days from such notice; it being agreed and
understood that any defect or condition not so removed or cured if
otherwise approved or not objected to by Purchaser shall be deemed
Permitted
<PAGE>
Title Exceptions to be attached hereto as EXHIBIT "C". If Seller is unable
to remedy the title within such thirty (30) day period, then Purchaser may
waive the defect and the parties shall proceed to closing, or Purchaser may
terminate this Agreement in which case the parties shall have no further
liability to each other. Marketable and insurable title for Seller's
contemplated Use prior to closing is a condition precedent to the
obligations of the parties to close.
LEASEBACK: Seller agrees to leaseback the Property from Purchaser in accordance
with the terms set forth in a Lease Agreement between Seller and Purchaser,
a copy of which is attached hereto as EXHIBIT "D". At closing, Purchaser
and Seller shall enter into the Lease Agreement in the form attached hereto
as EXHIBIT "D".
CORPORATE APPROVAL: This Agreement is conditional upon the approval of this
transaction by President of Seller. The Seller shall have ten (10) days
from the date of execution hereof to obtain said approval. In the event
Seller does not terminate this Agreement pursuant to this Article on or
before said date, Seller's right to do so hereunder shall be deemed waived.
Purchaser shall have the right to rely on any communication executed by an
officer of Seller in furtherance of this Article.
CLOSING: Closing will take place at the offices of Transnation Title Insurance
Company, 921 North Division Avenue, Grand Rapids, MI 49503, or at such
other location that is mutually acceptable to the parties within five (5)
days after notice from Seller to Purchaser that it is undertaking to close
hereunder. Conveyance will be by a limited or special warranty deed.
Seller shall bear the expense for the preparation of the deed including,
but not limited to, any applicable conveyance taxes. Seller shall bear the
expense of the title policy. Each party shall bear their own legal fees.
Real estate taxes shall not be prorated. All existing mortgages and liens
shall be discharged by the Seller prior to or at closing. In addition to
the deed, the Seller shall deliver at closing an affidavit of possession
and a no lien affidavit and, if appropriate, an affidavit in compliance
with Section 1445 of the Internal Revenue Code, reasonably acceptable to
Purchaser. The parties shall execute and deliver the Lease in the form
attached hereto as Exhibit "D" at closing. The parties agree to execute
and provide such other and further documents as may be required either by
law or custom and usage in the jurisdiction in furtherance of Closing
hereunder.
<PAGE>
DEFAULT: In the event all conditions of this Agreement have been satisfied and
in the event Seller refuses to close, Purchaser may seek specific
performance or any other legal or equitable remedies available and recover
reasonable attorney's fees. In the event all conditions of this Agreement
have been satisfied and in the event Purchaser refuses to close, Seller may
seek specific performance or any other legal or equitable remedies
available and recover reasonable attorney's fees.
AMENDMENTS: This Agreement once properly signed by both parties can be
changed only by a document of equal dignity, executed by an authorized
representative of the respective parties hereto.
NOTICES: All notices, requests, demands or other communications hereunder shall
be in writing and deemed given when delivered personally, when telefaxed,
when sent by nationally known courier or express mail service, or on the
day said communication is deposited in the U.S. mail, by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to Seller: Michigan Brewery
550 S. Wisconsin
P.O. Box 1430
Gaylord, MI 49735
With a copy to: Alan S. Levine, Esq.
Butzel Long
32270 Telegraph Road, Suite 200
Birmingham, MI 48025
If to Purchaser: Eyde Brothers Development Company
6250 W. Michigan Avenue
Lansing, MI 48917
With a copy to: Peter C. Samouris, Esq.
Gaffney Professional Building
530 S. Capitol Avenue
Lansing, MI 48933-2333
or to such other address as the parties may from time-to-time designate by
notice in writing to the other parties.
APPLICATION: This Agreement will be binding on the heirs, executors,
administrators, successors and assigns of the parties hereof and shall be
deemed effective for the purpose of each party undertaking its obligation
herein as of the
<PAGE>
last date of execution as set forth below.
OFFER: The offer extended by one party signing this Agreement shall expire
after five (5) business days unless accepted, rejected or revoked prior to
such expiration.
SURVIVAL: All representations, warranties and obligations of Seller as set forth
herein shall survive the Closing of this transaction.
EFFECTIVE DATE: This Agreement shall become effective when signed by all
parties hereto upon the date of the last party signing or initialing
hereunder. In the event Purchaser shall execute this Agreement first and
thereafter Seller shall execute same and said fully Agreements are not
received by Purchaser from Seller within five (5) business days from the
date of the last signing or initialing thereof, the conditions precedent as
herein defined shall be calculated from the date of receipt of fully
executed Agreements by Purchaser.
FORCE MAJEURE: Anything contained herein to the contrary notwithstanding, Seller
and/or Purchaser shall be excused for the period of delay in the
performance of any and all of their obligations under this Agreement, and
shall not be considered in default when prevented from so performing by
cause or causes beyond Seller's or Purchaser's control, including, but not
limited to, war, fire or other casualty, government regulations or through
act of God.
NO BROKER: Purchaser and Seller represent to each other that they have not
utilized the services of any broker in connection with the transaction
evidenced by this Agreement. Accordingly, Seller agrees to indemnify and
hold harmless Purchaser from payment of any brokerage fees or any liability
or obligation therefor to any person or party claiming a fee or commission
through Seller and Purchaser agrees to indemnify and hold harmless Seller
from payment of any brokerage fees or any liability or obligation therefor
to any person or party claiming a fee or commission through Purchaser.
MISCELLANEOUS: This Agreement consists of 6 pages (excluding any Rider,
Addendum and Exhibit attached hereto). TIME IS OF THE ESSENCE. The laws of
the State of Michigan shall govern and control the interpretation and
enforcement of the terms and provisions of this Agreement. This Agreement
shall not be recorded.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
<PAGE>
seals.
SELLER: PURCHASER:
Michigan Brewery, Eyde Brothers Development Company
a Michigan Corporation a Michigan co-partnership
By: /s/ William F. Rolinski By: /s/ Michael G. Eyde
----------------------------- ------------------------------
Its : President Its: Owner
----------------------------- ------------------------------
Date: April 11, 1997 Date: April 11, 1997
----------------------------- ------------------------------
<PAGE>
LEASE AGREEMENT
BETWEEN
EYDE BROTHERS DEVELOPMENT COMPANY
LANDLORD
AND
MICHIGAN BREWERY, INC.
TENANT
<PAGE>
TABLE OF CONTENTS
PAGE
DATA SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Article 1: PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Article 2: TERM OF LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1: Commencement Date . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2: Termination Date. . . . . . . . . . . . . . . . . . . . . . 3
Section 2.3: Option to Extend. . . . . . . . . . . . . . . . . . . . . . 3
Section 2.4: Lease Year. . . . . . . . . . . . . . . . . . . . . . . . . 3
Article 3: RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.1: Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.2: Percentage Rent . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.3: Gross Sales . . . . . . . . . . . . . . . . . . . . . . . . 4
Article 4: USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4. 1: Permitted Use. . . . . . . . . . . . . . . . . . . . . . . 4
Article 5: OBLIGATION TO REPAIR AND MAINTAIN . . . . . . . . . . . . . . . . . 4
Section 5.1: Tenant's Obligations. . . . . . . . . . . . . . . . . . . . 4
Article 6: INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 6.1: Tenant's Obligation . . . . . . . . . . . . . . . . . . . . 4
Section 6.2: Mutual Waiver of Subrogation. . . . . . . . . . . . . . . . 5
Article 7: ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Article 8: SIGNAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Article 9: ADDITIONAL RENT CHARGES . . . . . . . . . . . . . . . . . . . . . . 5
Section 9.1: Maintenance and Repairs. . . . . . . . . . . . . . . . . . . 5
Section 9.2: Utilities . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 9.3: HVAC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 9.4: Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Article 10: DAMAGE AND DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . 6
Article 11: EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Article 12: DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Article 13: SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Article 14: SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Article 15: RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . 7
Article 16: OPTION TO PURCHASE/OPTION TO SELL. . . . . . . . . . . . . . . . . 7
<PAGE>
PAGE
Article 16.1: Option to Purchase . . . . . . . . . . . . . . . . . . . . 7
Article 16.2: Option to Sell . . . . . . . . . . . . . . . . . . . . . . 7
Article 16.3: Closing. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Article 16.4: Title, Defects . . . . . . . . . . . . . . . . . . . . . . 7
Article 16.5: Closing Payments . . . . . . . . . . . . . . . . . . . . . 8
Article 16.6: Taxes, Prorations . . . . . . . . . . . . . . . . . . . . . 8
Article 16.7: Survey. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Article 16.8: Claim of Interest . . . . . . . . . . . . . . . . . . . . . 8
Article 17: MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 17.1: Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 17.2: Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 17.3: Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . 8
Section 17.4: Mutual Force Majeure . . . . . . . . . . . . . . . . . . . 8
Section 17.5: Legal Expenses. . . . . . . . . . . . . . . . . . . . . . . 8
Section 17.6: Joint and Several Liability. . . . . . . . . . . . . . . . 8
Section 17.7: Arbitration . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 17.8: Entire Agreement . . . . . . . . . . . . . . . . . . . . . 9
Section 17.9: Additional Construction or Changes by Landlord . . . . . . 9
Section 17.10: Successors and Assigns. . . . . . . . . . . . . . . . . . 9
Section 17.11: Landlord's Agreement . . . . . . . . . . . . . . . . . . 9
Section 17.12: Recording . . . . . . . . . . . . . . . . . . . . . . . . 9
EXHIBIT A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
<PAGE>
DATA SHEET
THIS LEASE AGREEMENT, executed this 11th day of April, l997, by and between EYDE
BROTHERS DEVELOPMENT COMPANY, a Michigan co-partnership ("Landlord"), and
MICHIGAN BREWERY, INC., a Michigan corporation ("Tenant"), subject to the
following terms and conditions:
A. LEASED PREMISES: Landlord hereby leases to Tenant and Tenant hereby rents
from Landlord the premises (the "Premises") legally described on Exhibit A
attached hereto located at 2500 28th St. SE, Grand Rapids, MI 49501 in the
city of Grand Rapids, Kent County, Michigan.
B. TERM OF LEASE: The Term of the Lease shall be ten (10) full Lease Years,
as that term is defined in Article 2 herein, together with two (2) options
to renew the Lease of five (5) years each.
The Term shall commence on the Commencement Date, as defined in Article 2,
and shall expire at midnight on the tenth (10th) anniversary of the
Commencement Date, unless this Lease is extended, renewed or sooner
terminated as otherwise set forth herein.
C. BASE RENT: Tenant shall pay the following as its Base Rent annually:
Initial Term: From the Commencement Date through and including the fifth
full Lease Year, Tenant shall pay $140,000 per annum, in twelve (12) equal
monthly installments of $11,666.67.
Base Rent shall be adjusted on the sixth (6th ) anniversary of the
Commencement Date of this Lease as follows:
Annual Base Rent for the sixth through tenth years of the Lease shall be
equal to the product of multiplying the sum of One Million Four Hundred
Thousand and no/100 ($1,400,000.00) dollars by the sum of one and three-
quarters (1.75%) percent per annum plus the prime commercial lending rate
for NBD Bank, established by NBD Bank from time to time in the ordinary
course of its business ("Prime Rate") existing on the first day of the
sixth Lease Year of the Lease, with a minimum Annual Base Rent of
$140,000.00 and a maximum Annual Base Rent of $192,500.00.
Annual Base Rent under the first option term, if same shall be exercised by
Tenant, shall be equal to the product of multiplying the sum of One Million
Four Hundred Thousand and no/100 ($1,400,000.00) dollars by the sum of one
and three-quarters (1.75%) percent per annum plus the Prime Rate existing
on the first day of the first option term under the lease, with a minimum
Annual Base Rent of $140,000.00 and a maximum Annual Base Rent of
$192,500.00.
Annual Base Rent under the second option term, if same shall be exercised
by Tenant, shall be equal to the product of multiplying the sum of One
Million Four Hundred Thousand and no/100 ($1,400,000.00) dollars by one and
three-quarters (1.75%) percent per annum plus the Prime Rate existing on
the first day of the second option term under the lease, with a minimum
Annual Base Rent of $140,000.00 and a maximum Annual Base Rent of
$192,500.00.
In the event that the Prime Rate of NBD Bank shall be unavailable for
purposes of these calculations, then the parties shall use the Prime Rate
of Comerica Bank, and if such rate shall not be available, the parties
shall mutually select a prime rate being charged by similar reputable banks
in the Detroit Metropolitan Area.
D. PERMITTED USE: Tenant's use of the Premises shall be for any legal
purpose.
<PAGE>
E. NOTICE ADDRESSES:
LANDLORD: Eyde Brothers Development Company,
a Michigan co-partnership
6250 W. Michigan Avenue
Lansing, MI 48917
With a copy to: Peter C. Samouris, Esq.
Gaffney Professional Building
530 S. Capitol Avenue
Lansing, MI 48933-2333
TENANT: Michigan Brewery, Inc.
550 S. Wisconsin
P.O. Box 1430
Gaylord, MI 49735
With a copy to: Alan S. Levine, Esq.
Butzel Long
32270 Telegraph Road, Suite 200
Birmingham, MI 48025
F. PERCENTAGE RENT: Five percent (5%) of Gross Sales on Gross Sales in
excess of $2,900,000
IN WITNESS of the attached Lease and any Exhibits, the parties hereto have
executed this Lease the day and year first above written.
EYDE BROTHERS DEVELOPMENT COMPANY MICHIGAN BREWERY, INC.
("LANDLORD") ("TENANT")
By: /s/ Michael G. Eyde By: /s/ William F. Rolinski
----------------------------- ------------------------------
Name: Michael G. Eyde Name: William F. Rolinski
----------------------------- ------------------------------
Its: Owner Its: President
----------------------------- ------------------------------
<PAGE>
LEASE
Article 1: PREMISES
Landlord hereby leases to Tenant and Tenant hereby rents from Landlord the
Premises legally described on Exhibit A, together with all rights, privileges,
easements and appurtenances belonging or pertaining to the Premises, and
together with any and all improvements now or hereafter situated upon the
Premises.
Article 2: TERM OF LEASE
The Term of this Lease shall be for the number of Lease Years as set forth on
the DATA SHEET after the Commencement Date as set forth below.
Section 2.1: COMMENCEMENT Date: The Commencement Date and Tenant's obligation
to pay Base Rent and other charges hereunder shall commence on April 11, 1997.
Section 2.2: TERMINATION DATE: The Term of this Lease shall expire at midnight
on the tenth (10th) anniversary of the Commencement Date, unless Tenant
exercises its option(s) to extend hereunder or this Lease is otherwise
terminated as set forth herein.
Section 2.3: OPTION TO EXTEND: Tenant shall have the option to extend the Term
of this Lease for two additional periods of five (5) Lease Years each. If
Tenant desires to exercise such option or options, Tenant shall give Landlord
written notice exercising its option to extend the Term no later than thirty
(30) days prior to the expiration of the initial Term, or the expiration of the
first option period, as applicable. The Base Rent for such option periods shall
be as stated in Item C of the DATA SHEET.
Section 2.4: LEASE YEAR: A Lease Year shall be the period from the
Commencement Date through and including the date immediately preceding the first
(1st ) anniversary of the Commencement Date and each successive twelve (12)
month period thereafter during the Term.
Article 3: RENT
Section 3.1: BASE RENT: Beginning with the Commencement Date and on the first
(1st ) of every month thereafter without demand, Tenant shall pay 1/12th of the
then applicable Base Rent to Landlord at the address set forth on the DATA SHEET
(unless otherwise notified by Landlord of a change of address). If the
Commencement Date occurs on a day other than the first day of a calendar month
or the termination date occurs on a day other than the last day of a calendar
month, the Base Rent for such partial calendar month(s) shall be prorated on a
per diem basis (calculated based on the actual number of days in such month[s]).
In the event that any payment of Base Rent shall not be received by Landlord
within five (5) days after same shall become due, then Tenant shall pay to
Landlord an additional sum equal to five per cent (5%) of such monthly payment
as a late charge.
Section 3.2: PERCENTAGE RENT:
(a) In addition to the payment of the fixed annual Base Rent, as
hereinbefore provided, Tenant shall pay to Landlord during each lease year of
the term hereof as annual percentage rental, a sum equal to the percent set
forth in paragraph F of the Data Sheet hereof of all Gross Sales resulting from
the sale of food and beverages in, on or from the leased premises during such
lease year. The annual percentage rental shall be payable annually, within sixty
(60) days after the end of each Lease Year, at the office of the Landlord, or
such other place as the Landlord may designate.
(b) The term "lease year" as used herein shall be defined to mean a period
of twelve (12) consecutive calendar months. The first lease year shall begin on
the date of Commencement Date of the
<PAGE>
term of this Lease. Each succeeding lease year shall commence on the
anniversary date of the first lease year.
Section 3.3: GROSS SALES:
(a) DEFINED: The term "Gross Sales" as used herein shall be construed to
include the entire amount of the actual sales price, of all sales of food ,
beverages and merchandise conducted in or from the Demised Premises, and sales
by any sublessee, concessionaire or licensee in said premises. Said term shall
not include, however, any sums collected and paid out for any sales, excise, or
gross receipts tax imposed upon the sale of any food or beverages by any duly
constituted governmental authority nor shall it include the exchange of food or
beverages between the stores of Tenant, if any, where such exchange of food or
beverages are made for the convenient operation of the business of Tenant and
not for the purpose of consummating elsewhere a sale which has theretofore been
made at, in, from or upon the Demised Premises, or for the purpose of depriving
Landlord of the benefit of a sale which otherwise would be made at, in, from or
upon the Demised Premises, nor the amount of returns to shippers or
manufacturers, nor the amount of any complimentary food, beverages or
merchandise given out at the Demised Premises for promotional or other purposes,
nor the amount of any cash or credit refund made upon any sale where the
merchandise sold, or some part thereof, is thereafter returned by the purchaser
and accepted by Tenant, nor receipts from public telephones, stamp machines,
public toilet locks or vending machines, nor to sales of furniture, equipment,
property or bulk sales not in the ordinary course of Tenant's business, nor
sales to employees, nor any credit card charges payable by Tenant.
(b) REPURCHASE OBLIGATION: In the event that Gross Sales shall not exceed
the sum of Two Million Nine Hundred Thousand and no/100 ($2,900,000.00) annually
for any two (2) consecutive full Lease Years during the term of the Lease, then
Tenant shall be obligated to repurchase the Premises from Landlord, upon
Landlord's written request, within one hundred eighty (180) days after receipt
of such request from Landlord. The purchase price for the Premises in such
circumstances shall be equal to the sum of $1,400,000.00, plus $70,000 for each
full lease year, plus a pro rata portion of a partial lease year, measured from
the Commencement Date of this Lease to the date of receipt of such request from
Landlord. The pro rata portion of the Purchase Price for such partial year
shall be prorated on a per diem basis at the rate of $191.78 per day ($70,000 /
365).The closing shall otherwise be governed by Paragraphs 16.3 through 16.8
hereof, inclusive.
Article 4: USE
Section 4. 1: PERMITTED USE: Tenant shall be allowed to use the Premises as
set forth in Item D on the DATA SHEET.
Article 5: OBLIGATION TO REPAIR AND MAINTAIN
Section 5.1: TENANT'S OBLIGATIONS: Tenant shall make and perform all necessary
maintenance and repairs to the Premises, other than repairs due to Landlord's
negligence or as a result of damage or destruction as set forth in Article 10,
in order to maintain the Premises in good condition, ordinary wear and tear
excepted .
Article 6: INSURANCE
Section 6.1: TENANT'S OBLIGATION: Tenant shall maintain a comprehensive policy
of liability insurance with respect to the Premises, with Landlord named as an
additional insured. The policy shall be with companies licensed to do business
in the State of Michigan and shall have coverage limits of at least
$1,000,000.00 combined single limit. All insurance policies required hereunder
shall provide that Landlord be given at least thirty (30) days written notice
prior to its cancellation.
<PAGE>
Tenant shall have the right to self-insure for its merchandise, trade fixtures,
furnishings, operating equipment, personal property and plate glass, if any.
Tenant shall be responsible for replacing any broken glass in the Premises.
Any insurance required of Tenant hereunder may be furnished by Tenant under a
blanket policy carried by Tenant or under a separate policy therefor, at
Tenant's option.
Section 6.2: MUTUAL WAIVER OF SUBROGATION: Landlord and Tenant hereby waive
any rights each may have against the other arising out of any loss or damage
connected in any way to, or arising in any way out of an occurrence related to
the Premises to the extent that such damage or loss is coverable by insurance.
Landlord and Tenant, on behalf of their respective insurance companies, waive
any right of subrogation they may have against each other where such waiver of
subrogation is not invalidated by State Law.
Article 7: ASSIGNMENT
Tenant shall not assign this Lease or sublet all of the Premises without
Landlord's prior written consent, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, if any such proposed successor entity
has a net worth of at least Ten Million and No/100 Dollars ($10,000,000.00) and
Tenant furnishes Landlord with reasonable evidence of such proposed successor
entity's net worth, Landlord's consent shall not be required, and in the event
of such sublease or assignment by Tenant, Tenant shall automatically be released
from all obligations under this Lease.
Article 8: SIGNAGE
Tenant may, without Landlord's consent, construct exterior signage in accordance
with the requirements of governmental authorities have jurisdiction. Tenant
shall be responsible for obtaining any necessary governmental permits relating
to its exterior signage, at its sole cost, but Landlord will cooperate with
Tenant and assist Tenant in obtaining any and all necessary approvals, permits
and variances for such sign(s). Tenant shall maintain its exterior signage in
good condition throughout the Term of this Lease. Tenant may, without
Landlord's consent, install any and all signs, displays, and other advertising
matter within the Premises as Tenant elects, in its sole discretion.
Article 9: ADDITIONAL RENT CHARGES
Section 9.1: MAINTENANCE AND REPAIRS: Tenant shall be responsible to pay all
expenses, costs, disbursements and charges incurred for the operation,
maintenance and repair of the Premises, including but not limited to,
landscaping, parking lot paving and striping, snow removal, utilities, sanitary
control, sprinkler, removal of common area trash, security and repainting.
Section 9.2: UTILITIES: Tenant shall promptly pay for all gas, electricity and
water used in the Premises during the Term of this Lease. Tenant shall pay for
such utility services directly to the public utility supplying the same.
Section 9.3: HVAC: Tenant will perform all maintenance, repairs and
alterations to the HVAC system on an as needed basis.
Section 9.4: TAXES: Tenant shall pay the real estate taxes ("Taxes") levied
against the Premises during the term of the Lease. Tenant shall pay such Taxes
before same shall become delinquent.
Nothing contained herein shall be construed to include as a tax which shall be
the basis of real estate taxes, any inheritance, estate, succession, transfer,
gift, franchise, corporation, income or profit tax or capital levy that is or
may be imposed upon Landlord.
<PAGE>
Notwithstanding anything in this Lease to the contrary, in the event that during
the Lease Term any governmental entity makes any improvement and assesses any
portion of the Premises therefor, Tenant shall be liable only for so much of its
such assignment as the remainder of the Lease Term relates to the useful life of
such improvement. Additionally, with respect to any special assessments which
may be levied as part of the Taxes, Tenant shall have the right to pay such
assessments in equal installments over the longest legally available period,
whether or not Landlord elects to pay in installments, provided that Landlord
has the option of paying said assessment over the longest period of time.
Article 10: DAMAGE AND DESTRUCTION
If the Premises are damaged by peril coverable by the insurance required
hereunder, Tenant shall promptly repair and restore the Premises to its
condition immediately prior to such damage.
Article 11: EMINENT DOMAIN
In the event a portion of the Premises shall be taken or appropriated by any
lawful power or authority by the exercise of the right of condemnation or
eminent domain, (a) Landlord shall immediately restore such to at least a
condition equal to that existing prior to such taking or appropriation,
sufficient to make the Premises a whole architectural unit, and Base Rent shall
abate until Tenant is able to reopen for business, and (b) Tenant's Base Rent
and other charges shall be equitably adjusted as of the date of such taking to
reflect the reduction in the square footage of the Premises. In the event such
partial taking materially interferes with Tenant's use of the Premises, or in
the event a temporary taking exceeds six (6) months, Tenant may terminate this
Lease upon thirty (30) days written notice to Landlord.
In the event all of the Premises shall be taken or appropriated by any lawful
power or authority by the exercise of the right of condemnation or eminent
domain, this Lease shall terminate as of the date of such taking. Landlord
shall promptly refund any prepaid rents.
Article 12: DEFAULT
The following shall be deemed a Default: (i) Tenant's failure to make a rental
payment within thirty (30) days after receipt of written notice that said amount
is past due; (ii) Tenant's failure to observe and perform its obligations
hereunder (other than a payment of rental) within thirty (30) days after receipt
of written notice of such curable violation; provided, however, if such default
cannot be cured within said thirty (30) day period, then in that event, a
Default shall occur only if Tenant shall fail to have commenced a cure within
such thirty (30) day period.
In the event of a default which is not cured within the applicable grace period,
Landlord shall have the right to re-enter and repossess the Premises, whereupon
this lease shall terminate and Landlord may recover from Tenant all unpaid rent
which is due at the time of termination, as well as the rent and all other
charges payable by Tenant hereunder, all of which sums shall be payable to
Landlord on a monthly basis over what would have been the balance of the Term.
Landlord agrees to use best efforts to mitigate damages and relet the Premises.
Article 13: SUBORDINATION
Tenant agrees to subordinate this Lease to any mortgage, deed of trust, ground
lease or other lien or lease now on the Premises or any mortgage, deed of trust,
ground lease or other lien or lease placed thereon during the Term of this Lease
or any extension thereof, and shall execute and deliver to Landlord upon demand
and at Landlord's cost, such instruments necessary to effect such subordination,
all of the
<PAGE>
foregoing on the condition that the holder shall provide Tenant with a written
non-disturbance agreement, in form acceptable to Tenant, wherein the holder
agrees to recognize the validity and continuance of this Lease and agrees not to
disturb Tenant's possession of the Premises.
Landlord agrees to obtain a Non-Disturbance and Attornment Agreement from its
current lenders, and the ground lessor, if any, and deliver same to Tenant
within thirty (30) days from the date hereof, in form and substance acceptable
to Tenant. If any said Non-Disturbance and Attornment Agreement is not so
delivered, Tenant may, at its option, terminate this Lease by written notice to
Landlord.
Article 14: SECURITY
This Lease constitutes a lien as security for the rent and other amounts payable
hereunder and for the performance by Tenant of every other obligation herein
contained upon all the personal property and fixtures, of any nature, which are
or may hereafter be placed on the Premises by Tenant, which lien may be enforced
on the nonpayment of any rent or other amount due under this Lease or the
nonperformance of any obligations herein contained.
Article 15: RIGHT OF FIRST REFUSAL
Tenant is hereby granted a right of first refusal on the Property during the
term of this Lease and any extensions or renewals thereof ("Right of First
Refusal"). If at any time during the term of this Lease or any extensions or
renewals thereof, Landlord receives a bona fide offer from a third party to
purchase the Property, Landlord shall, within two (2) days from the date of
execution thereof, supply Tenant with a complete copy of the executed purchase
agreement and all exhibits and addenda thereto ("Sale Notice"). Landlord's Sale
Notice shall constitute an offer to sell the Property to Tenant at the price and
upon substantially the same terms and conditions as are contained in Landlord
Sale Notice. Tenant shall have thirty (30) days after receipt of Landlord's
Sale Notice and after all contingencies contained therein have been satisfied or
waived (the "Offer Period"), in which to accept such offer and to agree to
purchase the Property from Landlord at the price and upon substantially the same
terms and conditions contained in the Sale Notice.
Article 16: OPTION TO PURCHASE/OPTION TO SELL
Article 16.1: OPTION TO PURCHASE: Landlord hereby grants to Tenant the option
(the "Purchase Option") to purchase the Premises by written notice from Tenant
to Landlord (the "Purchase Option Notice") given at any time after the end of
the seventh full Lease Year of the term of the Lease and prior to the expiration
of the original term of the Lease, or the end of the fifteenth Lease Year, if
the First Option to Extend the Lease is exercised by Tenant, or the end of the
eighteenth Lease Year, if the Second Option to Extend the Lease is exercised by
Tenant. The purchase price for the Premises shall be equal to the sum of
$1,400,000.00, plus $70,000 for each full lease year, plus a pro rata portion
of a partial lease year, measured from the Commencement Date of this Lease to
the date of exercise of the Purchase Option. The pro rata portion of the
Purchase Price for such partial year shall be prorated on a per diem basis at
the rate of $191.78 per day ($70,000 / 365).
Article 16.2: OPTION TO SELL. Landlord shall have the right to require Tenant
to purchase the premises from Landlord ("Sale Option") by giving written notice
from Landlord to Tenant (the "Sale Option Notice") given at any time after the
end of the seventh full Lease Year of the term of the Lease and prior to the
expiration of the original term of the Lease, or the end of the fifteenth Lease
Year if the first option to extend the lease is exercised by Tenant, or the end
of the eighteenth Lease Year, if the Second Option to Extend the Lease is
exercised by Tenant. The purchase price for the Premises shall be equal to the
sum of $1,400,000.00, plus $70,000 for each full lease year, plus a pro rata
portion of a partial lease year, measured from the Commencement Date of this
Lease to the date of exercise of the Sale Option. The pro rata portion of the
Purchase Price for such partial year shall be prorated on a per diem basis at
the
<PAGE>
rate of $191.78 per day ($70,000 / 365).
Article 16.3: CLOSING: The closing shall occur on a date mutually agreeable to
Landlord and Tenant, which date shall not be later than six (6) months after the
date Tenant delivers its Purchase Option Notice to Landlord, or the date
Landlord delivers its Sale Option Notice to Tenant, whichever is applicable.
The closing shall be held at the offices of Tenant's lending institution, or at
any other place agreed to by Landlord and Tenant.
Article 16.4: TITLE, DEFECTS: The Premises shall be conveyed by standard
warranty deed, subject to easements and restrictions now of record, the rights
of the public in all streets and roads abutting the Premises, liens for unpaid
property taxes first coming due and payable after the Commencement Date, and
zoning and such other matters created by Tenant or arising out of Tenant's use
and occupancy of the Premises (the "Permitted Exceptions"), but free and clear
of the lien of any mortgage, deed of trust, or security interest created by or
resulting from acts of the Landlord, any successor of Landlord, any party
claiming through Landlord, or any other person, without the express consent of
Tenant. Landlord shall, within fifteen (15) days after delivery of the Purchase
Option Notice to Landlord or delivery of the Sale Option Notice to Tenant,
whichever is applicable, obtain and deliver to Tenant a commitment for an ALTA
owners form of title insurance, without standard exceptions, in the amount of
the Purchase Price. Within fifteen (15) days thereafter, Tenant shall notify
Landlord in writing of any claimed defect in title. Within thirty (30) days
after receipt of such notice, Landlord shall notify Tenant of Landlord's
election whether or not to cure any or all of such defects. In the event that
Landlord shall be unable or unwilling to cure any such claimed defects, Tenant
shall have the option to (i) accept title to the Premises subject to such
claimed defects, with a credit against the Purchase Price in an amount necessary
to discharge any lien against the premises, the amount of which is liquidated as
of closing, (including interest and penalties thereon accrued to the date of
closing) which is not a Permitted Exception, or (ii) terminate and rescind the
exercise of the Purchase Option or the Sale Option, whichever is applicable,
without any liability to Landlord, and Tenant's right to exercise such Purchase
Option and Landlord's right to exercise such Sale Option thereafter shall be
terminated.
Article 16.5: CLOSING PAYMENTS: All transfer taxes, documentary deed stamps,
and the title insurance premiums for an ALTA owners policy of title insurance,
with standard exceptions deleted, in the amount of the Purchase Price shall be
paid by Tenant at the closing.
Article 16.6: TAXES, PRORATIONS: Tenant shall pay all taxes and assessments
which have become a lien against the Premises and which shall become due and
payable prior to the closing. Rents shall be prorated as of the date of closing.
Article 16.7: SURVEY: Tenant may obtain prior to closing, at Tenant's expense,
a mortgage survey of the Premises.
Article 16.8: CLAIM OF INTEREST: Tenant shall be free to record an affidavit of
claim of interest against the Premises with the Kent County Register of Deeds;
provided, if Tenant does not exercise this Option within the time provided,
Tenant shall promptly record a release of such affidavit of claim of interest
promptly upon expiration of all of Tenant's rights under this option.
Article 17: MISCELLANEOUS
Section 17.1: NOTICE: Whenever notice or consent is required hereunder, such
notice shall be sent to the address set forth in the DATA SHEET (or such
subsequent address provided by either party to the other in writing by proper
notice), by United States certified mail, return receipt requested, or by
overnight carrier and shall be deemed delivered when received or rejected as
evidenced by return receipt.
Section 17.2: BROKERAGE: Landlord and Tenant represent to each other that they
have not utilized the
<PAGE>
services of any broker in connection with the transaction evidenced by this
Agreement. Accordingly, Tenant agrees to indemnify and hold harmless Landlord
from payment of any brokerage fees or any liability or obligation therefor to
any person or party claiming a fee or commission through Tenant and Landlord
agrees to indemnify and hold harmless Tenant from payment of any brokerage fees
or any liability or obligation therefor to any person or party claiming a fee or
commission through Landlord.
Section 17.3: QUIET ENJOYMENT: Landlord covenants that Landlord has the right
to enter into this Lease and Tenant shall lawfully, peaceably and quietly have,
hold, occupy and enjoy the Premises through the Term and any extension thereof
without hindrance or ejection by Landlord or any person claiming, by, through or
under Landlord or landlord's successors, and Landlord shall defend Tenant's
right to such quiet enjoyment.
Section 17.4: MUTUAL FORCE MAJEURE: The time within which any of the parties
hereto shall be required to perform any act or acts under this Lease (other than
the payment rent or other monies owing hereunder) shall be extended to the
extent that the performance of such act or acts shall be delayed by acts of God,
fire, windstorm, flood, delays or restrictions by governmental bodies, or any
other cause beyond the reasonable control of such party; provided, however, that
the party entitled to such extension hereunder shall give reasonable notice to
the other party of the occurrence causing such delay.
Section 17.5: LEGAL EXPENSES: In the event either party hereto institutes legal
action or proceedings arising out of or in any way connected with this Lease,
the non-prevailing party shall reimburse the prevailing party for all reasonable
attorney's fees and costs incurred in connection therewith.
Section 17.6: JOINT AND SEVERAL LIABILITY: In the event two or more
individuals, corporations, partnerships or other business associations (or any
combination thereof) shall execute this Lease as Landlord, the liability of each
to comply with all other terms, covenants and conditions of this Lease shall be
joint and several. In like manner, in the event Landlord is a partnership or
other business association, the members of which are, by virtue of statute or
general law, subject to personal liability, then the liability of each member
shall be joint and several.
Section 17.7: ARBITRATION: In the event of a dispute between the Landlord and
the Tenant, arising out of the terms, covenants and conditions of this Lease,
such dispute shall be submitted to arbitration in accordance with the Rules of
the American Arbitration Association then pertaining, except that the arbitrator
shall have no power to modify or alter the terms of this Lease. The party in
whose favor an award is rendered may cause judgment on the award to be entered
in any court having jurisdiction.
Section 17.8: ENTIRE AGREEMENT: This Lease and the Exhibits attached hereto
and forming a part hereof set forth all the covenants, promises, agreements,
conditions and undertakings between Landlord and Tenant concerning the Premises,
and there are no covenants, promises, agreements, conditions or undertakings,
either oral or written, between them except as set forth herein. No subsequent
alteration, amendment, change or addition to this Lease shall be binding upon
Landlord or Tenant unless reduced to writing and signed by both parties hereto.
Section 17.9: ADDITIONAL CONSTRUCTION OR CHANGES BY LANDLORD: Notwithstanding
anything in this Lease to the contrary, no modifications, additions or
construction to the Premises shall alter the dimensions, location or
configuration of the Premises adversely affect the use, operation or conduct of
Tenant's business being conducted in the Premises, or adversely affect the
accessibility or visibility of the Premises or Tenant's signage.
Section 17.10: SUCCESSORS AND ASSIGNS: Except as expressly provided herein,
this Lease and the obligations of Landlord and Tenant contained herein shall
bind and benefit the successors and assigns of the parties hereto.
<PAGE>
Section 17.11: LANDLORD'S AGREEMENT: Landlord represents, covenants and
warrants that it has full right, power and authority to enter into this Lease.
Section 17.12: RECORDING: Neither Landlord nor Tenant shall record this Lease.
However, at the request of either Landlord or Tenant, the parties shall join in
the execution of a memorandum or so-called "short form" of this Lease for
purposes of recordation. Any recording costs associated with the memorandum or
short form of this Lease shall be borne by the party requesting recordation.
EYDE BROTHERS DEVELOPMENT COMPANY MICHIGAN BREWERY, INC.
("LANDLORD") ("TENANT")
By: /s/ Michael G. Eyde By: /s/ William F. Rolinski
-------------------------- -----------------------------------
Name: Michael G. Eyde Name: William F. Rolinski
-------------------------- -----------------------------------
Its: Owner Its: President
-------------------------- -----------------------------------
<PAGE>
EXHIBIT 11
MICHIGAN BREWERY, INC.
Computation of Net Loss Per Common Share
Three Three
Months Months
Ended Ended
March 30, March 31,
1997 1996
---------- ----------
Weighted average number of issued
shares outstanding 5,275,000 2,500,000
Effect of:
Common shares issued during
1996 (1) 0 87,363
Dilutive effect of cheap stock after
application of treasu
stock method (1) 0 291,982
---------- ----------
Shares outstanding used to compute
net income (loss) per share 5,275,000 2,879,345
---------- ----------
Net income (loss) ($355,186) ($387,443)
---------- ----------
---------- ----------
Net income (loss) per common share ($0.07) ($0.13)
---------- ----------
---------- ----------
(1) Cheap stock and common shares issued during 1996 are included in the
computation for all periods presented in accordance with Staff Accounting
Bulletin Topic 4 (D).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> MAR-30-1997
<CASH> 26,395
<SECURITIES> 2,200,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 205,899
<CURRENT-ASSETS> 2,599,857
<PP&E> 12,755,095
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,412,048
<CURRENT-LIABILITIES> 1,169,017
<BONDS> 2,060,865
0
0
<COMMON> 52,750
<OTHER-SE> 12,129,416
<TOTAL-LIABILITY-AND-EQUITY> 15,412,048
<SALES> 1,116,751
<TOTAL-REVENUES> 1,116,751
<CGS> 364,621
<TOTAL-COSTS> 1,100,003
<OTHER-EXPENSES> 360,916
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,941
<INCOME-PRETAX> (355,186)
<INCOME-TAX> 0
<INCOME-CONTINUING> (355,186)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (355,186)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
