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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
INTERNATIONAL MENU SOLUTIONS CORPORATION
(Name of small business issuer in its charter)
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NEVADA 91-1849433
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Employer incorporation or organization)
350 Creditstone Road, Unit 202
Concord, Ontario, Canada L4K 3Z2
(Address of principal executive offices) (Zip Code)
(416) 366-6368
(Issuer's telephone number)
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Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $0.001 Per Share
(Title of Class)
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TABLE OF CONTENTS
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PART ITEM ITEM DESCRIPTION PAGE
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PART I.......................................................................................................................1
ITEM 1. DESCRIPTION OF BUSINESS......................................................................1
General......................................................................1
Acquisitions by IMSI prior to the Amalgamation...............................2
Acquisitions by the Company after the Amalgamation...........................2
Business.....................................................................6
Patents and Trademarks......................................................10
Governmental Regulation.....................................................10
Employees and Labor Contracts...............................................11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS........................................................11
Result of Operations........................................................12
Liquidity and Capital Resources.............................................15
Year 2000...................................................................18
Factors That May Affect Future Results of Operation.........................19
Cautionary Statement Involving Forward Looking Statements...................19
ITEM 3. DESCRIPTION OF PROPERTY.....................................................................19
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............................20
Security Ownership of the Company...........................................20
Security Ownership of IMSI..................................................22
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS................................23
Directors and Executive Officers of the Company.............................23
Significant Employees of the Company's Subsidiaries.........................24
ITEM 6. EXECUTIVE COMPENSATION......................................................................24
Compensation of Directors...................................................26
Employment Agreement........................................................26
Stock Option Plan...........................................................26
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................................27
ITEM 8. DESCRIPTION OF REGISTRANT'S SECURITIES......................................................27
Securities of the Company...................................................27
Securities of IMSI..........................................................29
Registration Rights.........................................................34
Right of First Refusal......................................................34
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PART II.....................................................................................................................35
ITEM 1. MARKET PRICE OF COMMON EQUITY AND RELATED SHAREHOLDER MATTERS...............................35
ITEM 2. LEGAL PROCEEDINGS...........................................................................35
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS...............................................35
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.....................................................35
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS...................................................37
PART F/S....................................................................................................................37
ITEM 1. FINANCIAL STATEMENTS........................................................................37
PART III....................................................................................................................38
ITEM 1. INDEX TO EXHIBITS...........................................................................38
INDEX TO THE FINANCIAL STATEMENTS...........................................................................................39
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
International Menu Solutions Corporation (the "Company") is a holding
company with subsidiaries engaged in the development, production and marketing
of a series of specialty food products for sale to large retail and specialty
food chains throughout North America.
The Company was incorporated under the laws of the State of Nevada on
June 24, 1997 as ANM Holdings Corporation. The Company changed its name to
International Menu Solutions Corporation on July 15, 1998. The Company's
principal operating subsidiaries include International Menu Solutions Inc.
("IMSI"), a corporation incorporated under the laws of the Province of Ontario
on September 26, 1997, and the following wholly owned subsidiaries of IMSI:
- - - Prime Foods Processing Inc., a corporation incorporated under the laws of
the Province of Ontario on March 27, 1990;
- - - Transcontinental Gourmet Foods Inc., a corporation incorporated under the
laws of the Province of Ontario on January 27, 1983;
- - - Tasty Selections Inc., a corporation incorporated under the laws of the
Province of Ontario on July 8, 1996 as 1188980 Ontario Ltd. (doing
business as Tasty Batters), which was amalgamated(1) on September 30,
1999 with Norbakco Ltd., a corporation incorporated under the laws of the
Province of Ontario on August 25, 1995;
- - - 1005549 Ontario Inc., a corporation incorporated under the laws of the
Province of Ontario on December 21, 1992;
- - - D.C. Food Processing Inc., a corporation incorporated under the laws of
the Province of Ontario on December 2, 1994; and
- - - The Ultimate Cookie Co. Ltd./L'Ultime Biscuit Cie Inc., a corporation
incorporated under the laws of Canada on March 1, 1990.
The following is a wholly owned subsidiary of the Company:
- - - International Menu Solutions USA Inc., a corporation organized under the
laws of the State of Delaware on October 29,1999. On November 26, 1999,
International Menu Solutions USA Inc. filed articles of amendment to
change its name to Huxtable's Kitchens Inc.
As a holding company, the Company is a legal entity separate and distinct
from its subsidiaries. Accordingly, the right of the Company, and thus the right
of the Company's creditors (including holders of its debt securities and other
obligations, if any) and stockholders, to participate in any distribution of the
assets or earnings of any subsidiary is subject to the claims of creditors of
the subsidiary, except to the extent that claims of the Company itself as a
creditor may be recognized, in which event the Company's claims may in certain
circumstances be subordinate to certain claims of others. In addition, as a
holding company, a principal source of the Company's unconsolidated revenues and
funds is dividends and other payments from its subsidiaries. The Company's
principal subsidiaries currently require the consent of its banker, the Bank of
Nova Scotia, to pay cash dividends or to make other withdrawals or advances to
individual shareholders, but are permitted to pay dividends and advances to the
Company. See "Management's Discussion and Analysis - Liquidity and Capital
Resources."
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1 An amalgamation of two companies in the Province of Ontario pursuant to
the Business Corporations Act (Ontario) is similar to a merger of two companies
in the United States.
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On July 16, 1998, the Company's wholly-owned subsidiary, 1308864 Ontario,
Inc., amalgamated with IMSI pursuant to the Business Corporations Act (Ontario).
As a result of the amalgamation, the holders of the outstanding 4,000,000 shares
of common stock of pre-amalgamation IMSI received 4,000,000 Class X shares of
the post-amalgamation IMSI and 4,000,000 Class N shares of the Company. The
amalgamation allowed the Company to carry out its new strategy of becoming a
producer of home meal replacement products. Prior to the amalgamation, the
Company was in the preliminary stages of organizing its unrelated business but
had carried on no operations.
As of October 31, 1999, there were 10,248,350 shares of common stock, par
value $0.001 per share, and 3,110,795 Class N shares, par value $0.001 per
share, of the Company outstanding. In addition, there are currently various
classes of equity securities of IMSI outstanding which can be exchanged for
common stock of the Company. The Company estimates that the exchange of these
shares will result in the issuance of approximately 4,571,000 shares of common
stock of the Company. However, management's estimate of such number of shares
could change in the future because such number is based on a number of factors,
including the future financial performance of various subsidiaries of the
Company and the future trading prices of the shares of common stock of the
Company.
The Company's principal executive offices are located at 350 Creditstone
Rd., Unit 202, Concord, Ontario.
The Company has been engaged in a strategy of seeking to further enhance
the operations of its principal operating companies. Pursuant to this strategy,
in the nine-month period ended September 30, 1999, the Company completed two
acquisitions of businesses for an estimated aggregate cost of $18 million in
cash and securities, including fees and expenses. In 1998, the Company completed
three acquisitions of businesses for an estimated aggregate cost of $5.8 million
in cash and securities, including fees and expenses. Subsequent to September 30,
1999 the Company acquired two businesses for an estimate aggregate cost of $23
million. A description of such acquisitions follows.
ACQUISITIONS BY IMSI PRIOR TO THE AMALGAMATION
ACQUISITION OF PRIME FOODS PROCESSING INC. On November 5, 1997, IMSI,
prior to it being acquired by the Company, acquired all of the outstanding
shares of Prime Foods Processing Inc. ("Prime Foods") for cash consideration of
$374,000(2). In addition IMSI made payments for professional fees and premises
and equipment improvements totaling $291,547.
ACQUISITIONS BY THE COMPANY AFTER THE AMALGAMATION
ACQUISITION OF PASTA KITCHEN. On October 9, 1998, the Company acquired
the business carried on by 1218951 Ontario Inc. under the trade name of "Pasta
Kitchen." The Company purchased all of the assets of Pasta Kitchen for cash
consideration of $372,212 paid on closing and an additional amount of $340,000,
subject to certain downward adjustments, in cash or common stock of the Company
at the Company's discretion payable on or after October 31, 1999. At October 31,
1999 Pasta Kitchen had met the conditions necessary to receive the whole of the
$340,000 without adjustment. Management could issue up to 76,000 shares of the
common stock of the Company to satisfy the balance of the purchase price, but is
considering issuing a combination of cash and shares. Pasta Kitchen now operates
as a division of Prime Foods Processing Inc. ("Prime Foods"). The purchase of
Pasta Kitchen has given the Company the ability to offer several of Canada's
leading supermarket chains with a full line of pasta-based heat-and-serve meal
solutions that are fully prepared and packaged in single and multi-serve
portions.
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2 All dollar amounts are in the functional currency of the Company's financial
statements (Canadian dollars) except where otherwise indicated. Where a
conversion from Canadian dollars to US dollars is made, a conversion rate at
October 31, 1999 was used.
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ACQUISITION OF TRANSCONTINENTAL GOURMET FOODS INC. AND NORBAKCO, LTD. On
November 30, 1998, the Company acquired, through IMSI, all the issued and
outstanding shares of Transcontinental Gourmet Foods Inc. ("Transcontinental")
and 59% of the shares of Norbakco Ltd., a sister corporation of Transcontinental
("Norbakco"). These acquisitions added fillo pastry hors d'oevres and desserts
to the product line of meal solutions offered by the Company. We purchased all
of the issued and outstanding shares of Transcontinental and the 59% interest in
Norbakco for a cash consideration of $1,000,000 at closing and an additional
cash payment after February 28, 1999 of approximately $582,000, of which
$550,000 has been paid to date. This amount was determined based on the net book
value of Transcontinental in excess of $1,000,000, as determined at February 28,
1999. Of the $1,000,000 consideration paid at closing, $860,000 was allocated to
Transcontinental and $140,000 was used to purchase notes payable to the former
shareholders of Norbakco. The balance of the purchase price was satisfied by the
issue to the selling shareholders of three classes of shares of stock of IMSI:
300,000 Class B shares, 100,000 Class C shares and 59,000 Class D shares, all of
which were issued on December 1, 1998. Such shares are exchangeable for shares
of the common stock of the Company in accordance with formulas contained in the
share attributes for the Class B shares, the Class C shares and the Class D
shares, respectively. Management estimates that approximately 2,730,000 shares
of common stock of the Company will be issued to the former shareholders of
Transcontinental in exchange for the outstanding Class B, Class C and Class D
shares. Please see Item 8: "Description of Registrant's Securities" section for
a detailed explanation of the conversion formulas in the Class B, Class C and
Class D shares.
On May 17, 1999, the Company acquired, through IMSI, the remaining 41%
equity interest in Norbakco. The consideration paid for the purchased shares was
53,000 Class X shares of IMSI and 53,000 Class N shares of the Company, and the
purchase by IMSI of shareholder loans made to Norbakco in the aggregate amount
of $180,000. As part of the issue of the 53,000 Class X shares and the 53,000
Class N shares, IMSI and the Transcontinental shareholders agreed to reduce the
number of shares of common stock of the Company that the 300,000 Class B shares
may be exchanged for by 53,000 shares. On September 30, 1999 Norbakco Ltd. was
amalgamated with Tasty Selections Inc.
ACQUISITION OF TASTY SELECTIONS INC. On April 15, 1999, the Company
purchased through IMSI all of the issued and outstanding shares of Tasty
Selections Inc., a manufacturer of muffin and cookie batters ("Tasty
Selections"). IMSI acquired Tasty Selections for cash consideration of
$1,000,000, 442,750 Class X shares of IMSI and an equal number of Class N
shares. On September 30, 1999 Tasty Selections Inc. was amalgamated with
Norbakco Ltd. Contemporaneous with the purchase of the shares of Tasty
Selections, IMSI, Tasty Selections and the Company entered into a
non-competition and confidentiality agreement with Allan Greenspoon
("Greenspoon"), the president of Tasty Selections, to ensure that the goodwill
of Tasty Selections is not impaired by the actions of Greenspoon. In
consideration of the covenants of Greenspoon, the Company and IMSI agreed to
issue to Greenspoon a number of shares of common stock of the Company
determined, at the option of Greenspoon, as an amount that is either,
(i) 4 times the EBITDA for IMSI's Canadian bakery operations for the
year ended December 31, 2001 less $2,160,000, or
(ii) 3 times the EBITDA for IMSI's Canadian bakery operations for the
year ended December 31, 2002 less $2,160,000,
in each case divided by the weighted average closing price for the shares of
common stock of the Company for the twenty (20) trading days prior to the last
day for which the foregoing amount is selected on the OTC Bulletin Board, or
exchange upon which the shares of the common stock of the Company are traded.
In the event of the termination of the employment of Greenspoon for other than
death, permanent disability or cause, the same consideration as set forth above
shall continue to apply. In the event of termination of his employment for
death, permanent disability or cause prior to December 31, 2001, then the number
of shares shall be the number obtained by using the following formula: (4 times
the EBITDA for the twelve month period preceding the date of termination minus
$2,160,000) divided by the weighted average closing price for the shares of
common stock of the Company for the twenty (20) trading days prior to the last
day of the twelve month
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period. The term "EBITDA" means earnings before interest, income taxes,
depreciation and amortization, as calculated in accordance with Canadian
generally accepted accounting principles.
ACQUISITION OF 1005549 ONTARIO LIMITED. On May 10, 1999, the Company,
through IMSI, purchased all of the issued and outstanding shares of 1005549
Ontario Limited, the parent company of the wholly owned subsidiary D.C. Foods
Processing Inc. (collectively "D.C. Foods"), a manufacturer of value-added
breaded and battered meat and dairy products, for a purchase price equal to the
sum of the following components:
(a) $6,345,000;
(b) an amount equal to the Adjusted EBITDA of D.C. Foods (as defined
in the share purchase agreement) on a consolidated basis for the
period December 7, 1998 to December 31, 1999, but not less than
zero; and
(c) an amount equal to four times the Adjusted EBITDA of D.C. Foods
on a consolidated basis for the one year period ending March 31,
2002 or December 31, 2002 (such period to be selected by the
selling shareholders), minus (i) $6,000,000, and minus (ii) the
amount paid under component (b) above.
Component (a) of the purchase price paid by IMSI to the selling
shareholders of D.C. Foods was satisfied as follows: (i) $4,000,000 in cash;
(ii) $500,000 through the issue to the selling shareholders of 190,476 Class X
shares of IMSI and an equal number Class N shares, and (iii) $1,845,000 by the
issue of 702,857 Class X shares of IMSI and an equal number of Class N shares.
Component (b) of the purchase price was satisfied by the issue of 250,000 Class
E Series 1 shares and 250,000 Class E Series 2 shares. Component (c) of the
purchase price was satisfied by the issue of 250,000 Class E Series 3 shares,
and 250,000 Class E Series 4 shares. The Class E shares were issued by IMSI on
May 10, 1999 and are exchangeable for shares of common stock of the Company
based upon the Adjusted EBITDA of D.C. Foods. See "Item 8: Description of
Registrant's Securities - Securities of IMSI."
ACQUISITION OF THE ULTIMATE COOKIE CO. INC. On October 18, 1999, the
Company, through IMSI, purchased all of the issued and outstanding shares of The
Ultimate Cookie Co. Inc. ("Ultimate"), a Montreal-based bakery for consideration
of cash and stock for a purchase price equal to the sum of the following
components:
(a) an amount equal to 4 times the Adjusted EBITDA of Ultimate for the
one year period ending April 30, 2000 (the "April Amount"); and
(b) an amount being the greater of (i) 25% of the Year 2002 Amount (as
defined in the share purchase agreement) minus the April Amount,
and (ii) zero, and
(c) the actual amount of any approved Scientific Research Tax Credits
for the period ended April 30, 2000.
Component (a) of the purchase price paid by IMSI to the selling
shareholders of Ultimate was satisfied as follows: (i) $175,000 in cash; and
(ii) by the issue of 250,000 Class E Series 5 shares. The (b) and (c) components
of the purchase price were satisfied by the issuance of 250,000 Class E Series 6
shares. The Class E shares were issued by IMSI to the selling shareholders of
Ultimate on October 18, 1999 which are exchangeable for shares of common stock
of the Company. See "Item 8: Description of Registrant's Securities - Securities
of IMSI."
ACQUISITION OF HUXTABLE'S FOODS, L.L.C. On November 12, 1999, the
Company, through its recently created wholly-owned subsidiary Huxtable's
Kitchens Inc. ("Huxtable's Kitchens"), purchased substantially all of the
operating assets of Huxtable's Foods, L.L.C., a Delaware limited liability
company ("Huxtable's") located in Vernon, California, including the brand
"Huxtable's Kitchen". Huxtable's is a provider of a wide range of fresh
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and frozen entrees in the Southern California market. The purchase price paid
for such assets is equal to the sum of the following components:
(a) US$3,080,000, plus
(b) the earnout payments as determined as follows:
(i) an amount not to exceed 4 times the year 1999 Adjusted
EBITDA for the period commencing on November 1, 1999 to and
including December 31, 1999 (the "Stub Payment"), the
multiple to be determined by Huxtable's (the "Stub
Payment"); and
(ii) an amount equal to one (1) times the year 2000 Adjusted
EBITDA (the "First Year Payment").
Huxtable's has the right to elect to have the final payment
based upon the year 2001 Adjusted EBITDA or the year 2002
Adjusted EBITDA. If Huxtable's elects to have the final
payment based upon the year 2002 Adjusted EBITDA, then
Huxtable's shall receive a payment based upon the year 2001
Adjusted EBITDA as follows:
(iii) an amount equal to one times the year 2001 Adjusted EBITDA
(the "Second Year Payment").
In the event that Huxtable's elects to have the final
payment based upon the year 2001 Adjusted EBITDA, then
Huxtable's shall not receive the Second Year Payment but
will instead receive the following:
(iv) an amount equal to
(1) 5 times the year 2001 Adjusted EBITDA; less
(2) the Stub Payment to the extent that such deduction
would not reduce the year 2001 Final Payment
determined in (iv)(1) above, below US$7,500,000;
less
(3) the First Year Payment.
Such amount may be reduced below US$7,500,000 by deduction
of the First Year Payment.
In the event that Huxtable's elects to have the final
payment based upon the year 2002 Adjusted EBITDA, then
Huxtable's shall not receive the payment in (iv) above but
shall receive instead
(v) an amount equal to:
(1) 5 times the year 2002 Adjusted EBITDA; less
(2) the Stub Payment to the extent that the such
deduction would not reduce the amount determined in
(v)(1) above, below US$7,500,000; less
(3) (A) the First Year Payment plus (B) the Second Year
Payment. Such amount may be reduced below US$7,500,000 by
deduction of the First Year Payment and the Second Year
Payment.
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In the event that the aggregate amount paid to Huxtable's under clauses
(i) through (v) above is not equal to or greater than 80% of the Gross Margin
(as defined in the asset purchase agreement), in the final payment year, plus 2
times the Adjusted EBITDA for the Final Payment Year, then Huxtable's Kitchens
shall pay to Huxtable's an additional amount equal to the difference.
The term "Adjusted EBITDA" means the consolidated earnings before
interest, income taxes, depreciation, amortization, and scientific research tax
credits for Huxtable's Kitchens Inc., as calculated, in accordance with GAAP
consistently applied and past practice and based upon financial information
taken from audited financial statements of Huxtable's Kitchens. For the purpose
of the Adjusted EBITDA calculations, certain items relating to the acquisition
of Huxtable's shall be excluded.
Component (a) of the purchase price paid by IMSI to Huxtable's was
satisfied (i) by a cash payment paid to Huxtable's of US$2,880,000, and (ii) by
a cash payment of US$200,000 paid into escrow pending the adjustment of certain
expenses of Huxtable's during the period November 1, 1999 to November 12, 1999
and to provide for the payment of one-half of the California sales taxes
exigible upon purchase of the assets, and the balance of the said amount shall
be paid to Huxtable's.
Component (b) of the purchase price will be paid in either cash or shares
of the common stock of the Company based upon the terms and conditions of the
asset purchase agreement.
We continue to pursue the strategy of expanding the Company's business
through acquisitions, and in furtherance thereof explore other possible
acquisitions in fields related to our principal operating companies. Although no
assurance can be given as to whether or when any acquisitions or dispositions
will be consummated, if an agreement with respect to any acquisitions were to be
reached, we might finance such acquisitions by the issuance of additional debt
or equity securities. The additional debt from any acquisitions, if consummated,
would increase our debt-to-equity ratio and the issuance of additional or equity
securities might, at least in the near term, have a dilutive effect on earnings
per share.
INTERNALLY ESTABLISHED DIVISION. In October 1998, the Company established
its Seafood Selections division as a division of Prime Foods. The division's
mandate was to develop and sell seafood based products consistent with the
Company's overall product and brand strategy. The division has, since it was
established, developed a line of seafood based pastas and hors d'oeuvres. The
division had its first sales in March1999. After the division was established,
Prime Foods entered into consulting agreements with the two managers of the
division which included a right of first refusal in the case the Company decided
to sell the division as well as certain profit sharing and/or royalty
arrangements.
BUSINESS
We develop, market and produce a series of specialty food products for
sale to large retail food chains and specialty food chains. Our product lines
target consumers who desire restaurant quality meals that can be conveniently
prepared for home consumption, the basis for Home Meal Replacement ("HMR"). The
National Restaurant Association estimates that by the year 2005, the average
consumer will allocate greater than 50% of his/her food budget towards prepared
meals purchased outside the home.
The HMR market has developed to address the competing pressures to
provide well balanced home cooked meals and the time pressures of the evolving
dual income family. HMR products have evolved from frozen TV dinners in the
1970's and 1980's to frozen microwaveable dishes and freshly prepared meals that
are "ready to heat and eat" in the 1990's.
PRINCIPLE PRODUCTS AND SERVICES. The products we offer include restaurant
quality meals and meal components as well as food service related products. Many
of our products are the types of meals found on restaurant menus. The Company
identifies food service and restaurant eating trends and develops these foods
into a retail format. The products are sold in supermarkets as fresh and frozen
entrees. The frozen products have a
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shelf life of six to eight months and the fresh products have a shelf life of
approximately 21 days. The frozen meals are displayed in freezers located in the
HMR areas of supermarkets. The fresh meals are available in open self-serve
refrigeration units in the delicatessen section of supermarkets as both
self-serve items and through over the counter deli hot plate programs.
Management believes that the market for HMR products is rapidly
expanding. Historically, consumers have purchased for some time "ready to heat
and eat" food items. Our marketing strategy is to enhance the presentation,
taste and packaging of component items that comprise an HMR. In addition, these
meal components can be mixed and matched by consumers to create an international
or ethnic line of restaurant quality complete meals. A complete meal provides
all of the necessary starch, vegetable and center-of-the-plate items in one
package. The Company then cross merchandises these products with its other
products, including hors d'oeuvres and specialty desserts.
PRODUCT DEVELOPMENT STRATEGY. Our products are developed in response to
consumer demands and according to our own nutrition and preparation
specifications. Often, retail clients will request that we manufacture products
tailored to certain specifications demanded by the consumer. For example, we
work with retailers' design teams to create lines of food products to be sold
under our label or the retailers' labels. Otherwise, our meals are manufactured
and sold directly to retailers and organizations selling directly to retailers.
Our complete meal products are developed in component parts that, when
packaged together, form a complete "meal solution." A meal solution program is
developed for each retailer client. We sell approximately one-half of our
products under the retailers' private labels through a sub-branding approach or
under alliances with owners of other known brands. This is known as co-branding.
We believe that selling our products under private labels or known brands, which
are more recognizable by consumers, will create brand awareness of our products
since our name appears on the label of the known brand. It has become generally
accepted that supermarkets, specialty gourmet stores and big boxed meat stores
sell complete meals and meal components. To date, we have manufactured our
products under major private labels belonging to supermarkets, club stores, big
boxed meat stores, convenience store chains and non-traditional food retailers.
We offer three primary branding programs to retailers depending on the
size, strategic direction, and needs of the retailer:
- "Retailer branding": The retailer owns the brand and we provide
co-packing services;
- "Co-Branding": We use the retailer name/brands or locally
recognizable brands in conjunction with our own brand/label;
- "Control Branding": We provide complete meal solution programs
under our Company brand to small retailers who do not have the
expertise or market share to own their own brand.
We may also sell directly to the retailer under its own label(s) in
accordance with the retailer's needs without reference to a branding program.
Our long-term product development objective is to respond to popular
culinary trends. Our meals are developed under various local and international
theme canopies and are derived from restaurant menus. We currently focus on the
following food service theme canopies:
- Grill/American Grille
- Trattoria
- Mediterranean Taverna
- Bistro/New American Bistro
- Southwestern Cantina
- Asian Cafe
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PRODUCT MARKETING STRATEGY. We market a variety of brands of meals and
meal components through IMSI's wholly owned subsidiaries. These brands include:
(i) "Royal Selection", a line of frozen meal entrees; (ii) "International
Selection", a line of frozen meal entrees; (iii) the "Pasta Kitchen" label; (iv)
"Thornhill Bakery", "Meli's Bakery", and "Margies Sweets", a line of fresh and
frozen desserts; (v) "Jonathon T's" and "TGF" frozen hors d'oerves; (vi)
"Huxtable's Kitchen", a line of fresh and frozen entrees and complete meals; and
(vii) "The Ultimate Cookie", a line of frozen cookie dough.
In addition to the brands referred to above, we are marketing
internationally labeled food categories known as the "Selections" line. Our
strategy is to generate a series of international and ethnic-based meal
solutions that will be sold by retail clients directly or under a branding
program as described above. Our primary Company brand of complete meals is
"International Selections. We also re-brand products acquired on acquisitions of
new divisions or change or merge acquired brands to add the "Selections" name,
such as "Seafood Selections" or "Fresh Selections", etc. As a result, we
anticipate that these retailers will be able to choose various menu components
which parallel restaurant menus.
We utilize our own direct sales force in our target markets to our target
customers, supermarkets, specialty gourmet stores and club stores. Our sales
representatives convey to new and existing customers our belief that we offer
competitively priced, nutritious, restaurant quality meals because we control
product development and production in our wholly-owned facilities. Through the
efforts of our sales representatives, we seek to maintain a broad base of
customers in order to minimize the possibility of one major customer dictating
non-competitive terms to the Company. In certain cases, the Company, through its
subsidiaries, may utilize brokers to provide selling and merchandising services.
Our long-term marketing objective is to reach retail consumers in several
areas of the supermarkets and stores that carry our products, particularly in
the delicatessen and frozen food sections.
AMOUNT SPENT ON RESEARCH AND DEVELOPMENT. The amount spent on product
research and development for the nine months ended September 30, 1999 and the
period ended December 31, 1998 was $371,228, and $425,542 respectively. Although
research and development is not directly borne by the customer, it is a factor
in the determination of the pricing of our products.
PRODUCT DISTRIBUTION STRATEGY. We distribute our products in various ways
to our customers. Our products are distributed directly to major retailers as
either private label or co-branded products through both our own delivery
vehicles or third party vehicles. The products are also distributed directly to
major club stores under our own label. We distribute our products indirectly to
major club stores and retailers under co-packing agreements or to various
distributors under our own label. With the addition of Tasty Selections and D.C.
Foods, our reliance on any one of our distribution methods has been
significantly reduced.
DEPENDENCE ON MAJOR CUSTOMERS. We currently have one major customer,
Price Costco. Based on pro forma sales for the year-ended December 31, 1998 of
$54,421,000, this customer represented 19.3% of such sales. Management believes
it has a good relationship with Price Costco and anticipates that the Company
will expand its business with this customer, however, we have no long-term
commitments with them. In addition, on November 23, 1999, we announced that
Prime Foods, our frozen meal division, entered into an agreement to supply
frozen meal entrees to selected Wal-Mart Super Centers beginning in December of
1999. The initial program launch will be distributed to over 300 U.S.-based
Wal-Mart Super Center locations, and will include 16 restaurant-branded meal
solutions developed in cooperation with Brand Specialist, LLC of Dallas, Texas.
While the actual sales impact cannot be determined at this time, management
estimates that this arrangement could increase the Company's total sales for the
year 2000 by as much as 10%. The loss of either of these customers could have a
material adverse effect on our revenues and financial position.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND PRINCIPAL SUPPLIERS. The
raw materials required to manufacture our meals are commodities such as meat,
seafood, vegetables, flour, cheese and sugar which are
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readily available in the marketplace. We have no major principal suppliers.
Furthermore, we believe that the markets for these commodities are stable and no
change in their supply is imminent.
COMPETITION. The specialty food industry is highly competitive. Our
products compete with traditional supermarket HMRs (frozen dinners, gourmet deli
counters, etc.) and with food service operators including restaurants, fast food
outlets and large food processors. Many of our competitors have far greater
financial, operational and marketing resources than we do. Furthermore, the
specialty food industry is characterized by rapid changes, including changes in
consumer tastes and preferences, which may result in product obsolescence or
short product life cycles. As a result, competitors may be developing products
which may be similar or superior to our products. Accordingly, there is no
assurance that we will be able to compete successfully or that our competitors
or future competitors will not develop products that render our products less
marketable.
Our products compete primarily in the fresh and frozen specialty food
industry. The principal competitive factors include brand recognition, price and
price promotion, retail space management, service to the retail trade, new
product introductions, packaging changes, distribution methods and advertising.
Management believes that few of our competitors in the specialty food industry
manufacture the wide range of entrees or bundled meal components in the unique
restaurant style theme canopies that we offer. We penetrate this market and
expand our market share by producing unique culinary entrees, bundled meals and
meal kits at competitive prices. We believe that our flexibility and innovation
in developing and implementing new methods of marketing and distributing our
product will permit us to compete effectively with our competitors. In addition,
when weacquire new businesses, we leverage off of existing brands and brand
equity and co-brand these brands with the "Selections" name to build national
brand presence. Our larger competitors typically develop a national strategy
which requires significantly more planning and coordination across diverse
geographic/cultural regions. We can quickly develop regionally specific
strategies as we minimize the necessity for larger cross-geographic/cultural
considerations and specifically address the taste, price and buying habits of
these smaller regions.
Our direct competitors include Stouffers, Kraft Foods and Maple Leaf
Foods. Several of these well-known brands have recently introduced lines of
component meals. However, we believe we will remain competitive in this industry
because of the depth and breadth of our product lines, our ability to develop
customer driven programs and our ability to adapt to rapidly changing culinary
trends.
We also believe that ownership of our manufacturing facilities provides
us with an advantage over many of our competitors. Many private label marketers
and food brokers provide primarily co-packed entrees to their customers and do
not own manufacturing facilities. Management believes that ownership of
manufacturing facilities allows us to maintain high quality control while
maintaining affordable product prices, and to respond quickly to the changing
needs of our customers. Our component approach to meal assembly allows us to
develop and introduce new products in as little as four to six months because we
can combine meal components developed through our research to meet our
customer's needs.
The Company may have difficulty competing with large brand name
manufacturers for retail shelf space. Retailers, particularly supermarkets,
command high prices to display products on strategically located shelves.
However, we have obtained and secured strategically located shelves at a lower
cost by sub-branding our products under private labels belonging to retailers.
In addition, by acquiring existing brands through the acquisition of businesses,
the Company can leverage off of the acquired businesses' existing relationships
with retailers to add new or redesigned products and avoid slotting fees that it
might otherwise have to pay if it were to introduce the same products without
such relationships.
Management believes that the Company's capability to offer products that
are fresh, nutritious, economical and aesthetically appealing to the consumer
makes the Company a viable competitor in the HMR industry. Our products will be
differentiated from those of our competitors on the basis of taste, appearance
and quality at competitive price points.
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PATENTS AND TRADEMARKS
The Company owns registered trademarks and service marks under the names
"Poppa Jimis(R)", "Poppa Jimis Deli & Design(R)", "Royal Selections &
Design(R)", "Pasta Kitchen(R)", "Transcontinental Gourmet Foods Inc.(R)",
"Jonathan T(R)", "Huxtable's Kitchen(R)" "The Utlimate Cookie(R)", and
"International Selections"(TM). We will apply for United States and
International patents, trademarks and copyrights in connection with certain
products when deemed appropriate. In addition, we use several other trade names
for our products and services, many of which we believe are common law
trademarks. We will review additional trade names for which we will seek formal
trademark registration at a later date. We also keep confidential various
recipes, formulation specifications and production specifications. Management is
not aware that the Company is infringing any patents or trademarks of third
parties.
All trademarks or service marks appearing herein that do not relate to
our products are the property of their respective holders.
GOVERNMENTAL REGULATION
The production, distribution and sale of our products are subject to
various federal, state and local laws promulgated in the United States and
Canada.
The Food Safety and Inspection Service (FSIS) in the United States
requires that all federally inspected meat and poultry plants producing in the
US or importing into the US adopt Hazard Analysis and Critical Control Points
(HACCP) systems to ensure that they have in place science-based process controls
to prevent and reduce the significant food safety hazards that may arise in
their particular processes and products.
The HACCP approach is a system of process controls that is widely
recognized by scientific authorities and international organizations and is used
extensively in the food industry to produce products in compliance with health
and safety requirements. Under HACCP, plants identify critical control points
during their processes where hazards such as microbial contamination can occur,
establish controls to prevent or reduce those hazards, and maintain records
documenting that the controls are working as intended. Implementation of the
HACCP certification is mandatory for all Federally registered establishments in
Canada exporting to USA. The deadline for being HACCP certified is January 25,
2000.
The Company's Prime Foods and Huxtable's Kitchens divisions are currently
HACCP certified, while DC Foods is currently in the process of being certified.
(a) United States: We are subject to regulation by federal, state and
local governmental laws in the United States. These include: the Environmental
Protection Act; the Occupational Safety and Health Act; the Federal Food, Drug
and Cosmetic Act; United States Department of Agriculture and state and local
building codes. Our operations are subject to a variety of other federal, state
and local laws such as labor, insurance, transportation and wage regulations.
Compliance with all such regulations may be time-consuming and expensive. To the
best of management's knowledge, we comply with state and federal laws necessary
to distribute food products in the United States.
(b) Canada: We are subject to regulation by federal, provincial and local
governmental laws in Canada. These include: Canada Agricultural Products Act,
Consumer Packaging and Labelling Act, Fish Inspection Act, and the Food and Drug
Act. In addition, the Company is subject to other federal, provincial and local
labor, transport and environmental regulations.
The Canadian Federal Government must approve all processed food and food
processing facilities. All plants processing meat, poultry, fish and seafood are
regulated and monitored by government inspectors. Plants producing meat and
poultry items must be a federally registered establishment having there own
inspection legend. Seafood inspection is covered under the Quality Management
Program (QMP) which is an enhanced inspection program which requires registered
fish processing plants to develop and implement an in-plant quality
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management program. The program provides added assurance that fish products
produced in Canada comply with regulatory requirements. The program enables the
fish processing industry to monitor its own compliance with regulations and to
identify and quickly deal with processing problems or issues. Meat, poultry and
seafood inspectors visit as often as daily to monitor systems, ingredients,
processes and production. All inspections are the responsibility of the Canadian
Food Inspection Agency ("CFIA"). All of the inspectors have the authority to
close down a production facility if the plant does not meet established
manufacturing requirements.
Government regulation requires that correct ingredients and nutritional
information be clearly stated on the package for retail fresh or frozen food. An
accredited laboratory using calibrated analyzing equipment must also do
nutritional analysis. CFIA may, at any time, independently monitor and test
ingredients to ensure that all values listed on the packages are accurate and
correct.
We are also subject to laws and regulations which impose limitations on
the discharge of pollutants into the air and water and establish standards for
the treatment, storage and disposal of solid wastes. We cannot predict with any
certainty our future capital expenditure requirements for environmental
compliance because of constantly changing standards and technology. In addition,
we may incur liabilities in the future to regulatory agencies or private
individuals for alleged environmental damage associated with waste disposal or
waste material handling practices in the operation of our business. Management
believes that its current environmental insurance coverage is adequate.
We cannot predict the impact of possible changes that may be required in
response to future legislation, rules or inquiries made from time to time by
governmental agencies. Government regulations may, in certain circumstances,
affect our ability, as well as others in the industry, to develop and market new
products. However, we do not presently believe that existing applicable
legislative and administrative rules and regulations will have a significant
impact on operations.
EMPLOYEES AND LABOR CONTRACTS
Following the acquisition of Huxtable's Kitchens, we had a total of
approximately 420 employees, all of whom work full-time.
Tasty Selections has a collective bargaining agreement with the
Confectionery and Tobacco Workers' International Union, Local 264. We believe
that our relationship with the union and our employees is good. Tasty Selections
currently has 6 unionized employees.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
For accounting purposes, the following information reflects the result of
operations of the Company as the surviving corporation pursuant to the reverse
acquisition described in Note 2 of the Company's audited consolidated financial
statements (see page F-6).
The Company has completed several acquisitions since inception.
Accordingly, pro forma balance sheets as of December 31, 1998 and September 30,
1999 and pro forma statements of operations for the year ended December 31, 1998
and for the nine-month periods ended September 30, 1999 and 1998 have been
prepared by management to reflect acquisitions that have occurred during fiscal
1998 and 1999. The pro forma financial statements should be read in conjunction
with 'Results of Operations' and the audited consolidated financial statements
of the Company and notes thereto included elsewhere in this Form 10-SB. The pro
forma balance sheet assumes that all acquisitions and related transactions since
January 1, 1999 occurred on the balance sheet date presented. The pro forma
statement of operations assumes that such transactions occurred at the beginning
of the various periods presented. Results of operations of acquired companies
are included in the Company's audited financial statements from the date of
acquisition. See Note 2 of the Company's audited consolidated financial
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statements (page F-6) for further information regarding accounting policies used
to prepare financial information contained in this Form 10-SB.
RESULT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
REVENUE. Revenue for the nine months ended September 30, 1999 increased
$19,510,600 or 900% to $21,680,100 from $2,169,500 during the same period in
1998. The growth in revenue can be attributed to the acquisitions made in late
1998 (Pasta Kitchens, Transcontinental, and Norbakco) and those completed in
April and May 1999 (Tasty Selections and D.C. Foods). In addition, the Company's
Seafood Selections division, established in late 1998, had its first sales in
March of 1999.
COST OF GOODS SOLD/GROSS MARGIN. Cost of goods sold for the nine months
ended September 30, 1999 increased to $18,782,700 up $16,849,600 or 872% from
$1,933,100 for the same period last year. As a percentage of revenue, cost of
goods sold represented 86.6% of revenue for the nine months then ended compared
to 89.1%, for the same period in 1998. The change in absolute dollars is
attributed to previously mentioned acquisitions and establishment of the Seafood
Selections division. The reduced cost as a percentage of revenue can be
attributed to a more diverse group of products with better margins. Cost of
goods sold includes the costs of direct labor, materials, shipping and change in
inventories.
The sales cycle for some of the Company's divisions' products reflect
lower sales during the first three quarters of a year. Therefore, during this
period margins are typically lower than the overall percentage for the year. In
addition, a larger percentage of the Company's revenues during this period are
related to the sales by D.C. Foods, which is characterized by larger sales
volume at a lower margin than the remainder of the divisions. Further, during
the third quarter the Company combined its Tasty Selections operations into the
expanded Norbakco facilities and Transcontinental moved into the space vacated
by Tasty Selections resulting in increased lease costs and repairs and
maintenance costs as the Company refurbished and relocated some of its
production equipment to improve production efficiencies. The Company expects to
benefit from these expanded facilities and production efficiencies in the
fourth quarter and future periods.
SELLING EXPENSES. Selling expenses increased $1,195,100 to $1,327,400
(6.1% of revenue) for the nine months ended September 30, 1999 compared to
$132,300 (6.1% of revenue) for the same period ended September 30, 1998. The
increase in the year-to-date amount is primarily attributable to 1998 and 1999
acquisitions. In 1999, the Company's selling expenses increased beyond those of
the combined costs of the existing and acquired manufacturing divisions as a
result of the corporate involvement in the promotion of each division's products
and the Company's Selections line, the introduction of its new products to the
market, and the establishment of a western corporate sales office.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$268,600 to $371,200 (1.7% of revenue) for the nine months ended September 30,
1999 compared to $102,600 (4.7% of revenue) for the same period last year. The
increase is primarily due to continued product development efforts in the 1999
period associated with new meal components and meal kits being developed in
conjunction with new retail customers/products for launch in the fourth quarter,
including the Company's new Salmon Wellington product.
ADMINISTRATIVE EXPENSES. Administrative expenses increased $3,289,700 to
$3,611,400 (16.7% of revenue) for the nine months ended September 30, 1999. The
increase in absolute dollars is due to the acquisitions that were completed
during 1998 and 1999. In addition, the Company has continued to incur increased
costs at the corporate level associated with building management infrastructure
and information systems, corporate governance and reporting obligations, seeking
out strategic acquisitions and investor relations. During the third quarter the
Company established a sales office in Calgary, and hired sales managers in
Maryland and California, which contributed to the increased cost as a percent of
revenue.
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AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of
intangibles increased to $327,500 (1.5% of revenues) for the nine months ended
September 30, 1999 compared to $10,200 (0.5% of revenue) for the same period in
1998. The growth of $317,300 in the expense for intangibles amortization is a
result of increased purchased goodwill and intangibles associated with acquired
businesses and the amortization of expenditures on packaging and artwork in
conjunction with the launch of products with new customers and the branding of
existing products in accordance with the Company's strategy for better brand
recognition through uniformity in the quality of product presentation.
LOSS FROM OPERATIONS. The Company's loss from operations increased
$2,409,600 to $2,740,100 (12.6% of revenues) for the nine months ended September
30, 1999 over the same period in 1998. The increase in the loss is primarily due
to significant increases in product development efforts and new administrative
costs incurred to assist the growth of the Company. In addition, certain of the
Company's sales initiatives which were expected to result in sales in the second
and third quarter of 1999 will not result in sales until at least fourth quarter
of 1999. Transcontinental and Prime sales tend to be cyclical with relatively
low sales during the first three quarters of a year and higher sales in the
fourth quarter. The Seafood Division incurred losses during the second and third
quarter as it continued its sales efforts aimed at producing sales in the in
fourth quarter.
FINANCING COSTS. Net interest expense increased $497,700 to $543,100 for
the nine months ended September 30, 1999 compared to $45,400 for the same period
last year end. The increase is due primarily to the acquisitions, and to
interest charges with respect to long-term debt, including the Company's
convertible debt and capital lease obligations associated with and new capital
equipment acquired during 1998 and 1999.
MINORITY INTEREST SHARE IN LOSSES. The amount of $789,000 represents the
share in the loss by the minority interest shareholders in IMSI for the nine
months ended September 30, 1999. The minority interest shareholders are
comprised of holders of Class B, Class C, Class D and Class E series
exchangeable shares of IMSI. On a weighted average basis, the minority interest
shareholders have an interest of approximately 24% in the results of the
operations of IMSI for the nine month period ended September 30, 1999.
PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1999 (OR "PRO FORMA SEPTEMBER 1999")
COMPARED TO PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1998 (OR "PRO FORMA 1998")
REVENUE. Revenue increased $9,230,000 or 28.5% to $41,560,000 in pro
forma September 1999 up from $32,330,000 for pro forma September 1998. The
growth in revenue can be attributed in part to the sales related to the Seafood
Selections division which did not exist in the pro forma September 1998 period.
Its sales began in March, 1999, with sales for the pro forma September 1999
period being $1,650,000. Revenue also includes a full nine month's sales of
Norbakco compared to four months in 1998 as the division was established in June
1998. The resulting sales increase was approximately $1,500,000 over the same
period in 1998. The balance of the increase is due to organic growth in sales of
other divisions, primarily Transcontinental and Tasty selections, increases of
approximately $1,000,000 each; and D.C. Foods with an increase of approximately
$2,000,000.
COST OF GOODS SOLD/GROSS REVENUE. Cost of goods sold increased to
$35,082,000 in pro forma September 1999, up $8,728,000 or 33.1% from $26,354,000
for pro forma September 1998. As a percentage of revenue, cost of goods sold
represented 84.4% of revenue for pro forma September 1999 compared to 81.5% for
pro forma September 1998. The change in absolute dollars is attributed primarily
to the increase in sales and certain higher manufacturing costs. The change in
cost of goods sold as a percentage of revenue is in part related to the lower
than expected sales during this period in the Company's Prime Foods division
resulting in certain underabsorbed fixed manufacturing overheads; and increased
costs of outside storage primarily in the Prime Foods, Seafood and
Transcontinental divisions who held large inventories which are being
significantly reduced in the fourth quarter.
SELLING EXPENSES. Selling expenses increased $733,000 to $2,897,000 (7.0%
of revenue) in pro forma September 1999 compared to $2,164,000 (6.7% of revenue)
for the pro forma nine-month period ended September 1998. The increase is
largely attributable to additional costs of IMSI in sales and marketing
activities and selling expenses of the Company's Seafood division which did not
exist in 1998
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RESEARCH AND DEVELOPMENT. Research and development expenses increased
$243,000 to $684,000 (1.6% of revenue) in pro forma September 1999 compared to
$441,000 (1.4% of revenue) for pro forma September 1998. The increase is
primarily due to continued product development efforts of IMSI associated with
new meal components and the development of the Company's Salmon Wellington line.
Research in the Company's Huxtable's division is unchanged from the previous
year.
ADMINISTRATIVE EXPENSES. Administrative expenses increased $1,917,000 to
$5,655,000 (13.6% of revenue) in pro forma September 1999 compared to $3,738,000
(11.5% of revenue) for pro forma September 1998. The increase is due primarily
due to the increased costs associated with building management infrastructure
and information systems, corporate governance and reporting obligations, seeking
out strategic acquisitions, investor relations and obtaining new banking
facilities. In addition, approximately $400,000 of the aggregate administrative
expenses were incurred by the Seafood division which did not exist in 1998.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles for the pro
forma period is not significantly different from the corresponding period in
1998 as the Company's amortization is calculated on a straight-line bases. The
increase ($12,000) is due to the changes in the amortization of other
intangibles.
LOSS FROM OPERATIONS. The Company's loss from operations increased
$2,403,000 to $3,304,000 (7.9% of revenue) in pro forma September 1998 compared
to a loss of $901,000 (2.7% of revenue) for pro forma September 1998. The
increase in the loss is primarily due to a significant increase in the product
development cost, new administration costs incurred to assist in the growth of
the Company, an increased loss for the period for Huxtable's, and losses in the
Seafood division for the period. Huxtable's sales and those of the Seafood and
Transcontinental divisions are skewed to the fourth quarter where much, or all,
of these losses are mitigated.
INTEREST REVENUE AND EXPENSE. Net interest expense increased $255,000 to
$761,000 in pro forma September 1999 compared to $506,000 for the nine-month
period ended pro forma September 1998. The increase is due primarily to interest
charges with respect to long-term debt, and capital lease obligations associated
with companies and new capital equipment acquired during 1998.
NET LOSS. The Company's loss for pro forma September 1999, after taxes
and minority interest increased to $3,398,000 from $1,604,000 (an increase of
$1,794,000). The primary reason for increase is the inclusion of overheads
resulting from IMSI, additional manufacturing overheads and finance charges and
the loss associated with the Company's Seafood division.
PRO FORMA YEAR ENDED DECEMBER 31, 1998 (OR "PRO FORMA 1998") COMPARED TO YEAR
ENDED DECEMBER 31, 1998 (OR "FISCAL 1998")
REVENUE. Pro forma 1998 revenue increased $48,325,000, or 792.7% to
$54,421,000 compared to $6,096,000 in fiscal 1998. The growth in revenue can be
primarily attributed the effect of the Tasty Selections, D.C. Foods, and
Huxtable's Kitchens acquisitions which had combined revenues of $41,408,000 in
1998. In addition, pro forma 1998 results include a full year's revenue
associated with the Transcontinental, Norbakco and Pasta Kitchen subsidiaries.
COST OF GOODS SOLD/GROSS REVENUE. Cost of goods sold increased to
$45,129,000 for pro forma 1998, up $40,399,000 (or 854.1%) compared to the
fiscal 1998 figure of $4,730,000. As a percentage of revenue, cost of goods sold
represented 82.9% of revenue compared to 77.6% of revenue for fiscal 1998. The
change in absolute dollars is attributed to the inclusion of the cost of goods
sold for Tasty Selections, D.C. Foods, and Huxtable's Kitchens and a full years
cost of goods sold for Transcontinental, Norbakco and Pasta Kitchen. The
increase in cost of sales as a percentage of revenues is primarily a result of
the acquisition of D.C. Foods whose margins are somewhat lower than other
subsidiaries in the group because the products produced are high value and lower
margin. In addition, Fiscal 1998 included only one month of the results of
Transcontinental, whose gross margins are higher in December of each year due to
the high demand and inherent gross margin for hors d'oeuvres and pastries during
the holiday season.
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SELLING EXPENSES. Selling expenses increased $2,029,000 (332.6%) to
$2,640,000 (4.8% of revenue) for pro forma 1998 compared to $611,000 (10.0% of
revenue) in fiscal 1998. The pro forma 1998 increase is largely attributable to
the selling expenses totaling $1,875,000 incurred by Transcontinental, Tasty
Selections, and Huxtable's in 1998 which were not included in fiscal 1998
results.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
$450,000 compared to fiscal 1998 as result of R&D activities undertaken by
Huxtable's during the year.
ADMINISTRATIVE EXPENSES. Administrative expenses increased $4,918,000
(642.8%) from $763,000 (12.5% of revenue) in fiscal 1998 to $5,681,000 (10.4% of
revenue) for pro forma 1998. The increase in absolute dollars is attributed to
the inclusion of the administrative expenses for Tasty Selections, D.C. Foods,
and Huxtable's and a full year's administrative expenses for Transcontinental,
Norbakco and Pasta Kitchen. The decrease in such costs as a percentage of
revenues is due primarily to the acquisition of D.C. Foods, whose administrative
expenses represent only 3.2% of revenues due to the significant volume of
product turnover in the D.C. Foods operation. The Company expects that
administrative expenses will decline as a percentage of revenue as recent
acquisitions are integrated, synergies are realized and revenue growth
expectations are fulfilled.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased to
$766,000 (1.4% of revenue) for pro forma 1998 compared to $67,000 (1.1% of
revenue) in fiscal 1998. The increase of $699,000 in intangibles amortization
charges is a result of a full year's amortization on intangibles associated with
all acquisitions completed to-date. Fiscal 1998 included only one month's
intangibles goodwill amortization on the Transcontinental and Norbakco
acquisitions and three months' goodwill amortization with respect to Pasta
Kitchen. Intangibles that arose on the Tasty Selections and D.C. Foods
acquisitions are amortized over 40 years. The intangible assets associated with
Prime Foods, Pasta Kitchen, Transcontinental, Norbakco, and Huxtable's are
amortized over a 20-year period.
LOSS FROM OPERATIONS. The Company incurred a loss from operations of
$502,000 (8.3% of revenue) in fiscal 1998 compared to income from operations of
$221,000 (0.4% of revenue) for pro forma 1998. The acquisitions of D.C. Foods
and Tasty Selections contributed over $1,446,000 in operating income to pro
forma 1998 results. However, the operating income contributed by D.C. Foods and
Tasty Selections was offset by increases in goodwill amortization and losses
from Huxtable's. The Company expects that profitability will improve as recent
acquisitions are integrated and economies of scale take effect.
INTEREST REVENUE AND EXPENSE. Net interest expense increased by $852,000
(1167.1%) to $925,000 (2.1% of revenue) for pro forma 1998 compared to $73,000
(1.2% of revenue) in fiscal 1998. The change is attributable to a full year's
interest expense in connection with D.C. Foods, Tasty Selections, Huxtable's and
Transcontinental, which totaled approximately $571,000. In addition, the Company
issued $4,000,000 in convertible debentures which bear interest at 7% and
accordingly, $280,000 in interest expense was charged to pro forma 1998 results.
NET LOSS. The Company's loss for pro forma 1998, after taxes and minority
interest increased to $1,353,000 from $549,000 (an increase of $804,000). The
primary reason for increase is the inclusion of the loss for Huxtable's
($864,000). The losses in Huxtable's occurring in 1998 occurred as the then new
management team continued to reorganize operations and rationalize it product
grouping. The company's performance continued to improve operations in the
following year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased from $1,865,000 at
December 31,1998 to $4,262,000 at September 30, 1999. Of these funds $4,200,000
represent funds required to be maintained by the Company as part of its banking
facilities agreement. Bank credit facilities utilized at September 30, 1999
totaled approximately $7,800,000 under the operating facility and $1,155,000
under the revolving term facility. Total credit facilities available at
September 30, 1999 were $10,000,000 under the operating facility and $3,500,000
under the revolving term facility. The Company increased its operating facility
by $6,770,000 from December 31, 1998 to September
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30, 1999. During the nine month period ended September 30, 1999, the Company
received approximately $10,500,000 from the issuance of common stock,
convertible debt and other securities of IMSI. The funds were used primarily to
complete the acquisitions of D.C. Foods and Tasty Selections during the year,
and to fund investments in working capital and capital equipment.
In October 1999, the Company completed a CDN$7,000,000 (US$4,700,000)
private placement of special warrants in the Company's IMSI subsidiary to be
used to settle certain payment obligations on previous acquisitions and to fund
future acquisitions of the Company.
Historically, our business cycle involves a significant investment in
working capital during the first nine months of 1999 in anticipation of its late
third quarter and fourth quarter sales. The Company has also made investments in
new capital equipment and leasehold improvements during 1999. The leasehold
improvements are financed out of cash flows. During the first three quarters the
Company continued to build or maintain high levels of inventories in its
Transcontinental Gourmet Food, Prime Foods and Seafood Selections divisions. For
each of these divisions, inventories usually begin to decline in October as
retailers begin to purchase product for the fall/winter seasons and hors
d'oeuvres for the holiday season. This year's build up of the Company's
inventory of hors d'oeuvres is greater than historically in anticipation of the
expected increased demand for millennium celebrations. In addition, the Company
has continued to incur increased product development costs and costs associated
with building management infrastructure and information systems, corporate
governance and reporting obligations, seeking out strategic acquisitions,
investor relations and obtaining new sources of financing.
Cash flows from operations were approximately $8,257,000 for the
nine-month period ended September 30, 1999. Cash flows from operations for the
same period last year were approximately $536,000. The operations of Tasty
Selections and D.C. Foods had positive cash flows from operations during this
period which funded the operations costs in IMSI.
On July 22, 1999, IMSI finalized arrangements with respect to the
provision of credit facilities by The Bank of Nova Scotia. The financing
consists of the following facilities:
(1) an operating line in the maximum authorized amount of $10,000,000. The
operating line may be utilized by way of direct advances or bankers' acceptances
and bears interest on direct advances ranging from The Bank of Nova Scotia's
Prime to Prime plus 1/2%. The operating line is repayable on demand. As security
for the operating line, IMSI provided to The Bank of Nova Scotia cash collateral
of $4,000,000 as well as the general security referred to below; and
(2) a revolving term facility to purchase equipment in the maximum authorized
amount of $3,500,000. The term facility may be utilized by way of term
promissory notes with a maximum term of 5 years or equipment leases, each
bearing interest at The Bank of Nova Scotia's Prime plus 1 1/4%. As security for
the term facility, IMSI is to provide appropriate lease and/or conditional sales
contracts and maintain certain insurance coverage on the assets financed. In
addition, the general security referred to below is security for the term
facility.
As general security for the credit facilities, IMSI provided a general
assignment of all of the assets of IMSI, a general assignment of book debts and
life insurance on the life of Michael Steele. Each of Prime, Transcontinental,
Tasty Selections, 1005549 Ontario Limited and D.C. Foods provided unlimited
guarantees of the indebtedness of IMSI to The Bank of Nova Scotia supported by
general assignments of all of the assets of such subsidiaries. In addition, the
Company provided to The Bank of Nova Scotia a postponement and assignment of any
amounts owing to it from time to time by IMSI.
As of September 30, 1999, the Company and its subsidiaries have utilized
an aggregate of $7,800,000 of authorized lines of credit totaling $10,000,000.
The lines of credit bear interest ranging from Prime to Prime plus 1/2%.
Business Development Bank of Canada - Mortgage: In November 1997, we
received a mortgage from the Business Development Bank of Canada ("BDC") in the
amount of $550,000. The mortgage is repayable in
16
<PAGE> 20
monthly installments of $3,200 plus interest. Interest is calculated based on
the BDC's floating base rate plus 1%. The mortgage matures on June 23, 2012. The
loan is secured by a first charge on the land and building of Prime Foods and a
second charge on inventory and accounts receivable of Prime Foods, a $100,000
guarantee by an officer of the Company, a guarantee by the Company for the full
amount of the loan and an assignment of shareholders' loans owed by Prime Foods
to IMSI. This mortgage was outstanding as follows:
<TABLE>
<CAPTION>
Date Amount Outstanding
- - ---- ------------------
<S> <C>
September 30, 1999 $518,400
</TABLE>
Business Development Bank of Canada - Equipment Loan: In December 1997,
we received a loan of $660,000 extended by the BDC. In December of 1998 we
received an additional $400,000 from the BDC. The loan is repayable in two
principal installments at December and January of each year for a 5-year term.
Interest is payable monthly at 1.25% above the BDC's daily floating base rate.
The loan is secured by a first charge on all personal property of
Transcontinental. This loan was outstanding as follows:
<TABLE>
<CAPTION>
Date Amount Outstanding
- - ---- ------------------
<S> <C>
September 30, 1999 $736,000
</TABLE>
Royal Bank of Canada - Mortgage: In September 1996, Ontario Limited
received a mortgage from Royal Bank of Canada ("RBC") with a note for $700,000.
The note is repayable in monthly installments of $6,500 and matures at October
2010. Interest is payable monthly at 7.52%. The loan is secured by the general
security granted to the Royal Bank of Canada as referred to below. The mortgage
was outstanding as follows:
<TABLE>
<CAPTION>
Date Amount Outstanding
- - ---- ------------------
<S> <C>
September 30, 1999 $612,243
</TABLE>
Royal Bank of Canada - Loan: In September 1996, D.C. Foods Processing
Inc. received a loan of $200,000 extended by the RBC. The loan is repayable in
monthly installments of $4,010 and is due in October 2001. Interest is payable
monthly at RBC's Prime rate plus 1%. The loan is secured by the general
security granted to the Royal Bank of Canada as referred to below. The loan was
outstanding as follows:
<TABLE>
<CAPTION>
Date Amount Outstanding
- - ---- ------------------
<S> <C>
September 30, 1999 $86,409
</TABLE>
As general security for the loans by Royal Bank of Canada to D.C. Foods
Processing Inc., $200,000.00 of cash security was granted to Royal Bank of
Canada, a mortgage of the real property municipally known as 35 Northland Road,
Waterloo in the principal amount of $900,000.00 and a mortgage of the real
property municipally known as 35 Northland Road, Waterloo, in the principal
amount of $150,000.00 was granted by 1005549 Ontario Limited to Royal Bank of
Canada, a guarantee and postponement of claim in the principal amount of
$500,000.00 was granted by D.C. Foods Processing Inc. to Royal Bank of Canada
and a guarantee and postponement of claim in the principal amount of
$500,000.00 was granted by IMSI to Royal Bank of Canada.
Roynat Inc. - Loan: In August 1996, Tasty Selections received a loan of
$280,000 from Roynat Inc. ("Roynat"). The loan is repayable in monthly
installments of $5,000 for a 5- year term. Interest is payable monthly at
Roynat's floating base rate plus 3.5%. The loan is secured by (i) a first charge
on all fixed assets of Tasty Selections; (ii) a first floating charge on all
other assets of Tasty Selections; (iii) postponement for the period of financing
of the landlord's interest in our assets; and (iv) a priorities agreement.
17
<PAGE> 21
<TABLE>
<CAPTION>
<S> <C>
Date Amount Outstanding
- - ---- ------------------
September 30, 1999 $135,000
</TABLE>
This loan was fully repaid in October, 1999.
Roynat - Loan: In August 1996, Tasty Selections received a loan of
$400,000 from Roynat. The principal amount of the loan is to repaid annually for
a 5-year term, calculated at 20% of net after tax profit. Interest is payable
monthly at the Roynat's floating base rate plus 3.5%. At our option, we may pay
annually additional interest calculated at 10% of pre-tax profits with a minimum
of $20,000 and a maximum of $50,000 due each year. The loan is secured by (i) a
first charge on all fixed assets of Tasty Selections; (ii) a first floating
charge on all other assets of Tasty Selections; (iii) postponement for the
period of financing of the landlord's interest in our assets; and (iv) a
priorities agreement.
<TABLE>
<CAPTION>
Date Amount Outstanding
- - ---- ------------------
<S> <C>
September 30, 1999 $356,299
</TABLE>
This loan was fully repaid in October, 1999.
Toronto Dominion Bank - Loan: On August 1996, Tasty Selections received a
loan of $250,000 from the Toronto Dominion Bank ("TDB"). The loan is repayable
in monthly installments of $4,166 for a period of 60 months. Interest is payable
at TDB's Prime rate plus 3%.
<TABLE>
<CAPTION>
Date Amount Outstanding
- - ---- ------------------
<S> <C>
September 30, 1999 $111,483
</TABLE>
This loan was fully repaid in October, 1999
Management believes that its existing cash flows from operation and
credit facilities are sufficient to fund operations for the next 12 months.
However, to finance future expansion, both capital expansion and the
acquisition of companies, the Company will have to seek additional financing.
This financing may take the form of either equity or debt. To this end, the
Company's subsidiary, IMSI recently engaged Scotia Capital Markets Inc., a
division of Scotiabank & Scotia McLeod Canada, to act as its financial advisor
for capital raising projects to fund certain of the Company's acquisition
strategy and infrastructure expansion and production integration plans.
However, there can be no assurance that the Company or IMSI will be able to
raise additional capital or whether such capital will be sufficient to meet its
business plan or other ongoing needs.
YEAR 2000
The "Year 2000" problem is the result of computer programs being written
using two digits, rather than four, to define the applicable year. Computer
programs and microprocessors that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, or not recognize the
date at all. This could result in major system failures or miscalculations
causing disruptions in operations, including among other things, a temporary
inability to process transactions, send invoices, access internal financial
information or engage in normal business activities. Year 2000 problems
experienced by our suppliers, or us, could adversely impact our ability to meet
the demands of, or service our customers, or otherwise carry on our business.
To assist in the integration of recent acquisitions, and to mitigate the
uncertainties associated with Year 2000 issues the Company decided to purchase a
new financial accounting and management information system that will be
integrated and implemented across all operating and management functions. The
implementation of the new computer system has begun and the Company estimates
that the cost of the new system, including the software, hardware and
installation costs will total approximately $250,000. The Company's new computer
system has been completely installed and tested to meet year 2000 requirements
but we will continue to update and
18
<PAGE> 22
enhance this system . The Company will continue to monitor its Year 2000
compliance of all critical systems through the new year.
In addition, the Company has communicated with parties with which it does
significant business to assess their Year 2000 compliance and the extent to
which the Company is exposed to any significant third party Year 2000 compliance
issues. The costs associated with any further third party Year 2000 compliance
issues are not expected to be significant. This process will not guarantee that
systems of other parties upon which the Company's systems directly or indirectly
rely will be Year 2000 compliant on a timely basis, or that a failure by another
party to render their systems compliant with Year 2000 issues will not have a
material adverse effect on the Company.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATION
The Company believes that in the future its results of operations could
be affected by factors such as market acceptance of new products, and the
success of the Company's marketing and product development programs. Similarly,
future earnings may be adversely effected by changes in the costs of product
marketing, raw materials, distribution channels and labor. Additionally, where
the Company continues to expand its business internationally, fluctuations in
the foreign currency or general economic conditions in any of the countries in
which the Company does business could adversely effect future results of
operations.
The Company's recent acquisitions and growth strategy to continue to
acquire other food processing companies also may effect future results of
operations. Our operating results could be adversely effected if we fail to
successfully integrate or manage acquired companies or if we are not able to
obtain the cost savings which we anticipate. Furthermore, the Company's results
of operations could suffer if the acquired companies do not perform as we
expect.
Due to the factors noted above and elsewhere in the Management's
Discussion and Analysis, the Company's future earnings and stock price may be
subject to significant volatility. Past financial performance should not be
considered as a reliable indicator of future performance and investors should
not use historical results to anticipate trends in future periods.
CAUTIONARY STATEMENT INVOLVING FORWARD LOOKING STATEMENTS
Some of the information contained herein may constitute forward-looking
statements which are subject to various risks and uncertainties. Such statements
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," "continue," "plan," or other similar
words. These statements discuss future expectations, contain projections of
results of operations or of financial conditions or state other
"forward-looking" information. Actual results could differ materially from those
contemplated by the forward-looking statements as a result of certain factors,
including but not limited to: competitive factors and pricing pressures;
relationships with manufacturers and distributors; legal and regulatory
requirements; general economic conditions; and other risk factors. We do not
promise to update forward-looking information to reflect actual results or
changes in assumptions or other factors that could affect those statements. In
addition, when considering such forward-looking statements, the reader should
keep in mind the factors described in other cautionary statements appearing
elsewhere herein. Such statements describe circumstances which could cause
actual results to differ materially from those contained in any forward looking
statement.
Statistical data or the disclosure of trends regarding the food
processing industry may also be contained herein. This data may have been
obtained from industry publications and reports which we believe to be reliable
sources. We have not independently verified such data nor sought the consent of
any organizations to refer to their reports herein.
ITEM 3. DESCRIPTION OF PROPERTY
19
<PAGE> 23
The Company's headquarters are located at 350 Creditstone Rd., Unit 202,
Concord, Ontario. The Company believes that the approximately 4,000 square feet
space is in good condition. The Company has entered into a three year lease
which commenced on March 1, 1999 and which terminates on February 28, 2002, at a
gross rental rate for the initial year of $4,100 per month with increases for
subsequent years during the term based on the increased costs of utilities,
maintenance and taxes.
Prime Foods: Prime Foods' 15,000 square foot frozen food facility is
situated on a 1 acre lot located at 620 Colby Drive, Waterloo, Ontario. Prime
Foods owns the property. The building is a stand alone structure of brick and
concrete with a large paved parking lot on one side of the building and a
smaller paved parking lot in the front of the building. Management believes that
the building is in good repair. In December of 1997, Prime Foods began to
operate this frozen food facility to produce frozen entrees, bundled meals and
stir fry kits for the HMR Market in the United States and Canada. The production
facility is equipped with mixers, filling and wrapping units, cooking ovens,
cutting units, conveyer system and a new individually quick frozen cryogenic
freezing line. Management believes that the equipment is maintained in good
working order. Prime Foods Processing Facility: On February 4, 1999, we
announced the expansion of the Prime Foods processing facility, however, in view
of the recent addition of D.C. Foods, we have temporarily suspended expansion of
the Prime Foods facility so that management can evaluate how to make the best
use of all our facilities.
Pasta Kitchen: Pasta Kitchen's fresh commissary style kitchen is a 10,000
square foot facility located at 26 Milford Avenue, Toronto, Ontario. The monthly
rental payment is $3,060. Management believes that the building is in good
condition. This lease expires in May 2000.
Transcontinental: In September 1999 Transcontinental expanded its
operations into the facilities vacated by Tasty Selections. Transcontinental
currently operates out of its 39,000 square foot facility located at 610 Oster
Lane, Concord, Ontario. The monthly rental payment is $23,600. Management
believes that the building is in good condition. The lease expires in December
2002.
Tasty Selections/Norbakco: In September 1999, Tasty Selections moved its
operations into the former Norbakco's 34,000 square foot facility located at 350
Creditstone, Unit D Concord, Ontario and acquired an additional 9,100 square
feet for a total of 42,100 square feet. The monthly rental payment is $17,500.
Management believes that the building is in good condition. The lease expires in
February 2005.
D.C. Foods: D.C. Foods' 25,500 square foot facility is located at 35
Northland Road, Waterloo, Ontario. The facility contains approximately 20,500
square feet of production space and 5,000 square feet of office space. The
building is owned by 1005549 Ontario Limited. The building is equipped with
three dock loading doors and two drive-in doors. Management believes that the
building is in good condition.
Huxtable's Kitchen: Huxtable's Kitchen's 54,000 square foot facility is
located at 2100 E 49th Street, Vernon, California. The Facility contains
approximately 50,000 square feet of production space and 4,000 square feet of
office space. The monthly rental payment is US$30,100. Management believes that
the building is in good condition. The lease expires on October 31, 2004.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF THE COMPANY
The following table sets forth the beneficial ownership of shares of
voting stock of the Company, as of October 31, 1999, of (i) each person known by
the Company to beneficially own 5% or more of such shares; (ii) each of the
Company's directors and its executive officers named in the Summary Compensation
Table included below; and (iii) all of the Company's executive officers and
directors as a group. Except as otherwise indicated, all shares are beneficially
owned, and the persons named as owners hold investment and voting power. The
address of each of the persons in this table is as follows: 350 Creditstone Rd.,
Unit 202, Concord, Ontario.
20
<PAGE> 24
<TABLE>
<CAPTION>
Name of Amount and Nature
Beneficial Owner of Shares Beneficially Owned Percentage Owned (1)
Common Share Class N Total
<S> <C> <C> <C> <C>
Michael Steele (2) 250,000 1,513,712 1,763,712 8.6 %
G.E. Creber (3) 260,000 - 260,000 1.3 %
Len Shiffman (4)(5) 20,000 440,000 460,000 2.2 %
Larry Hoffman(5) 165,000 440,000 605,000 2.9 %
Victor Fradkin (5) 330,000 880,000 1,110,000 5.4 %
Reginald Peterson (6)(7) 1,923,810 1,555,556 3,479,366 16.9 %
All Executive Officers and
Directors as a Group 695,000 2,393,712 3,088,712 15.0 %
</TABLE>
(1) The percentage calculations are based on 20,582,571 shares which are
outstanding which include Class N shares and shares of common stock of the
Company on a fully diluted basis as of October 31, 1999. The issued and
outstanding Class N shares are held by the shareholders of the Class X shares of
IMSI which may be exchanged on the basis of one Class X shares plus one Class N
share for one share of common stock of the Company. The calculation of the
20,582,571 shares is based upon the following assumptions:
(i) the issuance of 2,200,000 Class N shares pursuant to the
rights of the holders of Class B shares. 300,000 Class B
shares of IMSI together with 2,200,000 Class N shares may
be exchanged for 2,200,000 shares of common stock of the
Company;
(ii) the issuance of shares of common stock of the Company and
Class N shares upon the exercise of options vesting within
60 days of the date of filing hereof; and
(iii) the issuance of 1,555,556 Class N shares to be issued by
the Company upon the issue by IMSI of 1,555,556 Class X
shares in exchange for 1,555,556 special warrants issued by
IMSI on October 22, 1999. See "Item 8: Description of
Registrant's Securities."
(2) The number of shares beneficially owned by Michael Steele includes 250,000
shares of common stock of the Company which he has the option to purchase at an
option price of US$0.70 per share. Such option vested on August 10, 1999.
(3) The number of shares beneficially owned by G.E. Creber includes 20,000
shares of common stock of the Company which he has the option to purchase at an
option price of US$0.70 per share. Such option vested on August 10, 1999.
(4) The number of shares beneficially owned by Len Shiffman includes 20,000
shares of common stock of the Company which he has the option to purchase at an
option price of US$1.50 per share. Such option vested on December 1, 1999.
(5) Len Shiffman, Larry Hoffman and Victor Fradkin own 60,000, 60,000 and
120,000 of the Class B shares of IMSI, respectively and are entitled to receive
440,000, 440,000 and 880,000 Class N shares of the Company, respectively.
(6) Reginald Peterson is the controlling shareholder of Southbridge, Inc. which
owns 1,523,810 shares of common stock of the Company and has an option to
purchase 400,000 shares of common stock of the Company at an option price
ranging between US$2.25 to US$2.625 per share. Such option vested on April 16,
1999.
(7) The total amount beneficially owned by Reginald Peterson includes 1,555,556
Class N shares to be issued by the Company upon exchange of 1,555,556 special
warrants issued by IMSI on October 22, 1999. See "Item 8: Description of
Registrant's Securities."
21
<PAGE> 25
SECURITY OWNERSHIP OF IMSI
The following tables set forth the beneficial ownership of each
class of equity securities of IMSI, as of October 31, 1999, by (i) each of the
Company's directors and its executive officers named in the Summary Compensation
Table below; and (ii) all of the Company's executive officers and directors as a
group. Except as otherwise indicated, all shares are beneficially owned, and the
persons named as owners hold investment and voting power. The address of each of
the persons in these tables is as follows: 350 Creditstone Rd., Unit 202,
Concord, Ontario.
CLASS X SHARES
<TABLE>
<CAPTION>
Name of Beneficial Owner Amount and nature of shares
Beneficially owned Percentage Owned(1)
<S> <C> <C>
Michael Steele 1,513,712 24.4%
All executive officers and 1,513,712 24.4%
directors as a group
</TABLE>
- - ---------------------------------------------------------------
(1) Based on an aggregate of 6,206,161 Class X shares outstanding as of October
31, 1999, including the assumed exchange by Southbridge Equities Inc. of
1,555,556 special warrants of IMSI for an equivalent number of Class X shares
(with and a corresponding number of Class N shares of the Company).
CLASS B SHARES
<TABLE>
<CAPTION>
Name of Beneficial Owner Amount and nature of shares
Beneficially owned Percentage Owned(1)
<S> <C> <C>
Larry Hoffman 60,000 20%
Len Shiffman 60,000 20%
All executive officers and 120,000 40%
directors as a group
</TABLE>
- - ---------------------------------------------------------------
(1) Based on an aggregate of 300,000 Class B shares outstanding as of October
31, 1999.
CLASS C SHARES
<TABLE>
<CAPTION>
Name of Beneficial Owner Amount and nature of shares
Beneficially owned Percentage Owned (1)
<S> <C> <C>
Larry Hoffman 20,000 20%
Len Shiffman 20,000 20%
All executive officers and 40,000 40%
directors as a group
</TABLE>
- - ---------------------------------------------------------------
(1) Based on an aggregate of 100,000 Class C shares outstanding as of October
31, 1999.
CLASS D SHARES
<TABLE>
<CAPTION>
Name of Beneficial Owner Amount and nature of shares
Beneficially owned Percentage Owned (1)
<S> <C> <C>
Larry Hoffman 11,800 20%
Len Shiffman 11,800 20%
All executive officers and 23,600 40%
directors as a group
</TABLE>
- - ---------------------------------------------------------------
(1) Based on an aggregate of 59,000 Class D shares outstanding as of October 31,
1999.
22
<PAGE> 26
For a description of these securities, see "Item 8. Description of
Registrant's Securities - B. Securities of IMSI."
To the best of management's knowledge, there are no arrangements which
may result in a change of control of Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Company's directors are elected at the annual meeting of stockholders
and hold office until their successors are elected and qualified. The Company's
officers are appointed annually by the Board of Directors and serve at the
pleasure of the Board. There are no family relationships between any of the
officers or directors of the Company or its wholly owned subsidiaries.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Positions and Offices
<S> <C> <C>
Michael Steele 41 President and Chief Executive Officer, Director
G.E. Creber 68 Secretary, Director
Len Shiffman 41 Director
Larry Hoffman 54 Treasurer, Vice President and Chief Financial
</TABLE>
Michael Steele has served as the Company's President and Director since
July 16, 1998. He also served as the Company's Secretary from July 16, 1998 to
December 2, 1998. He also holds director and executive officer positions with
IMSI, Prime Foods, DC Foods, Tasty, International USA and Transcontinental.
Prior to joining the Company, from 1993 to 1995, Mr. Steele served as an officer
of Thermco Canada, an environmental technology company with offices in Canada,
Europe and the United States which he founded. In late 1994, Thermco Canada was
purchased by Halozone Technologies, a publicly traded environmental corporation.
From 1995 to 1997, Mr. Steele served as Senior Vice President of Cott
Corporation, a private food label. In late 1997, he left the Cott Corporation
and founded IMSI.
G.E. Creber has served as Director and Secretary of the Company since
December 2, 1998. Mr. Creber also serves as a Director of IMSI and as a director
and officer of other reporting companies. He is the President and Chief
Executive Officer of International Pursuit Corporation, Director and Secretary
of World Point Terminals Inc. and Director of CML Industries Ltd. Mr. Creber is
also a partner at Fogler, Rubinoff, Barristers and Solicitors. He has held these
positions since 1994.
Len Shiffman has served as Director of the Company since December 1,
1998. He also serves as a Director of IMSI. Mr. Shiffman is currently President
of Lauderdale Capital Inc., a private investment, capital venture company. From
1985 to 1996, Mr. Shiffman served as Vice President in the Real Estate Corporate
Finance Department of Citibank Canada.
Larry Hoffman is the Treasurer, Vice President and Chief Financial
Officer of the Company. He has held these positions since December 1, 1998. He
also holds executive officer positions with IMSI and Transcontinental. Prior to
joining the Company, Mr. Hoffman served as Executive Vice President of
Transcontinental from January 1997 to November 1998. From October 1995 to
January 1997, he served as President of Prime Bakers, Inc., a producer of frozen
bakery products. From October 1994 to January 1997, he served as President of
Prime Pastries (1994) Inc., a producer of frozen non- baked products. Mr.
Hoffman is a Chartered Accountant.
23
<PAGE> 27
SIGNIFICANT EMPLOYEES OF THE COMPANY'S SUBSIDIARIES
Victor Fradkin has served as a director of Transcontinental since the
company's inception in 1983. After founding Transcontinental, he developed
manufacturing practices to mass-produce Fillo Dough and Fillo Hors D'oeuvres
which has allowed Transcontinental to grow into a major producer of these
specialty products in Canada.
James Guinchard has served as President of Prime Foods since its
inception in May of 1990. Mr. Guinchard has experience in various facets of the
food processing industry including production planning, product costing,
inventory control and master scheduling. He is also proficient in gas package
methodologies and vacuum machinery.
Allan Greenspoon has served as President of Tasty Selections since 1996.
He is also serving as President and Director of Ultimate since October 18, 1999.
Prior to joining Tasty Selections, from 1987 to 1995, Mr. Greenspoon served as
President of Circlet Foods, Inc. Mr. Greenspoon has 19 years of experience in
the food processing industry.
Donald Kilimnik has served as President of D.C. Foods since its inception
in 1991. Prior to co-founding D.C. Foods, from 1987 to 1991, he served as
General Manager for Stillmeadow Farm in Elora, Ontario. Mr. Kilimnik has over 15
years of experience in the food processing industry.
Robert Curik has served as Vice President of D.C. Foods since its
inception in 1991. Prior to co-founding D.C. Foods, from 1989 to 1991 he served
as Operations Manager at Stillmeadow Farms in Elora, Ontario. Mr. Curik has
nearly 20 years experience in the food processing industry.
Michael Eskenazi has served as Founder and President of Ultimate Cookie
Co Inc since 1991. Prior that he was President and Founder of F&N Cookie Ltd
since 1985. Mr. Eskenazi has approximately 15 years bakery experience.
Cliff Marquart has served as CEO of Huxtable's Foods, L.L.C. since 1996.
He has extensive experience in grocery brand marketing and development,
including Stokely, Bongrain's Fluere d'Lait Foods Company, and Morning Star
Group.
ITEM 6. EXECUTIVE COMPENSATION
The following tables set forth the compensation paid or accrued by the
Company during the years ended December 31, 1998 and 1997 and the nine month
period ended September 30, 1999 to the Company's officers and directors. Only
one of the executive officers, Michael Steele, President of the Company, earned
over $US 100,000 ($CD 145,000) during the year ended December 31, 1998. None of
the other executive officers of the Company earned more than $US 100,000 ($CD
145,000) during the years ended December 31, 1998 and 1997.
24
<PAGE> 28
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation Long Term Compensation
------------------- ----------------------
Other Restricted Securities
Annual Stock Underlying LTIP
Name and Salary Bonus Compensation Awards Options/ Payout
Principal ---------- --------- ------------ ------ ------
Position Year ($) ($) ($) ($) SARs (#) ($)
- - ---------- ---- --- --- --- --- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Steele, 1999 180,000 75,000 0 0 0 0
President and 1998 150,000 0 0 0 625,000 0
Director 1997 0 0 0 0 0 0
G.E. Creber, 1999 0 0 0 0 0 0
Secretary and 1998 0 0 0 0 100,000 0
Director 1997 0 0 0 0 0 0
Len Shifman, 1999 0 0 0 0 0 0
Director 1998 0 36,000 0 100,000 0
1997 0 0 0 0 0 0
Larry Hoffman,
Treasurer, Vice 1999 82,500 0 0 0 0 0
President & Chief 1998 100,000 0 0 0 0 0
Executive Officer 1997 100,000 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
Option / SAR Grants in Last Fiscal Year
% of Total Exercise
Name and Number of Securities Options/SARs or Base
Principal Underlying Options/ Employees Price
Position SARs (#) in Fiscal Year ($US/Share) Expiration Date
- - -------- -------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Michael Steele,
President and
Director 625,000 75.8% US$0.70 ($CD 1.02) August 2008
G.E. Creber,
Secretary and
Director 100,000 12.1% US$0.70 ($CD 1.02) August 2008
Len Shiffman,
Director 100,000 12.1% US$1.50 ($CD 2.19) December 2008
</TABLE>
25
<PAGE> 29
<TABLE>
<CAPTION>
Aggregated Option / SAR Exercises in Last Fiscal Year and FY-End Option / SAR Values
Value of
Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options /SAR's
Name and Shares Options/ SAR's at at FY-End ($)
Principal Acquired on FY-End (#) Exercisable/ Exercisable/
Position Exercise # Value Realized ($) Unexercisable Unexercisable
- - -------- ---------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Michael Steele, 0 0 0/625,000 0/762,562
President and
Director
G.E. Creber, 0 0 0/100,000 0/122,193
Secretary and
Director
Len Shifman 0 0 0/100,000 0/4,594
Director
</TABLE>
COMPENSATION OF DIRECTORS
The Company currently does not pay any cash compensation to its
non-employee directors. Directors who are also our employees also receive no
additional compensation for their services as directors.
EMPLOYMENT AGREEMENT
In August 1998, the Company entered into an employment agreement with
Michael Steele. Under this agreement, the Company agreed to employ Mr. Steele
as the Company's president and chief executive officer at an annual salary of
US$160,000 as well as an annual bonus equal to five percent of our earnings
before income taxes, depreciation and amortization. If Mr. Steele's employment
with the Company is terminated for any reason other than cause, voluntary
termination by Mr. Steele, the Company shall be obligated to pay Mr. Steele the
total of two years' salary, the bonus that Mr. Steele would have received for
the fiscal year that he is terminated, as reasonably determined by the Company
had he continued with the Company and the present value of all other employee
benefits Mr. Steele would have received for twenty-four months had his
employment with the Company continued.
In December 1998, IMSI entered into an employment agreement with Larry
Hoffman. Under this agreement, the Company agreed to employ Mr. Hoffman the
Company's vice-president and chief financial officer at an annual salary of
$125,000. If Mr. Hoffman's employment with the Company is terminated for any
reason other than cause, voluntary termination by Mr. Hoffman or the expiration
of the five year term of the agreement, the Company shall be obligated to pay
Mr. Hoffman the total of two years salary or salary for the unexpired term
which ever is less based on the salary for the fiscal year in which he is
terminated, and the all other employee benefits Mr. Hoffman would have received
for such period.
STOCK OPTION PLAN
On August 10, 1998, the Board of Directors of the Company approved a
stock option plan (the "Option Plan") applicable to the Company's officers and
directors and authorized the grant of options covering up to 2,500,000 shares of
common stock. Pursuant to the Option Plan, options are granted with an exercise
price equal to or greater than the then-current fair market value of the shares
of common stock. Options may generally be exercised in equal proportions during
the years following the first to fifth anniversary of the date of grant and
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<PAGE> 30
expire on the tenth anniversary or upon termination of employment. As of at
October, 1999, options covering 825,000 shares of common stock had been granted.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 22, 1999, Southbridge Equities Inc., a corporation organized
under the laws of the Province of Ontario, Canada ("Southbridge Equities"),
subscribed for 1,555,556 special warrants of IMSI, for an aggregate
consideration of approximately US$4,700,000. Southbridge Equities is a
subsidiary of Southbridge, Inc. Reginald Peterson, a director of IMSI, is the
controlling shareholder of Southbridge, Inc. Prior to this transaction,
Southbridge, Inc. beneficially owned 1,523,810 shares of common stock of the
Company. Immediately following the transaction, Southbridge Inc. had an
aggregate ownership of 16.9% of the Company based upon 20,582,571 shares
outstanding. See "Item 8: Description of Registrant's Securities."
ITEM 8. DESCRIPTION OF REGISTRANT'S SECURITIES
SECURITIES OF THE COMPANY
As of October 31, 1999, the Company's authorized capital stock consisted
of 25,000,000 shares of common stock with a par value of US$0.001 per share and
10,000,000 shares of Class N stock with a par value of US$0.001 per share
COMMON STOCK. As of October 31, 1999, there were 10,248,350 shares of
common stock outstanding which were held by 96 holders of record. All shares of
common stock issued and outstanding are validly issued, fully paid and
non-assessable.
Each share of common stock entitles the holder thereof to one
non-cumulative vote, either in person or by proxy, at meetings of shareholders.
Shareholders of our common stock do not have cumulative voting rights.
Therefore, shareholders of more than 50% of the issued and outstanding shares of
common stock and Class N shares can elect all of the directors of the Company.
CLASS N SHARES. As of October 31, 1999 there were a total of 3,110,795
Class N shares issued and outstanding. The Class N shares are non-equity
participating and are entitled to identical voting rights as shares of common
stock. The Class N shares are issued to shareholders of IMSI who have shares of
IMSI that are convertible into shares of common stock of the Company so that
such shareholders of IMSI have voting rights at meetings of the shareholders of
the Company. The holders of the Class N shares have no rights of participation
on a liquidation or winding up of the Company.
As of October 31, 1999 the Company had reserved 2,200,000 Class N shares
for issuance upon determination of the exchange rights of the Class B shares,
Class C shares, and Class D shares issued by IMSI. The Company will be required
to reserve an additional 530,000 Class N shares in connection with such
conversion based upon management's estimates that approximately 2,730,000 shares
of common stock of the Company will be issued to the former shareholders of
Transcontinental in exchange for all of the Class B shares, Class C shares and
Class D shares. The holders of the Class B shares, the Class C shares and the
Class D shares are entitled to receive a number of Class N shares based upon the
number of shares of common stock of the Company for which each of the Class B
shares, the Class C shares and the Class D shares may be exchanged as determined
in accordance with the share attributes of each such class. The holders of Class
E shares of IMSI have the same right to receive a number of Class N shares based
upon the number of shares of common stock of the Company for which each series
of the Class E shares may be exchanged as determined in accordance with the
share attributes of each such series. See "-Securities of IMSI." There is no
publicly traded market for the Class N shares.
27
<PAGE> 31
OPTIONS
OPTIONS GRANTED IN CONNECTION WITH ACQUISITION OF D.C. FOODS AND TASTY
SELECTIONS: In connection with the acquisitions of D.C. Foods and Tasty
Selections, the Company committed to issue options pursuant to employment
agreements with certain selling shareholders of the companies acquired. In each
case, the exercise price of the options granted shall be the market price as
determined by reference to the principal exchange upon which shares of common
stock of the Company are listed on the date that the audited consolidated
financial statements of the Company are approved by the Board of Directors
following the period with respect to which the options relate. Each employee is
granted a base number (the "Base Number") of options for each fiscal period
under the term of the respective employment agreement. The terms of the
employment agreements range from four to five years. While the individual is
employed with the Company, the number of options granted following each fiscal
period for each employee is determined as follows:
(a) if less than 85% of the performance target for the employee is
achieved, then no options are granted to the employee.
(b) if between 85% and 100% of the performance target for the employee is
achieved, then the Base Number of options will be granted to the employee for
the relevant fiscal period.
(c) if greater than 100% of the performance target for the employee is
achieved, then the Base Number of options granted shall be increased on a
proportionate basis and such number granted to the employee for the relevant
fiscal period.
Assuming all of the employees achieve between 85% and 100% of their
respective performance targets for the fiscal period ending December 31, 1999,
the Company will be required to grant a total of 100,000 options at a Board of
Directors meeting in which the audited consolidated financial statements of the
Company for the year ending December 31, 1999 are approved.
The options shall vest in accordance with the terms of the individual
employment agreements. Generally, 20% of the options granted will vest on the
grant date, with the remaining options vesting equally at each anniversary of
the grant date.
Options to Brokton International, Ltd., Dover IX Investment Limited, IPO
International Ltd. and Tinamilu Holdings Inc.: In consideration of the
assistance provided in completing the financing undertaken by the Company in
July 1998, the Company granted 250,000 options to each of Brokton International,
Ltd., Dover IX Investment Limited, IPO International Ltd. and Tinamilu Holdings
Inc. The options were in each case available for exercise during the period from
and including February 1, 1999 to and including July 31, 1999 at an option price
of $US 1.00 ($CD 1.46) per optioned share. In May 1999, the Company granted to
each of the optionees an extension for the exercise of the said options whereby
in each case, 100,000 of the optioned shares shall be available for exercise to
and including December 31, 1999 and the remaining 150,000 optioned shares shall
be available for exercise to and including June 30, 2000. As of October 31,
1999, 172,302 options have been exercised.
Options to Robert Caldwell Capital Corporation: In consideration of
financings completed by the Company and IMSI in April and May, 1999, pursuant to
an agency agreement dated April 10, 1999 between IMSI and Robert Caldwell
Capital Corporation ("Caldwell"), IMSI paid to Caldwell a commission of $380,000
and, in addition, granted to Caldwell options to purchase up to 144,762 shares
of common stock of the Company at an option price of $US 1.75 ($CD $2.55) per
optioned share with the options being available for exercise to and including
April 17, 2000.
Options to Baybak and Company, Inc.: In consideration of services
provided to the Company by Michael Baybak and Company, Inc. ("Baybak"), the
Company granted to Baybak options to purchase 125,000 shares of common stock of
the Company during the period to and including December 31, 2001. The option
price
28
<PAGE> 32
for 50,000 of the optioned shares is $US 0.90 ($CD 1.31) per common share and
the option price for the remaining 75,000 optioned shares is $US 1.50 ($CD 2.19)
per optioned share.
Options to Barbara Druxerman: The Company has granted to Barbara
Druxerman, the Vice President of Development of Transcontinental, options to
purchase 3,000 shares of common stock of the Company which shall have an
exercise price of $US 2.00 ($CD 2.91) per common share and such options shall
vest as to 20% on the ninety-first day following the date of her commencement of
employment with Transcontinental and 20% each on the first, second, third and
fourth anniversaries of the date of Ms. Druxerman's commencement of employment.
Warrants to Southbridge Inc.: On April 16, 1999 Southbridge Inc.
subscribed for 1,523,810 shares of common stock of the Company at a subscription
price of $2.625 per common share. As part of the subscription the Company
granted to Southbridge 400,000 warrants which entitle Southbridge to purchase up
to 200,000 shares of common stock at the price of $2.25 per common share during
the period to April 16, 2001 and 200,000 shares of common stock at the price of
$2.625 per common share during the period to April 16, 2001.
Options to the vendors of Transcontinental Gourmet Foods: The Company
granted options to the vendors of Transcontinental Gourmet Foods
("Transcontinental") (pro rata to their common shareholdings in
Transcontinental). The maximum number of common shares is to be determined as
follows: the amount of the Adjusted EBITDA (as defined in the Share Purchase
Agreement) in excess of $1,000,000 for the 12 months ending December 31, 1999
divided by the lesser of US$2.00 and the average closing share price for the ten
trading days prior to December 31, 1999. The Vendors must elect to purchase such
common shares during the one year period following determination of the number
of common shares available under the option formula. Management currently
estimates that the number of common shares available to be exercised by the
shareholders will be approximately 120,000 shares.
Options to Third Party Financial Advisors: On October 27, 1999, in
consideration of financial advisory, consulting, marketing and public relations
services provided to the Company, the Company granted 150,000 options. 50,000 of
these options have a per share exercise price of US$2.25; 100,000 of these
options have a per share exercise price that is determined by calculating the
average of the trading price on the OTC Bulletin Board for 10 trading days
trading price prior to the date of grant (US$3.01 per share). All options must
be exercised within 12 months of the date of grant.
Options to Cliff Marquart: On October 27, 1999, in consideration of Cliff
Marquart serving as President of Huxtable's Kitchens Inc. the Company granted to
him options for 50,000 shares of the common stock of the Company. The options
have a per share exercise price of US$3.00 per share. The options vest as to
10,000 shares on each of November 12, 1999 and each of the four succeeding
anniversaries of such date.
Options to Caldwell: Pursuant to an agency agreement dated April 10, 1999
between IMSI and Robert Caldwell Capital Corporation ("Caldwell"), IMSI agreed
to pay to Caldwell a commission with respect to a subsequent financing received
by IMSI from parties introduced to IMSI by Caldwell. Caldwell introduced
Southbridge to IMSI and a commission is payable with respect to the financing
completed on October 22, 1999, which may include the grant of options.. The form
and amount of such commission is under discussion by the parties.
SECURITIES OF IMSI
The following securities of IMSI are issued and outstanding. There is no
public trading market for any of the following securities.
CLASS X STOCK. IMSI has issued and outstanding 3,110,795 Class X shares
which are exchangeable on the basis of one Class X share and one class N share
of the Company for one share of common stock of the Company. Class X shares are
non-participating and non-voting.
29
<PAGE> 33
CLASS B SHARES. IMSI has issued 300,000 Class B shares. Class B shares
are non-participating and non-voting except in respect of any future
modification or changes in the Class B share characteristics. The Class B shares
are exchangeable into such number of shares of common stock of the Company as
determined by calculating the earnings before income tax, depreciation and
amortization ("EBITDA") of Transcontinental for the twelve month period ended
February 28, 1999, and multiplying such amount by 5, less the adjusted book
value; then by dividing that amount by the Canadian dollar equivalent of $US
1.40 ($CD 2.04) at February 28, 1999 and subtracting from that amount 53,000.
The shareholders of the Class B shares are entitled to purchase for
nominal consideration a number of Class N shares equal to the number of shares
of common stock of the Company for which the Class B shares may be exchanged. In
the event that the shareholders acquire the Class N shares, then upon a Class B
share being exchanged for the number of shares of common stock of the Company
for which the Class B share may be exchanged, a number of Class N shares equal
to such number of shares of common stock of the Company shall be surrendered to
the Company.
CLASS C SHARES. IMSI has issued 100,000 Class C shares. Class C shares
are non-participating and non-voting except in respect of any future
modification or changes in the Class C share characteristics. The Class C shares
are exchangeable into a number of shares of common stock of the Company, such
number of shares to be determined by calculating the EBITDA of Transcontinental
for the twelve month period ended February 28, 2000; then by dividing that
amount by the Canadian dollar equivalent at February 28, 2000 of the lesser of
$US 2.00 ($CD 2.92) or the current market price of one share of common stock of
the Company determined at February 28, 2000.
The shareholders of the Class C shares are entitled to purchase for
nominal consideration a number of Class N shares equal to the number of shares
of common stock of the Company for which the Class C shares may be exchanged. In
the event that the shareholders acquire the Class N shares, then upon a Class C
share being exchanged for the number of shares of common stock of the Company
for which the Class C share may be exchanged, a number of Class N shares equal
to such number of shares of common stock of the Company shall be surrendered to
the Company.
CLASS D SHARES. IMSI has issued 59,000 Class D shares. Class D shares are
non-participating and non-voting except in respect of any future modification or
changes in the Class D share characteristics. The Class D shares are
exchangeable into a number of shares of common stock of the Company such number
of shares to be determined by calculating the EBITDA of Transcontinental for the
twelve month period ended February 28, 2001 minus the adjusted EBITDA of
Transcontinental for the twelve month period ended February 28, 2000; then by
dividing that amount by the Canadian dollar equivalent at February 28, 2001 of
the lesser of $US 2.00 ($CD 2.92) or the current market price of one share of
common stock of the Company determined at February 28, 2001.
The shareholders of the Class D shares are entitled to purchase for
nominal consideration a number of Class N shares equal to the number of shares
of common stock of the Company for which the Class D shares may be exchanged. In
the event that the shareholders acquire the Class N shares, then upon a Class D
share being exchanged for the number of shares of common stock of the Company
for which the Class D share may be exchanged, a number of Class N shares equal
to such number of shares of common stock of the Company shall be surrendered to
the Company.
CLASS E SERIES 1 AND 2 SHARES. IMSI has issued 250,000 Class E Series 1
shares and 250,000 Class E Series 2 shares. Class E Series 1 and 2 shares, are
non-participating and non-voting except in respect of any future modification or
changes in the Class E Series 1 and 2 shares.
The Class E Series 1 shares are exchangeable into a number of shares of
common stock of the Company such number of shares to be determined as follows:
the amount being 50% of the Adjusted EBITDA of D.C. Foods for the period from
and including December 7, 1998 to and including December 31, 1999, or an
earlier date at the election of the Series 1 shareholders in the event (a) of
the death, permanent disability or termination of employment, without cause, of
either Donald Kilimnik or Robert Curik, (b) Michael A. Steele is not the Chief
Executive Officer of the Company, or (c) that a take-over bid for IMSC results
in a single
30
<PAGE> 34
shareholder acquiring more than fifty percent of the issued and outstanding
shares of IMSC, divided by the current market price of one share of common stock
of the Company determined as at December 31, 1999, or such earlier date. Class E
Series 1 shares, are non-participating and non-voting except in respect of any
future modification or changes in the Class E Series 1 shares.
The Class E Series 2 shares are exchangeable into a number of shares of
common stock of the Company such number of shares to be determined by dividing
50% of the Adjusted EBITDA of D.C. Foods for the period from and including
December 7, 1998 to and including December 31, 1999, or an earlier date at the
election of the Series 2 shareholders in the event (a) of the death, permanent
disability or termination of employment, without cause, of either Donald
Kilimnik or Robert Curik, (b) Michael A. Steele is not the Chief Executive
Officer of the Company, or (c) that a take-over bid for IMSC results in a
single shareholder acquiring more than fifty percent of the issued and
outstanding shares of IMSC, divided by the current market price of one share of
common stock of the Company determined as at December 31, 1999, or such earlier
date. Class E Series 2 shares, are non-participating and non-voting except in
respect of any future modification or changes in the Class E Series 2 shares.
The shareholders of the Class Series 1 shares are entitled to purchase
for nominal consideration a number of Class N shares equal to the number of
shares of common stock of the Company for which the Class E Series 1 shares may
be exchanged. In the event that the shareholders acquire the Class N shares,
then upon a Class E Series 1 share being exchanged for the number of shares of
common stock of the Company for which the Class E Series 1 share may be
exchanged, a number of Class N shares equal to such number of shares of common
stock of the Company shall be surrendered to the Company.
The shareholders of the Class Series 2 shares are entitled to purchase
for nominal consideration a number of Class N shares equal to the number of
shares of common stock of the Company for which the Class E Series 2 shares may
be exchanged. In the event that the shareholders acquire the Class N shares,
then upon a Class E Series 2 share being exchanged for the number of shares of
common stock of the Company for which the Class E Series 2 share may be
exchanged, a number of Class N shares equal to such number of shares of common
stock of the Company shall be surrendered to the Company.
CLASS E SERIES 3 AND 4 SHARES. IMSI has issued 250,000 shares of Class E
Series 3 shares and 250,000 shares of Class E Series 4 shares. Class E Series 3
and 4 shares are non-participating and non-voting except in respect of any
future modification or changes in the Class E Series 3 and 4 share
characteristics.
Class E Series 3 shares are exchangeable into a number of shares of
common stock of the Company such number of shares to be determined as follows:
the amount being 50% of [four times the Adjusted EBITDA D.C. Foods for the
period ending March 31, 2002 or December 31, 2002 (such period to be selected
by the Series 3 shareholders in their absolute discretion) or an earlier date
at the election of the Series 3 shareholders in the event (a) of the death,
permanent disability or termination of employment, without cause, of either
Donald Kilimnik or Robert Curik, (b) Michael A. Steele is not the Chief
Executive Officer of the Company, or (c) that a take-over bid for IMSC results
in a single shareholder acquiring more than fifty percent of the issued and
outstanding shares of IMSC, minus (A) $6,000,000 and (B) an amount equal to the
greater of (i) the Adjusted EBITDA of D.C. Foods for the period from and
including December 7, 1998 to and including December 31, 1999, and (ii) zero],
divided by the current market price of one share of common stock of the Company
determined as at March 31, 2002 or December 31, 2002, or such earlier date.
Class E Series 4 shares are exchangeable into a number of shares of
common stock of the Company such number of shares to be determined as follows:
the amount being 50% of [four times the Adjusted EBITDA of D.C. Foods for the
period ending March 31, 2002 or December 31, 2002 (such period to be selected
by the Series 4 shareholders in their absolute discretion) or an earlier date
at the election of the Series 4 shareholders in the event (a) of the death,
permanent disability or termination of employment, without cause, of either
Donald Kilimnik or Robert Curik, (b) Michael A. Steele is not the Chief
Executive Officer of the Company, or (c) that a take-over bid for IMSC results
in a single shareholder acquiring more than fifty percent of the issued and
outstanding shares of IMSC, minus (A) $6,000,000 and (B) an amount equal to the
greater of (i)
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<PAGE> 35
the Adjusted EBITDA of D.C. Foods for the period from and including December 7,
1998 to and including December 31, 1999, and (ii) zero], divided by the current
market price of one share of common stock of the Company determined as at March
31, 2002 or December 31, 2002, or such earlier date.
The shareholders of the Class Series 3 shares are entitled to purchase
for nominal consideration a number of Class N shares equal to the number of
shares of common stock of the Company for which the Class E Series 3 shares may
be exchanged. In the event that the shareholders acquire the Class N shares,
then upon a Class E Series 3 share being exchanged for the number of shares of
common stock of the Company for which the Class E Series 3 share may be
exchanged, a number of Class N shares equal to such number of shares of common
stock of the Company shall be surrendered to the Company.
The shareholders of the Class Series 4 shares are entitled to purchase
for nominal consideration a number of Class N shares equal to the number of
shares of common stock of the Company for which the Class E Series 4 shares may
be exchanged. In the event that the shareholders acquire the Class N shares,
then upon a Class E Series 4 share being exchanged for the number of shares of
common stock of the Company for which the Class E Series 4 share may be
exchanged, a number of Class N shares equal to such number of shares of common
stock of the Company shall be surrendered to the Company.
CLASS E SERIES 5 AND 6 SHARES. IMSI has issued 250,000 shares of Class E
Series 5 shares and 250,000 shares of Class E Series 6 shares. Class E Series 5
and 6 shares are non-participating and non-voting except in respect of any
future modification or changes in the Class E Series 5 and 6 share
characteristics.
Class E Series 5 shares are exchangeable into a number of shares of
common stock of the Company such number of shares to be determined as follows:
the amount being four times the Adjusted EBITDA of Ultimate for the one (1) year
period ending April 30, 2000, less the net book value of Ultimate at that date,
divided by the current market price of one share of common stock of the Company
determined as at April 30, 2000.
Class E Series 6 shares are exchangeable into a number of shares of
common stock of the Company such number of shares to be determined as follows:
the amount being 25% of the aggregate of: (i) net sales in the calendar year
2002 of cookie dough or cookies by Ultimate and Tasty Selections; (ii) the
amount of net sales in the year 2002 of any products under the trademarks of or
licensed to Ultimate; and (iii) the amount of net sales in the year 2002 in the
Province of Quebec of Tasty Selections products; and (iv) the amount of net
sales in the year 2002 in the Province of Quebec that Michael Eskenazi or any
employee under his direct control is involved in developing or promoting; minus
the amount being four times Adjusted EBITDA of Ultimate for the one (1) year
period ending April 30, 2000; divided by the current market price of one share
of common stock of the Company determined as at December 31, 2002.
The shareholders of the Class Series 5 shares are entitled to purchase
for nominal consideration a number of Class N shares equal to the number of
shares of common stock of the Company for which the Class E Series 5 shares may
be exchanged. In the event that the shareholders acquire the Class N shares,
then upon a Class E Series 5 share being exchanged for the number of shares of
common stock of the Company for which the Class E Series 5 share may be
exchanged, a number of Class N shares equal to such number of shares of common
stock of the Company shall be surrendered to the Company.
The shareholders of the Class Series 6 shares are entitled to purchase
for nominal consideration a number of Class N shares equal to the number of
shares of common stock of the Company for which the Class E Series 6 shares may
be exchanged. In the event that the shareholders acquire the Class N shares,
then upon a Class E Series 6 share being exchanged for the number of shares of
common stock of the Company for which the Class E Series 6 share may be
exchanged, a number of Class N shares equal to such number of shares of common
stock of the Company shall be surrendered to the Company.
OPTIONS. IMSI granted options to James Guinchard, the President and
Director of Prime Foods, to purchase 40,000 Class X shares of IMSI, 16,000 of
which have vested. The options for the remaining 24,000
32
<PAGE> 36
Class X shares will vest at an option price of $US 0.625 ($CD 0.91), of which
8,000 of the optioned shares shall vest on November 3, 2000, a further 8,000 of
the optioned shares shall vest on November 3, 2001, and the remaining 8,000
optioned shares shall vest on November 3, 2002.
CONVERTIBLE LOAN: On May 10, 1999, IMSI and the Company entered into a
loan agreement with First Ontario Fund ("First Ontario") and Bank of Montreal
Capital Corporation ("BMOCC") with respect to a $4 Million financing. The
funding was advanced as to $1.5 Million by BMOCC and as to $2.5 Million by First
Ontario. The financing was secured by general security granted by each of IMSI
and the Company, a guarantee and general security agreement from each of IMSI's
subsidiaries, a mortgage of the premises owned by Prime at 620 Colby Drive,
Waterloo, Ontario, and a share pledge agreement executed by the Company pursuant
to which it pledged its common shares in the capital of IMSI to First Ontario
and BMOCC.
The terms of the loan are as follows: (a) the interest rate for the period
ending April 15, 2000 is 7% per annum and thereafter until maturity on April 15,
2003 is 13% per annum; (b) the outstanding debt is convertible, at the option of
the holder, into Class X shares of IMSI at a price of $2.62 per share; (c) the
holder has the right to acquire a number of Class N shares equal to the number
of Class X shares received; (d) IMSI has the option to force conversion into
Class X and N shares at any time after July 1, 1999 provided that (i) the
Company's common stock trades on a major North American stock exchange approved
by the lenders, (ii) the Company's common stock has a cumulative trading volume
during a twenty day period of the greater of (1) 300,000 shares of common stock,
or (2) five percent of the number of issued shares of common stock that are not
subject to any escrow agreement or resale restrictions set out in the Ontario
Securities Act, and (iii) the weighted average trading price during such twenty
day period is not less than the United States Dollar equivalent of $CD 5.50.
Concurrently with the completion of such financing, the Company granted an
aggregate of 156,250 warrants to First Ontario and 93,750 warrants to BMOCC to
acquire shares of the common stock of the Company with each such warrant
entitling the holder to purchase one common stock in the capital of the Company
at the following prices: 93,750 warrants held by First Ontario and 56,250
warrants held by BMOCC are exercisable at a purchase price of $2.24 and 62,500
warrants held by First Ontario and 37,500 warrants held by BMOCC are exercisable
at a purchase price of $2.62.
SPECIAL WARRANTS. On October 22, 1999, Southbridge Equities Inc., a
corporation organized under the laws of the Province of Ontario, Canada
("Southbridge Equities"), subscribed for 1,555,556 special warrants ("Special
Warrants") of IMSI, for an aggregate consideration of approximately US$4.7
million. Each Special Warrant entitles Southbridge Equities, upon exercise
thereof without any further consideration, to receive one Non-voting Class X
share (an "Exchangeable Share") of IMSI. Such Special Warrants are immediately
exercisable and any Special Warrant not exercised by October 22, 2000 (or
earlier under certain circumstances) will be deemed to have been exercised as of
such date. The Special Warrants are subject to customary anti-dilution
adjustment provisions. In addition, each Special Warrant will be exercisable for
(i) 1.1 Exchangeable Shares in the event that IMSI does not receive a receipt
for a (final) prospectus issued by the Ontario Securities Commission by August
5, 2000, and (ii) 1.2 Exchangeable Shares in the event that IMSI is not able to
obtain additional financing of least US$7 million by March 30, 2000 or certain
trading volume and price targets for the Company's common stock are not met.
Also, in the event that IMSI is not able to obtain such additional financing by
March 30, 2000, the Special Warrants will be deemed to be amended to change all
references to Exchangeable Shares to refer to the common stock of the Company.
These securities were sold in an offshore transaction in reliance on Regulation
S under the Securities Act of 1933, as amended. In connection with such
subscription, the Company and its subsidiary entered into additional agreements
with Southbridge Equities which, among other thing, address registration rights.
The proceeds will be used to fund previously announced acquisitions and
expansion plans. Southbridge Equities is a subsidiary of Southbridge Inc.
Reginald Peterson, a director of IMSI, is the controlling shareholder of
Southbridge Inc. Prior to this transaction, Southbridge Inc. beneficially owned
1,523,810 shares of common stock of the Company.
LIQUIDATION RIGHTS OF IMSI SECURITIES. None of the securities of IMSI
have the right to participate in a liquidation or winding up of the Company.
However, the Class X, Class B shares, the Class C shares, the Class D
33
<PAGE> 37
shares, and the Class E Series 1, 2, 3, 4, 5, and 6 shares are exchangable into
shares into common shares of the Company. In the event that the liquidation
event occurs prior to the determination of the number of common shares of the
Company that Class B shares, Class C shares, Class D shares and Class E shares
may be exchanged for, the share provisions provide for an exchange rate that is
based on an estimate of the anticipated exchange rate. Class X share holders of
IMSI are entitled to receive one share of the common stock of the Company for
each Class X share held by such shareholder. Upon such conversion, the former
holders of IMSI securites shall have the same right to participate in a
liquidation or winding up of the Company as all the other holders of the
Company's common stock.
REGISTRATION RIGHTS
The Company entered into registration rights agreements with each of
Southbridge Inc., Southbridge Equities Inc. and certain persons that acquired
securities of the Company or IMSI in connection with the Company's acquisition
of each of Huxtable's Foods L.L.C., The Ultimate Cookie Co. Inc., D.C. Foods and
Transcontinental. Pursuant to these agreements, if the Company proposes to
register shares of common stock under the Securities Act of 1933, as amended,
these holders are entitled to notice of such registration and are entitled to
include shares of their common stock of the Company in the registration, subject
to conditions and limitations. Some of these shareholders may also require the
Company to effect the registration of their securities under the Securities Act
of 1933, as amended, in the first instance at the Company's expense, subject to
conditions and limitations. The total number of shares covered by these
registration rights agreements cannot be finally determined because such number
is contingent on the future financial performance of certain subsidiaries of the
Company and other contingencies not currently knowable by the Company.
RIGHT OF FIRST REFUSAL
In connection with the acquisitions of each of Transcontinental, Tasty
Selections, 1005549 and Ultimate, we have acquired a first right of refusal with
respect to the sale of shares of IMSI and the Company by the parties receiving
such shares as part of the payment of the purchase price.
34
<PAGE> 38
PART II
ITEM 1. MARKET PRICE OF COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Since July 20, 1998, the common stock of the Company has been traded
under the symbol "MENU" on the system of the National Association of Securities
Dealers, Inc. known as the OTC Bulletin Board (the "Bulletin Board"). Prior to
the amalgamation of IMSI with and into the Company, our common stock was traded
under the symbol "ANMH."
To the best of our knowledge, there are presently five market-makers for
our common stock. When stock is traded in the public market, characteristics of
depth, liquidity and orderliness of the market being made in the stock depends
on the existence of market-makers as well as the presence of willing buyers and
sellers. There can be no assurance that these market-makers will continue to
make a market for our common stock.
The principal market for our common stock is the Bulletin Board. The
range of high and low bids to purchase our common stock on the Bulletin Board
for the last four quarters and the month ended October 31, 1999 are as follows:
<TABLE>
<CAPTION>
Quarter Low Bid - US$ High Bid - US$
- - ------- ------------- --------------
<S> <C> <C>
1998 (4th Quarter) $7/8 $1 5/8
1999 (1st Quarter) $1 3/16 $2 21/64
1999 (2nd Quarter) $1 51/64 $3 5/16
1999 (3rd Quarter) $2 3/4 $4
October 1999 $2 3/4 $3 17/64
</TABLE>
The total number of issued and outstanding shares of common stock of the
Company that can be traded on the Bulletin Board was 3,078,000 at October 31,
1999. There were approximately 96 holders of the Company's common stock.
The Company has never paid cash dividends on its stock and does not
intend to do so for the foreseeable future. We currently intend to retain our
earnings for the operation and expansion of our business. Our continued need to
retain earnings for operations and expansion is likely to limit our ability to
pay dividends in the future.
ITEM 2. LEGAL PROCEEDINGS
Each of the Company and its wholly owned subsidiaries experiences routine
litigation in the normal conduct of its business. Neither the Company nor its
subsidiaries believes that any such pending litigation, will have, individually
or in the aggregate, a material adverse effect on their business or financial
condition.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no disagreements with our independent accountants over
any item involving the Company's financial statements. Our independent
accountants are Deloitte & Touche LLP, 55 King Street West, Suite 700,
Kitchener, Ontario N2G 4W1.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On October 22, 1999, certain option holders exercised options covering
172,302 shares of common stock of the Company at a per share exercise price of
US$1.00 (CDN$1.46), resulting in US$172,302 being put into treasury of the
Company for general corporate purposes. These securities were issued in an
offshore transaction in reliance on Regulation S under the Securities Act of
1933, as amended (the "Securities Act").
35
<PAGE> 39
In October, 1999, certain shareholders exchanged 544,385 Class N shares
of the Company (and 544,385 Class X shares of IMSI) for the same number of share
of common stock of the Company. Other than the surrender of such shares, there
was no consideration accruing to the Company for this share exchange.
On April 16, 1999 Southbridge Inc. subscribed for 1,523,810 shares of
common stock of the Company at a subscription price of $2.625 per common share,
pursuant to Regulation S of the Securities Act. As part of the subscription the
Company granted to Southbridge 400,000 warrants which entitle Southbridge to
purchase up to 200,000 shares of common stock at the price of $2.25 per share of
common stock during the period to April 16, 2000 and 200,000 shares of common
stock at the price of $2.625 per common share during the period to April 16,
2001.
In November 1998, the Company offered 3,300,000 private placement units
consisting of 3,300,000 shares of common stock and 1,650,000 redeemable stock
purchase warrants, pursuant to Regulation S of the Securities Act. Each warrant
entitles the registered holder to purchase one share of the Company's common
stock at US$1.40 per share. We sold 1,997,300 units for US$0.90 each to ten
investors for a total cash consideration of $US 1,666,124 net of commission and
offering costs. The units were issued as follows:
<TABLE>
<CAPTION>
Purchaser Date of Purchase Shares of Common Stock
- - --------- ---------------- ----------------------
<S> <C> <C>
Christopher Smith 11/23/98 157,000
Larry Hoffman 11/23/98 110,000
Victor Fradkin 11/23/98 220,000
Thinomen Gronberg and William Gronberg 11/23/98 110,000
Dover IX Investments, Ltd. 11/23/98 575,300
Mario Girorgio in Trust 11/23/98 220,000
Canadian Food Fund Corp. 11/23/98 165,000
Bull International, Ltd. 11/23/98 110,000
Mark Johnson Holdings, Inc. 11/23/98 110,000
Britwirth Investments, Ltd. 11/23/98 220,000
</TABLE>
ALL SHARE ISSUANCES DESCRIBED IN THE FOLLOWING PARAGRAPHS WERE ISSUED BY THE
COMPANY, WHEN IT WAS KNOWN AS ANM HOLDING CORPORATION, PRIOR TO THE AMALGAMATION
DESCRIBED IN "DESCRIPTION OF BUSINESS".
In July 1998, we issued a total of 1,400,000 shares of common stock of
the Company, pursuant to Rule 504 of Regulation D of the Securities Act. All
1,400,000 shares were sold to six investors for a total cash consideration of
$US 925,000 ($CD1,347,725) net of commission and offering costs. The shares were
issued as follows:
<TABLE>
<CAPTION>
Purchaser Date of Purchase Shares of Common Stock
- - --------- ---------------- ----------------------
<S> <C> <C>
Tinamilu Holdings, Inc. 7/6/98 233,333
Brockton International 7/6/98 233,333
Wifsta Limited 7/6/98 233,333
Deevale Limited 7/6/98 233,333
Dover IX Investment Limited 7/6/98 233,335
IPO International, Ltd. 7/6/98 233,333
</TABLE>
In April 1998, we issued 400,000 shares of our common stock, pursuant to
Rule 504 of Regulation D of the Securities Act. All 400,000 shares were sold to
three investors for a total cash consideration of US$4,000 net of commission and
offering costs. The shares were issued as follows:
36
<PAGE> 40
<TABLE>
<CAPTION>
Purchaser Date of Purchase Shares of Common Stock
- - --------- ---------------- ----------------------
<S> <C> <C>
Tiger-Eye Investments (Cayman) Ltd. 4/9/98 150,000
Llewellyn Capital Trust Foundation 4/9/98 150,000
Luserna Stiftung 4/9/98 100,000
</TABLE>
In November 1997, we issued a total of 28,000 shares of our common stock,
pursuant to Rule 504 of Regulation D of the Securities Act. All 28,000 shares
were sold to twenty-eight investors for a total cash consideration of US$1,400
net of commission and offering costs. The shares were issued as follows:
<TABLE>
<CAPTION>
Purchaser Date of Purchase Shares of Common Stock
- - --------- ---------------- ----------------------
<S> <C> <C>
Earle Lewis 11/1/97 1,000
Pam Lewis 11/1/97 1,000
Melanie Lewis 11/1/97 1,000
Sherrye Sailes 11/1/97 1,000
Sheyne Almond 11/1/97 1,000
Sheyanne Almond 11/1/97 1,000
Rheece Metcalfe 11/1/97 1,000
Raelyn Metcalfe 11/1/97 1,000
Cathryn Newman 11/1/97 1,000
Gary Newman 11/1/97 1,000
Mitchell Newman 11/1/97 1,000
Nicholas Newman 11/1/97 1,000
Philip Fox 11/1/97 1,000
Carole Fox 11/1/97 1,000
David Shaw 11/1/97 1,000
Mary-Margaret Mackinnon 11/1/97 1,000
Thomas Shaw 11/1/97 1,000
Sandy Michie 11/1/97 1,000
Pat Michie 11/1/97 1,000
Dene Knight 11/1/97 1,000
Lorraine Knight 11/1/97 1,000
Doug Knight 11/1/97 1,000
Kathy Knight 11/1/97 1,000
Darcy Knight 11/1/97 1,000
Tyler Knight 11/1/97 1,000
Bill Roberts 11/1/97 1,000
Doug Harrington 11/1/97 1,000
Ed Smith 11/1/97 1,000
</TABLE>
In October 1997, we issued a total of 1,250,000 shares of our common
stock, pursuant to Rule 504 of Regulation D of the Securities Act. All 1,250,000
shares were sold to seven investors for a total cash consideration of US$12,500
net of commission and offering costs. The shares were issued as follows:
<TABLE>
<CAPTION>
Purchaser Date of Purchase Shares of Common Stock
- - --------- ---------------- ----------------------
<S> <C> <C>
International Treasury & Investments 10/21/97 220,000
International Commerce Clearing Corporation 10/21/97 220,000
Norton International Holdings, Ltd. 10/21/97 220,000
Tiger Eye Investments (Cayman), Ltd. 10/21/97 220,000
Llewellyn Capital Trust Foundation 10/21/97 220,000
Knight Family Trust 10/21/97 40,000
Michie Family Trust 10/21/97 110,000
</TABLE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
37
<PAGE> 41
The Nevada General Corporation Law ("NGL"), permits a corporation to
indemnify any person who is, was, or is threatened to be made a party to any
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that he or she is or was an officer,
director, employee, or agent of the corporation, against such person's costs and
expenses incurred in connection with such action, suit or proceeding so long as
he or she acted in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the corporation, and,
in the case of a criminal action, he or she had no reasonable cause to believe
that his or her conduct was unlawful. Furthermore, the NGL requires the
corporation to indemnify any such person who is successful on the merits or in
the defense of such action, suit or proceeding against costs and expenses
actually and reasonably incurred in connection with such action, suit or
proceeding. The Company's By-laws provide for the indemnification of its
officers and directors to the fullest extent permitted by the NGL. In addition,
the Company's Articles of Incorporation provide that no director or officer of
the Company shall be personally liable to the Company or its stockholders for
damages for breach of fiduciary duty as a director or officer involving any act
or omission of any such director or officer, except for acts or omissions that
involve intentional misconduct, fraud, a knowing violation of law or the payment
of an improper dividend.
The NGL permits a corporation to maintain insurance on behalf of its
directors, officers, employees, and agents for liability asserted against, and
expenses incurred by, such persons, whether or not the corporation has the
authority to indemnify him or her against such liability and expenses. However,
because such liability insurance is only available at considerable cost and with
low dollar limits of coverage and broad policy exclusions, we do not currently
maintain a liability insurance policy for the benefit of our directors, although
we are presently seeking to secure such insurance. Also, due to the lack of such
directors liability insurance, we may be forced to bear a portion or all of the
cost of the director's claims for indemnification under the above-described
provisions, which could have a material adverse effect on our financial
condition.
PART F/S
ITEM 1. FINANCIAL STATEMENTS
For information regarding this item, reference is made to the "Index of
Financial Statements."
PART III
ITEM 1. INDEX TO EXHIBITS
2.0* Share Purchase Agreement between 1218951 Ontario Limited and Prime Foods,
dated October 9, 1998.
2.1* Share Purchase Agreement by and among Victor Fradkin, Rhys Quin,
Lauderdale Capital Corp., Larry Hoffman, IMSI and the Company, dated
November 30, 1998.
2.2* Share Purchase Agreement by and among Alrae Investments Inc., Katherine
Kan, Roynat Inc., IMSI and the Company, dated April 15, 1999.
2.3* Exchange Agreement and Shareholder Loan Purchase Agreement between Sania
Shechtman and IMSI, dated April 19, 1999.
2.4* Exchange Agreement and Shareholder Loan Purchase Agreement between
1276396 Ontario Ltd. and IMSI, dated April 28, 1999.
2.5* Share Purchase Agreement by and among Donald Kilimnik, Deborah Kilimnik,
Robert Curik, Anjela Curik, IMSI and the Company dated May 10, 1999.
2.6* Exchange Agreement by and among Elililco Ltd., David Arosh, Margaret
Arosh, IMSI and the Company, dated May 17, 1999.
38
<PAGE> 42
2.7 Share Purchase Agreement by and among Michael Eskenazi, Gina Eskenazi,
Felix and Norton International Inc. and IMSI and the Company, dated
October 18, 1999.
2.8 Asset Purchase Agreement by and among International Menu Solutions USA,
Inc., the Company and Huxtable's Foods, L.L.C., dated November 12, 1999.
3.0* Articles of Incorporation of the Company.
3.1* Certificate of Amendment of Certificate of Incorporation of the Company,
dated July 15, 1998.
3.2* Certificate of Amendment of Certificate of Incorporation of IMSI defining
the rights of security holders, dated May 7, 1999.
3.3* Certificate of Amendment of Certificate of Incorporation of International
Menu defining the rights of security holders, dated May 10, 1999.
3.4* By-laws of the Company.
6.0 Indenture between 1249462 Ontario Limited and IMSI, dated March 1, 1999.
6.1 Standard Industrial Lease between Rreef West-VI, Inc. and Huxtable's
Combustibles, Inc., dated August 16, 1994.
6.2 Lease Amending Agreement between 1117423 Ontario Limited and 1218951
Ontario Limited, dated October 8, 1998.
6.3 Lease by and among Raffaele Cerundolo and Tony Taurasi T&R Construction
and Management Inc. and Transcontinental Gourmet Foods Inc., dated May
25, 1999.
6.4 Indenture by and among 1249462 Ontario Limited, Tasty Selections Inc. and
IMSI, dated June 15, 1999.
6.5 Commitment Letter by and among The Bank of Nova Scotia, IMSI, Prime Foods
Processing, Inc., 1188908 Ontario, Inc. and D.C. Foods Processing, Inc.,
dated April 16, 1999
10.0* Employment Agreement between the Company and Michael Steele, dated August
1, 1998.
10.1 Employment Agreement between Larry Hoffman and IMSI, dated December 1,
1998.
10.2* Agency Agreement between Robert Caldwell Capital Corporation and IMSI,
dated April 10, 1999.
39
<PAGE> 43
21.0 Subsidiaries of the Company:
<TABLE>
<CAPTION>
Jurisdiction
of
Name Incorporation
- - ---- -------------
<S> <C>
Huxtable's Kitchens Inc.. Delaware
International Menu Solutions Inc. Ontario
Prime Foods Processing Inc. Ontario
Transcontinental Gourmet Foods Inc. Ontario
Tasty Selections Inc. Ontario
1005549 Ontario Inc. Ontario
D.C. Foods Processing Inc. Ontario
The Ultimate Cookie Co., Inc. Canada
</TABLE>
- - ----------------
* Previously filed with Amendment No. 1 to this Registration Statement.
40
<PAGE> 44
INDEX TO FINANCIAL STATEMENTS
The following documents are filed as part of this Registration Statement.
<TABLE>
<S> <C>
INTERNATIONAL MENU SOLUTIONS CORPORATION
ANNUAL FINANCIAL STATEMENTS
Independent auditors' report. F-1
Audited consolidated balance sheets as of December 31, 1998 and 1997 F-2
Audited consolidated statements of operations for the year ended December 31,
1998 and for the period from September 26, 1997 to December 31, 1997 F-3
Audited consolidated statement of stockholders' equity for the period from F-4
September 26, 1997 to December 31, 1998
Audited consolidated statements of cash flows for the year ended December 31,
1998 and for the period from September 26, 1997 to December 31, 1997 F-5
Notes to consolidated financial statements F-6 to F-20
UNAUDITED INTERIM FINANCIAL STATEMENTS
Unaudited consolidated balance sheets as of September 30, 1999 and 1998 F-21
Unaudited consolidated statements of operations for the nine month period ended
September 30, 1999 and 1998 F-22
Unaudited consolidated statements of stockholders' equity for the nine month
period ended September 30, 1999 F-23
Unaudited consolidated statements of cash flow for the nine month periods ended
September 30, 1999 and 1998 F-24
Notes to unaudited consolidated financial statements F-25 to F-29
TRANSCONTINENTAL GOURMET FOODS INC.
Auditors' report. F-30
Audited balance sheets as at February 28, 1998 and 1997 and unaudited balance F-31
sheet as at November 30, 1998.
Audited statement of retained earnings for the years ended February 28, 1998 and
1997 and unaudited statement of retained earnings for the nine month period
ended November 30, 1999 F-32
Audited statements of income for the years ended February 28, 1998 and 1997 and
unaudited statement of income for the nine months ended November 30, 1998. F-33
Audited statements of cash flow for the years ended February 28, 1998 and 1997
and unaudited statement of cash flow for the nine months ended November 30,
1998. F-34
Notes to financial statements. F-35 to F-43
1188980 ONTARIO LTD. (OPERATING AS TASTY BATTERS; THE PREDECESSOR COMPANY TO
TASTY SELECTIONS INC.)
Auditors' report. F-44
Audited balance sheets as of June 30, 1997 and 1998 and unaudited balance sheet
as of March 31, 1999. F-45
Audited statement of income and retained earnings for the years ended June 30,
1997 and 1998 and unaudited statement of income and retained earnings for the
nine months ended March 31, 1999. F-46
Audited statement of cash flow for the years ended June 30, 1997 and 1998 and
unaudited statement of cash flow for the nine months ended March 31, 1999. F-47
Notes to financial statements. F-48 to F-51
</TABLE>
<PAGE> 45
<TABLE>
<S> <C>
1005549 ONTARIO LIMITED (100% OWNER OF D.C. FOODS PROCESSING INC.)
ANNUAL FINANCIAL STATEMENTS
Report of Independent Auditors. F-52
Audited consolidated balance sheets as of December 6, 1998 and December 7, 1997. F-53
Audited consolidated statements of earnings for the years ended December 6, 1998 F-54
and December 7, 1997.
Audited consolidated statements of stockholders' equity for the years ended
December 6, 1998 and December 7, 1997. F-55
Audited consolidated statements of cash flows for the years ended December 6,
1998 and December 7, 1997. F-56
Notes to consolidated financial statements. F-57 to F-65
UNAUDITED INTERIM FINANCIAL STATEMENTS
Unaudited consolidated balance sheets as of March 7, 1999 and March 8, 1998 F-66
Unaudited consolidated statements of operations for the three month periods
ended March 7, 1999 and March 8, 1998 F-67
Unaudited consolidated statements of cash flow for the three month periods ended
March 7, 1999 and March 8, 1998 F-68
Notes to unaudited consolidated financial statements F-69 to F-72
HUXTABLE'S FOODS L.L.C.
ANNUAL FINANCIAL STATEMENTS
Independent auditors' reports. F-73 and F-74
Audited balance sheet as of December 31, 1998 F-75
Audited statements of operations for the year ended December 31, 1998 and 1997 F-76
Audited statement of members' capital for years ended December 31, 1998 and 1997 F-77
Audited statements of cash flows for the years ended December 31, 1998 and 1997 F-78 to F-79
Notes to consolidated financial statements F-80 to F-88
UNAUDITED INTERIM FINANCIAL STATEMENTS
Unaudited balance sheets as of September 30, 1999 and 1998 F-89
Unaudited statements of operations for the nine month period ended September 30,
1999 and 1998 F-90
Unaudited statements of cash flow for the nine month periods ended September 30,
1999 and 1998 F-91
Notes to unaudited financial statements F-92 to F-96
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF INTERNATIONAL MENU SOLUTIONS
CORPORATION
Unaudited pro forma consolidated balance sheet as of September 30, 1999 F-97
Unaudited pro forma consolidated statement of operations for the nine months F-98
ended September 30, 1999
Unaudited pro forma consolidated statement of operations for the nine months
ended September 30, 1998 F-99
Unaudited pro forma consolidated statement of operations for the year ended
December 31, 1998 F-100
Footnotes to unaudited pro forma consolidated financial statements. F-101 to F-105
</TABLE>
<PAGE> 46
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date:
INTERNATIONAL MENU SOLUTIONS CORPORATION
By:
/s/ Michael Steele,
----------------------------------
President
41
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
To the Stockholders of International Menu Solutions Corporation
We have audited the accompanying consolidated balance sheets of International
Menu Solutions Corporation and subsidiaries as of December 31, 1998 and December
31, 1997 and the related consolidated statements of operations, stockholders'
equity and cash flows .for the year ended December 31, 1998 and for the period
from the date of incorporation, September 26, 1997 to December 31, 1997. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of International Menu Solutions
Corporation and subsidiaries as of December 31, 1998 and December 31, 1997 and
the results of their operations and their cash flows the for year ended December
31, 1998 and for the period from the date of incorporation, September 26, 1997
to December 31, 1997 in conformity with accounting principles generally accepted
accounting principles in the United States.
/s/ DELOITTE & TOUCHE LLP
- - -------------------------
DELOITTE & TOUCHE LLP
Chartered Accountants
Kitchener, Ontario
March 25, 1999, except as to
Note 19m) which is as
of October 20, 1999
F-1
<PAGE> 48
<TABLE>
<CAPTION>
INTERNATIONAL MENU SOLUTIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(CANADIAN DOLLARS)
==========================================================================================================
December 31,
1998 1997
------------- -------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,865,612 $ 299,274
Accounts receivable 2,270,251 269,466
Inventories 1,299,890 236,434
Prepaid expenses 100,633 16,766
- - ----------------------------------------------------------------------------------------------------------
5,536,386 821,940
CAPITAL ASSETS, NET 3,617,196 905,475
INTANGIBLE ASSETS, NET 4,627,070 339,365
- - ----------------------------------------------------------------------------------------------------------
$ 13,780,652 $ 2,066,780
==========================================================================================================
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 1,100,849 $ 40,000
Accounts payable 2,072,485 512,386
Accrued liabilities 937,940 53,220
Current portion of capital lease obligation 94,486 -
Current portion of long-term debt 279,044 31,600
- - ----------------------------------------------------------------------------------------------------------
4,484,804 637,206
CAPITAL LEASE OBLIGATION 297,387 -
LONG-TERM DEBT 1,250,303 518,400
DEFERRED INCOME TAXES 93,000 -
- - ----------------------------------------------------------------------------------------------------------
6,125,494 1,155,606
- - ----------------------------------------------------------------------------------------------------------
MINORITY INTEREST 3,374,000 -
- - ----------------------------------------------------------------------------------------------------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Class A preferred stock - no par value; unlimited shares
authorized; 700,000 and Nil shares issued - 280,320
Class N voting, non-participating stock - US$0.001 par value;
10,000,000 shares authorized; 3,190,462 and 4,000,000
shares issued 4,586 5,800
Common stock - US$0.001 par value; 25,000,000 shares
authorized; 5,884,838 and 1,678,000 shares issued 8,164 1,854
Additional paid-in capital 4,871,951 664,997
Deficit (603,543) (41,797)
- - ----------------------------------------------------------------------------------------------------------
4,281,158 911,174
- - ----------------------------------------------------------------------------------------------------------
$ 13,780,652 $2,066,780
==========================================================================================================
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE> 49
<TABLE>
<CAPTION>
INTERNATIONAL MENU SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(CANADIAN DOLLARS)
============================================================================================
Period from
incorporation,
Year ended September 26,
December 31, 1997 to
1998 December 31, 1997
-------------- ------------------
<S> <C> <C>
REVENUE $ 6,096,048 $ 442,493
- - --------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 4,729,806 365,385
Selling expenses 610,033 12,516
Research and development 425,542 5,663
Administrative expenses 832,562 97,871
- - --------------------------------------------------------------------------------------------
6,597,943 481,435
- - --------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (501,895) (38,942)
- - --------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest revenue 24,763 1,268
Interest expense (98,066) (4,123)
- - --------------------------------------------------------------------------------------------
(73,303) (2,855)
- - --------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES
AND NON-CONTROLLING INTEREST (575,198) (41,797)
MINORITY INTEREST 26,000 -
- - --------------------------------------------------------------------------------------------
NET LOSS $ (549,198) $ (41,797)
- - --------------------------------------------------------------------------------------------
LOSS PER SHARE - BASIC AND DILUTED $ (0.09) $ (0.01)
============================================================================================
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES 6,419,141 5,278,000
============================================================================================
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 50
<TABLE>
<CAPTION>
INTERNATIONAL MENU SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(CANADIAN DOLLARS)
- - -------------------------------------------------------------------------------------------------------------------------------
Class A Additional
Preferred Class N Common Paid-In
Shares Amount Shares Amount Shares Amount Capital
------------ ------------ -------------- -------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 26, 1997 - $ - - $ - - $ - $ -
Issuance of common shares 4,000,000 672,651
Issuance of Class A
preferred shares 700,000 280,320
Effect of reverse
acquisition 4,000,000 5,800 (2,322,000) (670,797) 664,997
Net loss
- - -------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997 700,000 280,320 4,000,000 5,800 1,678,000 1,854 664,997
Issuance of common shares 3,397,300 5,096 4,206,954
Fair value of brokers'
options (1,058,300)
1,058,300
Fair value of warrants'
issued in private
placement (1,622,900)
1,622,900
Redemption of Class A
preferred shares (700,000) (280,320)
Share exchange (809,538) (1,214) 809,538 1,214
Net loss
- - -------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998 $ - $ - 3,190,462 $ 4,586 5,884,838 $ 8,164 $ 4,871,951
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL MENU SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(CANADIAN DOLLARS)
- - -----------------------------------------------------------------
Total
Accumulated Shareholders'
Deficit Equity
---------------- ----------------
<S> <C> <C>
Balances, September 26, 1997 $ - -
Issuance of common shares 672,651
Issuance of Class A
preferred shares 280,320
Effect of reverse
acquisition -
Net loss (41,797) (41,797)
- - -----------------------------------------------------------------
Balances, December 31, 1997 (41,797) 911,174
Issuance of common shares 4,212,050
Fair value of brokers'
options (1,058,300)
1,058,300
Fair value of warrants'
issued in private
placement (1,622,900)
1,622,900
Redemption of Class A
preferred shares (12,548) (292,868)
Share exchange -
Net loss (549,198) (549,198)
- - -----------------------------------------------------------------
Balances, December 31, 1998 $ (603,543) $ 4,281,158
- - -----------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 51
<TABLE>
<CAPTION>
INTERNATIONAL MENU SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CANADIAN DOLLARS)
======================================================================================================================
Period from
incorporation,
Year ended September 26, 1997
December 31, to December 31,
1998 1997
-------------------- -----------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (549,198) $ (41,797)
Item not requiring cash
Depreciation and amortization 163,946 17,144
Minority interest (26,000) -
Changes in operating assets and liabilities
Accounts receivable (489,189) (75,067)
Inventories 408,787 (33,406)
Prepaid expenses (21,271) (4,216)
Accounts payable 7,568 80,026
Accrued liabilities - 50,051
- - ----------------------------------------------------------------------------------------------------------------------
(505,357) (7,265)
- - ----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (216,397) (16,835)
Additions to intangible assets (14,332) (4,050)
Acquisitions, net of cash acquired in 1997 - $2,514; including
bank indebtedness assumed in 1998 - $1,126,779 (2,671,529) (665,547)
- - ----------------------------------------------------------------------------------------------------------------------
(2,902,258) (686,432)
- - ----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of shares 4,212,050 952,971
Bank loans 1,202,348 40,000
Payment of long-term debt and capital lease principal (147,577) -
Redemption of Class A preferred stock (292,868) -
- - ----------------------------------------------------------------------------------------------------------------------
4,973,953 992,971
- - ----------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,566,338 299,274
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 299,274 -
- - ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,865,612 $ 299,274
======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 98,066 $ 4,123
======================================================================================================================
Cash paid during the period for income taxes $ - $ -
======================================================================================================================
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 52
INTERNATIONAL MENU SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CANADIAN DOLLARS)
================================================================================
1. DESCRIPTION OF BUSINESS
The Company develops, markets and produces a series of specialty food
products for sale to large food retailer chains and specialty food
retailers.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with
generally accepted accounting principles in the United States, the most
significant of which are as follows:
Basis of presentation
The consolidated financial statements include the accounts of the
International Menu Solutions Corporation (a Nevada corporation) (the
"Company" or "IMSC") and its wholly owned operating subsidiaries,
International Menu Solutions Inc. ("IMSI"), Prime Foods Processing Inc.
("PFPI"), Transcontinental Gourmet Foods Inc. ("TGF"), and Norbakco
Ltd. ("Norbakco") which is 59% owned by IMSI, (all are Ontario
corporations).
On July 16, 1998, the Company (which at the time was named ANM Holdings
Corporation, a Nevada Corporation ("ANM")) acquired all of the
outstanding common stock of IMSI. This transaction was treated as a
reverse acquisition of ANM as the former shareholders of the IMSI
retained the majority voting interest of the combined entity.
Accordingly, IMSI is deemed to be the accounting acquirer, whereby the
financial statements represent those of the IMSI and not the legal
acquirer, ANM. The historical financial statements are those of IMSI.
The entity's outstanding capital stock represents the historical
capital stock of ANM and the stock issued in the reverse acquisition.
Foreign currency translation
a) Translation of foreign subsidiaries' accounts
Assets and liabilities of the Company's foreign subsidiaries are
translated from their local currencies to the functional currency
at the exchange rate in effect at the balance sheet date.
Revenues and expenses are translated at the average exchange rate
prevailing during the year. The adjustments resulting from
translating the financial statements foreign subsidiaries are
recorded in comprehensive income in a separate component of
equity. The Company's functional and reporting currency is the
Canadian dollar. Consequently, no adjustments have arisen from
the translation of foreign subsidiaries accounts because all
foreign subsidiaries currently use the Canadian dollar as their
functional currency.
b) Translation of foreign currency transactions
Transactions incurred in currencies other than the functional
currency are converted to the functional currency at the
transaction date. Monetary assets and liabilities denominated in
a currency other than the functional currency are converted to
the functional currency at the exchange rate in effect at each
period end. All foreign currency transaction translation gains or
losses have been included in earnings.
Revenue recognition
Revenue is recognized upon shipment of goods to customers net of
allowances for expected returns for fresh-food deliveries.
F-6
<PAGE> 53
Inventory
Inventory is valued at the lower of cost and net realizable value with
cost being determined on a first-in, first-out basis.
Capital assets
Capital assets are recorded at cost. Depreciation is provided at the
following rates:
Building 20 years straight-line
Plant equipment 5 to 10 years straight-line
Leasehold improvements Straight line over the lease term,
typically five years
Office equipment 20% declining-balance
Computer equipment 30% declining-balance
Intangible assets
Intangible assets are recorded at cost and represent packaging artwork
and goodwill. Amortization periods are as follows:
Packaging artwork 3 to 5 years straight-line
Goodwill 20 to 40 years straight-line
Asset impairment
The Company reviews the carrying value of intangible and other
long-lived assets on a periodic basis for evidence of impairment. An
impairment loss is recognized when the estimate of undiscounted future
cash flows generated by such assets is less than the carrying amount.
Measurement of the impairment loss is based on the present value of the
expected future cash flows.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires the determination of deferred tax
assets and liabilities based on the differences between the financial
statement and income tax bases of tax assets and liabilities, using
enacted tax rates in effect for the year in which the differences are
expected to reverse. The measurement of a deferred tax asset is
adjusted by a valuation allowance, if necessary, to recognize tax
benefits only to the extent that, based on available evidence, it is
more likely than not that they will be realized.
Cash and cash equivalents
Investments in highly liquid debt instruments with original maturities
of 90 days or less are designated as cash and cash equivalents.
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 as of
the date of the financial statements and the reported amounts of
revenues and expenses during the reported periods. Actual results could
differ materially from those estimates and assumptions.
F-7
<PAGE> 54
Recently issued accounting pronouncements
In February, 1997, the Financial Accounting Standards Board ("FASB") in
the United States issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share", which has been adopted by the
Company. Upon the adoption of SFAS No. 128, the Company is presenting
basic earnings per share and diluted earnings per share. Basic earnings
per share is computed by dividing the net earnings available to common
shareholders by the weighted average number of common shares
outstanding for the year. Diluted earnings per share is derived by
adjusting the basic earnings per share calculation to reflect the
effect of securities with dilutive potential. The computation of
diluted earnings per share does not include securities with dilutive
potential that would have an anti-dilutive effect on earnings per
share.
In June 1997, the Financial Accounting Standards Board ("FASB") in the
United States issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for the reporting and presentation of
comprehensive income and its components. The Company's adoption of SFAS
No. 130 had no material effect on the consolidated financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the reporting and identification of operating segments
and requires certain financial and descriptive information regarding
those segments. The Company operates in one business segment and
consequently the adoption of SFAS No. 131 had no material effect on the
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes standards
for the reporting and accounting for derivative instruments. Presently,
the Company currently does not use derivative instruments or conduct
hedging activities. Management is in the process of determining the
impact on the consolidated financial statements.
3. ACQUISITIONS
Year ended December 31, 1998
During the year ended December 31, 1998, the Company acquired the
businesses, set out in the table below, which have been accounted for
using the purchase method:
<TABLE>
<CAPTION>
Pasta Kitchen (1) TGF/Norbakco (2)
----------------------------- -----------------------------
<S> <C> <C>
Acquisition date October 9, 1998 December 1, 1998
Estimated purchase price including acquisition costs $ 395,000 $ 4,970,000
Assigned to fair values of net assets acquired:
Current assets 105,480 2,922,456
Capital assets 200,000 2,222,690
Current liabilities (146,408) (2,957,865)
Long-term liabilities - (1,199,268)
------------------------------------------------------------------------------------------------------------------------
159,072 988,013
------------------------------------------------------------------------------------------------------------------------
Goodwill $ 235,928 $ 3,981,987
========================================================================================================================
</TABLE>
(1) The Company acquired the assets of Pasta Kitchen for cash
consideration of approximately $375,000. Additional
consideration, currently estimated at $340,000, is payable, at
the option of the Company, in cash or common shares during 1999
based on the achievement of certain revenue targets. Due to the
contingent nature of the additional consideration, its value will
be recorded as goodwill when the conditions are resolved.
F-8
<PAGE> 55
(2) The Company acquired all of the outstanding shares of TGF and 59%
of the outstanding shares of Norbakco Ltd., a sister corporation
of TGF. Cash of $1,000,000 was paid to the vendors on closing. An
estimated additional cash payment of $600,000 is payable during
1999 based on the net book value of TGF in excess of $1,000,000.
The estimated additional cash payment has been recorded as a
liability as of December 31, 1998. The balance of the purchase
price, valued at $3.4 million from a valuation provided by an
investment-banking firm, was paid in the form of a special class
of shares of IMSI, issued December 1, 1998, which are
exchangeable for shares of the Company (see Note 11).
Unaudited supplemental pro forma results of operations
The following table presents unaudited pro forma revenue, net loss and
loss per share as if the Company had acquired all of TGF, Norbacko and
Pasta Kitchen on January 1, 1998.
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-------------------------
<S> <C>
Revenue $ 13,013,807
Loss (458,123)
Loss per share $ (0.07)
--------------------------------------------------------------------------------------------------------
</TABLE>
Period ended December 31, 1997
<TABLE>
<CAPTION>
PFPI
-------------------------
Acquisition date November 1, 1997
<S> <C>
Total consideration and acquisition costs $ 665,547
Assigned to fair values of net assets acquired
Current assets 412,491
Capital assets 968,793
Current liabilities (438,093)
Long-term debt (550,000)
--------------------------------------------------------------------------------------------------------
393,191
--------------------------------------------------------------------------------------------------------
Goodwill $ 272,356
========================================================================================================
</TABLE>
The Company acquired all the issued and outstanding shares of PFPI for
cash consideration of $374,000. Pro forma supplementary information has
not been presented as the Company was incorporated September 26, 1997.
F-9
<PAGE> 56
4. INVENTORIES
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
----------------------------- --------------------------
<S> <C> <C>
Raw materials $ 957,704 $ 183,760
Work in process 27,185 -
Finished goods 315,001 52,674
------------------------------------------------------------------------------------------------------------------------
$ 1,299,890 $ 236,434
========================================================================================================================
</TABLE>
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------------------- ---------------------------
<S> <C> <C>
Cost
Land $ 120,000 $ 120,000
Building 854,524 764,803
Leasehold improvements 104,671 -
Plant equipment 2,383,349 20,686
Office equipment 225,973 4,677
Computer equipment 31,285 6,725
----------------------------------------------------------------------------------------------------------------------
3,719,802 916,891
======================================================================================================================
Accumulated depreciation
Building 43,687 4,844
Leasehold improvements 1,230 -
Plant equipment 49,503 6,180
Office equipment 5,006 150
Computer equipment 3,180 242
----------------------------------------------------------------------------------------------------------------------
102,606 11,416
----------------------------------------------------------------------------------------------------------------------
$ 3,617,196 $ 905,475
======================================================================================================================
</TABLE>
The net book value of assets recorded under capital leases totaled
$367,490 (1997 - $Nil), net of accumulated depreciation of $5,694 (1997
- $Nil).
F-10
<PAGE> 57
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------------------- -----------------------
<S> <C> <C>
Cost
Packaging artwork $ 210,000 $ 72,737
Goodwill 4,490,271 272,356
-----------------------------------------------------------------------------------------------------
4,700,271 345,093
-----------------------------------------------------------------------------------------------------
Accumulated amortization
Packaging artwork 36,936 3,484
Goodwill 36,265 2,244
-----------------------------------------------------------------------------------------------------
73,201 5,728
-----------------------------------------------------------------------------------------------------
$ 4,627,070 $ 339,365
=====================================================================================================
</TABLE>
7. BANK INDEBTEDNESS
The Company and its subsidiaries have utilized an aggregate of
$1,030,000 of authorized lines of credit totaling $1,750,000 (1997 -
utilized $40,000 of a $200,000 line of credit). The lines of credit
bear interest at prime plus 1.5% (8.25% at December 31, 1998). The
outstanding balances are due on demand and are secured by a general
assignment of assets of the Company and its subsidiaries and a total of
$950,000 in limited guarantees of the Company.
8. CAPITAL LEASE OBLIGATIONS
The Company has acquired various processing equipment and vehicles
under capital leases expiring July 2003. Monthly principal payments
vary from $330 to $4,265. Capital leases are recorded by discounting
payments based on the lower of the Company's incremental borrowing rate
or the interest rate inherent in the lease.
Minimum lease payments are due as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 131,378
2000 127,665
2001 103,275
2002 100,050
2003 11,242
------------------------------------------------------------------------------------------------------
Gross value of minumum lease payments 473,610
Less amount representing interest 81,737
------------------------------------------------------------------------------------------------------
391,873
Less principal amounts due in one year 94,486
------------------------------------------------------------------------------------------------------
$ 297,387
======================================================================================================
</TABLE>
F-11
<PAGE> 58
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------------- ------------------------
<S> <C> <C>
Business Development Bank of Canada ("BDC")- Mortgage
Repayable in monthly installments of $3,200 plus interest.
Interest is calculated based on BDC's floating base rate plus 1%
(9.75% at December 31, 1998), and matures June 23, 2012. The loan
to PFPI is secured by a first charge on PFPI's land and building,
a second charge on PFPI's inventory and accounts receivable, a
$250,000 guarantee by an officer of the Company, a guarantee by
the Company for the full amount of the loan and an assignment
shareholder loans owing by PFPI to IMSI. $ 518,400 $ 550,000
BDC - Equipment loan
Repayable in two principal instalments during December and
January of each year for a 5 year term. Interest is payable
monthly at 1.25% (10.00% at December 31, 1998) above BDC's daily
floating base rate. The loan is secured by a first charge on all
personal property of TGF. 832,000 -
Bank of Nova Scotia - Equipment loan
Repayable in monthly installments of $2,137 for a 5 year term.
Interest is payable monthly at the Bank of Nova Scotia prime rate
plus 2.5% (9.25% at December 31, 1998). The loan is secured by
a first charge over the assets financed. 133,128 -
Bank of Nova Scotia - BDC repayment loan
Repayable in monthly installments of $1,500 for a period of 39
months. Interest is payable monthly at the Bank of Nova Scotia
prime rate plus 2.5% (9.25% at December 31, 1998). The loan is
secured by a general security agreement over all present
and future personal property. 45,819 -
-------------------------------------------------------------------------------------------------------------------------
1,529,347 550,000
Less amount due within one year 279,044 31,600
-------------------------------------------------------------------------------------------------------------------------
$ 1,250,303 $ 581,600
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
Principal payments required are due as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 279,044
2000 289,041
2001 285,860
2002 225,041
2003 123,961
Thereafter 326,400
-------------------------------------------------------------------------------------------------------------------------
$ 1,529,347
=========================================================================================================================
</TABLE>
F-12
<PAGE> 59
10. COMMITMENTS
The Company is committed under operating leases for business premises
and equipment with terms expiring at various dates through 2005. The
minimum annual payments required under the lease agreements are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 294,113
2000 213,658
2001 216,492
2002 216,492
2003 216,492
Thereafter 207,468
----------------------------------------------------------------------------------------------
$ 1,364,715
==============================================================================================
</TABLE>
11. CAPITAL TRANSACTIONS
Reverse acquisition
On July 16, 1998, ANM, then a non-operating corporation, acquired all
of the outstanding common shares of IMSI. As a condition of the
transaction, ANM issued 1,400,000 common shares for proceeds of
US$925,000 (CDN$1,373,000), net of issuance costs of US$55,000
(CDN$81,600) on July 15, 1998. For accounting purposes, the transaction
was treated as a reverse acquisition of ANM by IMSI. In conjunction
with the reverse acquisition transaction, the Company created and
authorized 10,000,000 Class N shares, and issued 4,000,000 Class N
shares to the former shareholders of IMSI. The Class N shares are
non-equity participating and are entitled to identical voting rights as
the common stockholders. In addition, one Class N share together with
one Class X share of IMSI are convertible into common shares of the
Company on a one for one basis at the option of the holder until 2013,
at which time the Company can force conversion of the Class N shares.
During 1998, 809,538 Class N and 809,538 Class X shares of IMSI were
exchanged for common shares of the Company.
Private placement financing
During the period November 17 to November 28, 1998, the Company sold,
by private placement, 1,997,300 units for US$0.90 each, consisting of
one common share and one-half of a warrant. In exchange for one warrant
and US$1.40, the holder may purchase one common share of the Company.
The warrants expire May 30, 1999. The units have a minimum holding
period of one year from the date of the subscription agreements.
Proceeds, net of broker commissions, were US$1,666,124 (CD$2,550,000).
Acquisition - TGF/Norbakco
In conjunction with the acquisition of TGF/Norbakco, the IMSI issued a
total of 459,000 exchangeable shares to satisfy the share consideration
requirements of the share purchase agreement. The shares are
exchangeable into common shares of the Company at the holder's option
based on an exchange ratio. The exchange ratio is determined by a
formula which is primarily based upon the earnings before interest,
depreciation and taxes ("EBITDA") of the acquired businesses for the
years ending February 28, 1999 and 2000 and the Company's common stock
market price on those dates.
F-13
<PAGE> 60
The value of the exchangeable shares is recorded as minority interest.
Based on the financial results of the acquired operations to-date and
the current market price of the Company's common stock, management has
estimated that approximately 2,630,000 shares of the Company's common
stock could be issued pursuant to the future conversion rights of the
holders of the exchangeable shares. These shares have been treated for
accounting purposes as being issued. It is impossible to predict with
absolute certainty the exact number of shares that could be issued as
the EBITDA of the acquired businesses for the years ending February
28, 1999 and February 28, 2000 is unknown.
12. BROKERS OPTIONS
In conjunction with the share issuance and reverse acquisition of ANM,
the Company granted 1,000,000 stock options to brokers on July 15,
1998. Pursuant to the stock option agreements, the option holders have
the right to purchase common shares of the Company at a price of
US$1.00, commencing February 1, 1999 and expiring July 1, 1999.
13. STOCK OPTION PLAN
On August 10, 1998, the Board of Directors of the Company approved a
stock option plan (the "Option Plan") applicable to the Company's
officers and directors and authorized 2,500,000 common shares to be
granted. Pursuant to the Option Plan, options are granted at an amount
not less than the then-current fair market value of the common shares
of the Company. Options may generally be exercised in equal
proportions during the years following the first to fifth anniversary
of the date of grant and expire on the tenth anniversary or upon
termination of employment.
A summary of the activity in the Option Plan since inception is set
forth below:
<TABLE>
<CAPTION>
Options
Available Number of Weighted Average
For Grant Options Exercise Price (US$)
------------------ ------------------- -------------------------
<S> <C> <C> <C>
Balance at December 31, 1997 - -
Authorized 2,500,000 -
Granted (825,000) 825,000 $ 0.80
------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 1,675,000 825,000 $ 0.80
------------------------------------------------------------------------------------------------------------------
Exercisable at December 31, 1997 - $ -
Exercisable at December 31, 1998 - $ -
==================================================================================================================
</TABLE>
The following table summarizes information concerning currently
outstanding options at December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Options Contractual Exercise Options Exercise
Exercise price Outstanding Life Price (US$) Exercisable Price (US$)
------------------ ------------ ---------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
$0.70 - $1.50 825,000 9.7 years $ 0.80 - $ -
---------------------------------------------------------------------------------------------------------------
825,000 -
===============================================================================================================
</TABLE>
F-14
<PAGE> 61
14. STOCK BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations
in accounting for its employee stock options. Pro forma information
regarding net income and earnings per share is required by SFAS 123,
and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model. Weighted average
assumptions for stock price volatility, dividend yield, expected life
of stock options and risk free interest rate were 326%, 0%, 5.32 years
and 5.5%, respectively, for 1998. There were no options issued during
1997.
SFAS 123 requires that, for the pro forma disclosure, the compensation
cost based on the fair values of the options at the grant date be
amortized over the vesting period. If compensation cost for stock
options had been determined based on the fair value at the grant dates
consistent with the method prescribed by SFAS 123, the Corporation's
net earnings and earnings per share would have been adjusted to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year ended Period ended
December 31, December 31,
1998 1997
------------------------- -----------------------
<S> <C> <C>
Net loss
As per reported $ (549,198) $ (41,797)
Pro forma $ (608,706) $ (41,797)
Loss per share, basic and diluted
As per reported $ (0.09) $ (0.01)
Pro forma $ (0.09) $ (0.01)
</TABLE>
The weighted average fair value for stock options granted during the
periods ending December 31, 1997 and December 31, 1998 were $nil and
$1.26, respectively.
15. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year ended Period ended
December 31, December 31,
1998 1997
------------------------------ ----------------------------
<S> <C> <C>
Current $ - $ -
Deferred - -
------------------------------------------------------------------------------------------------------------------
$ - $ -
==================================================================================================================
</TABLE>
F-15
<PAGE> 62
The components of the net deferred tax asset (liability) are as
follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------------ ----------------------
<S> <C> <C>
Net operating losses $ 680,000 $ 318,000
Difference between tax basis and accounting
basis of capital assets (167,000) -
-------------------------------------------------------------------------------------------------------------------
513,000 318,000
Valuation allowance (606,000) (318,000)
-------------------------------------------------------------------------------------------------------------------
$ (93,000) $ -
===================================================================================================================
</TABLE>
The provision for income taxes varies from the expected provision at
the statutory rates for the following reasons:
<TABLE>
<CAPTION>
Year ended Period ended
December 31, December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Combined Canadian basic federal and provincial tax rates 44.6% 44.6%
====================================================================================================================
Recovery of income taxes based on the above rates $ (244,900) $ (18,600)
Increase (decrease) in income taxes resulting
from the
following:
Permanent differences including goodwill amortization 15,200 1,900
Manufacturing and processing (34,100) 3,200
Change in valuation allowance 288,000 13,500
Other (24,200) -
---------------------------------------------------------------------------------------------------------------------
$ - $ -
=====================================================================================================================
</TABLE>
The Company and its subsidiary have losses totaling $2,089,000 to
apply against future years' taxable income. The losses, if not
utilized, expire as follows:
<TABLE>
<S> <C>
1999 $ 19,000
2000 34,000
2001 258,000
2002 217,000
2003 331,000
2004 1,230,000
---------------------------------------------------------------------------------------------------------------------
$ 2,089,000
=====================================================================================================================
</TABLE>
F-16
<PAGE> 63
16. LOSS PER SHARE
<TABLE>
<CAPTION>
Year ended Period ended
December 31, December 31,
1998 1997
------------------- --------------------
<S> <C> <C>
Basic loss per share
Numerator
Loss available to common shareholders $ 549,198 $ 41,797
----------------------------------------------------------------------------------------------------------------------
Denominator
Weighted average shares outstanding 6,419,141 5,278,000
----------------------------------------------------------------------------------------------------------------------
$ 0.09 $ 0.01
======================================================================================================================
</TABLE>
No diluted loss per share disclosure is presented as the conversion of
securities with dilutive potential in both periods had an
anti-dilutive effect on loss per share. The Class N shares outstanding
are considered common stock equivalents for the purposes of the basis
loss per share and weighted average outstanding common shares
calculations.
17. FINANCIAL INSTRUMENTS
Fair value
At December 31, 1997 and December 31, 1998 the estimated fair values
of cash and cash equivalents, accounts receivable, accounts payable
and accrued liabilities were equal to their carrying values due to the
short-term nature of the items. The estimated fair value of long-term
debt approximates fair value as the debt bears interest at floating
rates.
Credit risk
Credit risk arises due to the concentration of accounts receivable in
one geographic area or with certain customers. This risk is minimized
by the fact that the Company sells product to large supermarket chains
and specialty food retailers. Substantially all customers pay within
10 days of product delivery.
18. SEGMENTED INFORMATION
The Company operates in one business segment; the development,
marketing and production of a series of specialty food products for
sale to large food retailer chains and specialty food retailers.
Significant customers accounted for the following sales volume
percentages:
<TABLE>
<CAPTION>
Year ended Period ended
Type of December 31, December 31,
Customer 1998 1997
-------------------------- --------------------- ----------------------
<S> <C> <C> <C>
Customer 1 Distributor 12% 14%
Customer 2 Distributor 14% 15%
Customer 3 Retailer 25% 0%
=====================================================================================================================
</TABLE>
During the year, sales to customers outside Canada totaled
approximately $1,017,500.
F-17
<PAGE> 64
19. SUBSEQUENT EVENTS (UNAUDITED)
a) Consultant options
On January 1, 1999, the Company issued 125,000 options to a
consultant. The options were granted at an option price of $.90
per share for the first 50,000 options. The remaining 75,000
options were granted at an exercise price of $1.50. All options
expire on December 31, 2001.
b) Share subscription
On April 16, 1999, Southbridge Inc. ("Southbridge") subscribed
for 1,523,810 common shares of the Company at a subscription
price of $2.625 per common share. Proceeds to the Company, net
of issuance costs, totaled approximately $3,693,000, net of
issuance cost of approximately $307,000. As a part of the
subscription, the Company granted to Southbridge 400,000
warrants which entitle Southbridge to purchase up to 200,000
common shares at the price of $2.25 per common share during the
period to April 16, 2000 and 200,000 common shares at the price
of $2.625 per common share during the period to April 16, 2001.
c) Acquisition - Tasty Selections Inc. ("Tasty").
On April 16, 1999 IMSI acquired all of the outstanding common
shares of Tasty, manufacturer of muffin and cookie batters
located in Concord, Ontario for consideration totaling
approximately $2,160,000. Under the terms of the agreement, IMSI
paid $750,000 cash and issued 442,750 Class X shares of IMSI on
closing (see Note 3).
d) New banking agreement
On April 16, 1999, the Company entered into a letter of
commitment with a Canadian chartered bank with respect to new
and expanded credit facilities. Under the proposed agreement,
the Company would have new credit facilities as follows: (a) an
operating line of credit of $10,000,000, bearing interest at
prime plus 1%, except for borrowings secured by cash deposits,
in which case interest is calculated at prime; (b) a revolving
facility of $3,500,000 for equipment loans, bearing interest at
prime plus 1 1/4%; and (c) a forward exchange contract facility
totaling $7,500,000. The credit facilities will be secured by a
general assignment of book debts, a general security agreement
over all assets of the Company, life insurance on certain
executives totaling $2,500,000 and a priority agreement with
other lenders of the Company.
e) Convertible debenture financing
On May 10 , 1999, IMSI and the Company entered into a loan
agreement with First Ontario Fund ("First Ontario") and Bank of
Montreal Capital Corporation ("BMOCC") with respect to a $4
Million financing. The funding was advanced as to $1.5 Million
by BMOCC and as to $2.5 Million by First Ontario. The financing
was secured by general security granted by each of IMSI and the
Company, a guarantee and general security agreement from each of
IMSI's subsidiaries, a mortgage of the premises owned by Prime
Foods Processing Inc. at 620 Colby Drive, Waterloo, Ontario, and
a share pledge agreement executed by the Company pursuant to
which it pledged its common shares in the capital of IMSI to
First Ontario and BMOCC.
The terms of the loan are as follows: (i) the interest rate for
the period ending April 15, 2000 is 7% per annum and thereafter
until maturity on April 15, 2003 is 13% per annum; (ii) the
outstanding debt is convertible, at the option of the holder,
into Class X shares of IMSI at a price of $2.62 per share; (iii)
the holder has the right to acquire a number of Class N shares
equal to the number of Class X shares received; (iv) IMSI has
the option to force conversion into Class X and N shares at any
time after July 1, 1999 provided that (a) the Company's common
stock trades on a major North American stock exchange approved
by the lenders, (b) the Company's common stock has a cumulative
trading volume during a
F-18
<PAGE> 65
twenty day period of the greater of (1) 300,000 shares of common
stock, or (2) five percent of the number of issued shares of
common stock that are not subject to any escrow agreement or
resale restrictions set out in the Ontario Securities Act, and
(c) the weighted average trading price during such twenty day
period is not less than the United States Dollar equivalent of
$CD 5.50. A total of $359,000 was paid by IMSI in respect of
professional fees and commissions, which have been recorded as
deferred financing costs.
f) Acquisition - D.C. Foods Inc.
On May 10, 1999 IMSI acquired all of the outstanding shares of
1005549 Ontario In., the sole shareholder of DC Foods Processing
Inc. a provider of custom and private label food processing
services to Canadian and International markets located in
Waterloo, Ontario. Under the terms of the purchase agreement,
IMSI paid $4,000,000 on closing and issued 893,333 Class X
convertible shares. The balance of the purchase prices was
satisfied on closing by issuing a separate class of shares of
IMSI which are exchangeable into shares of the Company in a
structure which is similar to the mechanism used to acquire TGF.
(see Note 3 and Note 11).
g) Acquisition of remaining 41% equity interest in Norbakco
In May 1999, IMSI acquired the remaining 41% equity interest in
Norbakco, having acquired 59% interest on December 1, 1999. The
consideration paid for the additional interest was the issue by
IMSI of 53,000 Class X Shares, the issue by the Company of
53,000 Class N Shares and the purchase from the selling
shareholders shareholder loans made to Norbakco in the amount of
$180,000.
In conjunction with the issuance of the 53,000 Class X Shares
and the 53,000 Class N Shares, IMSI modified the share
attributes of the Class B Shares such that the number of common
shares in the capital stock of the Company that the 300,000
Class B Shares may be exchanged for is reduced by 53,000 common
shares.
h) Broker option extension (see Note 12)
On May 27, 1999, the Company agreed to extend the expiry date
with respect to the brokers options issued July 15, 1999. Of the
1,000,000 options outstanding, 400,000 options will expire on
December 31, 1999 and 600,000 options will expire on June 30,
2000.
i) Private placement warrant exercise
During May 1999, the holders of warrants issued in conjunction
with the private placement financing (see Note 11) exercised
their rights to purchase common shares of the Company. Total
proceeds to the Company were $2,069,202 (US$1,398,110).
j) Letter of intent - Huxtable's Foods, L.L.C. ("Huxtables").
On October 14, 1999, the Company entered into a letter of intent
to acquire certain assets of Huxtables through a newly formed
subsidiary of the Company. The terms of the letter call for a
cash payment of US$3,000,000 and future payments, payable in
cash or common shares of the Company based on the earnings of
the newly formed subsidiary during the period to December 31,
2002.
k) Acquisition - The Ultimate Cookie Co. Ltd. "UCC"
On October 18, 1999, the Company acquired all of the outstanding
common shares of UCC by paying $175,000 in cash and by issuing
250,000 Class E Series 5 shares and 250,000 Class E Series 6
shares of IMSI which are exchangeable into shares of the Company
based on future earnings of UCC.
F-19
<PAGE> 66
l) Exercise of broker options
On October 18, 1999 172,302 brokers options were exercised to
purchase an equivalent number of common shares of the Company.
The transaction resulted in proceeds of US$172,302 to the
Company.
m) Share subscription
On October 20, 1999, Southbridge subscribed for 1,555,556
special warrants (the "Warrants") at a price of US$3.00 each.
The Warrants entitle the holder to acquire one Class X shares of
IMSI for each Warrant held for no additional consideration until
the earlier of five days after the date of issuance by the
Ontario Securities Commission (the "Commission") of a receipt
for a preliminary prospectus filed in the province of Ontario or
October 22, 2000. Approximately $4,000,000 of the proceeds
resulting from the subscription for the Warrants is to be held
in escrow until February 29, 2000, pending the approval of
mutually agreeable acquisitions or transactions by the Company.
In addition, the Company is subject to certain penalty
provisions which shall be satisfied by increasing the number of
shares issuable upon surrender of the Warrants by 10 to 32%. The
Company will have to comply with such penalty provisions in the
event that the Company does not raise additional funds or file
the required prospectus documents with the Commission within the
timelines specified in the special warrant indenture.
F-20
<PAGE> 67
INTERNATIONAL MENU SOLUTIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
-------------------------- -------------------------
(unaudited) (unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,261,993 $ 1,865,612
Accounts receivable 4,182,206 2,270,251
Inventories 6,142,777 1,299,890
Prepaid expenses 1,689,980 100,633
------------------- -------------------
16,276,956 5,536,386
CAPITAL ASSETS, NET 11,198,768 3,617,196
INTANGIBLE ASSETS, NET 19,710,635 4,627,070
------------------- -------------------
TOTAL ASSETS $ 47,186,359 $ 13,780,652
------------------- -------------------
LIABILITIES
CURRENT LIABILITIES
Bank operating loans $ 8,901,594 $ 1,100,849
Accounts payable 3,343,662 2,072,485
Accrued liabilities 1,247,299 937,940
Current portion of capital lease obligations 325,580 94,486
Current portion of long-term debt 697,600 279,044
------------------- -------------------
14,515,735 4,484,804
CAPITAL LEASE OBLIGATIONS 1,140,984 297,387
LONG-TERM DEBT 3,014,145 1,250,303
CONVERTIBLE DEBENTURE 4,000,000 -
DEFERRED INCOME TAXES 610,300 93,000
------------------- -------------------
TOTAL LIABILITIES 23,281,164 6,125,494
------------------- -------------------
MINORITY INTEREST 11,701,000 3,374,000
------------------- -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Class N voting, non-participating stock - US$0.001 par
value; 10,000,000 shares authorized; 3,655,170 and
3,190,462 shares issued 5,284 4,586
Common stock - US$0.001 par value; 25,000,000 shares
authorized; 9,531,673 and 5,884,838
shares issued 13,634 8,164
Additional paid-in capital 15,113,662 4,871,951
Deficit (2,928,385) (603,543)
------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 12,204,195 4,281,158
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 47,186,359 $ 13,780,652
------------------- -------------------
</TABLE>
F-21
<PAGE> 68
INTERNATIONAL MENU SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
--------------------------------------------- -----------------------------------------
(unaudited) (unaudited)
REVENUE $ 8,647,828 $ 763,326 $ 21,680,117 $ 2,169,537
----------------------- ---------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
COSTS AND EXPENSES
Cost of goods sold 7,377,439 665,065 18,782,667 1,933,097
Selling expenses 420,366 58,776 1,327,463 132,352
Research and development 176,458 41,747 371,228 102,654
Administrative expenses 1,831,161 155,393 3,611,386 321,681
Amortization of intangibles 127,692 3,405 327,480 10,239
----------------------- --------------------- --------------------- -------------------
9,933,116 924,386 24,420,224 2,500,023
----------------------- --------------------- --------------------- -------------------
LOSS FROM OPERATIONS (1,285,288) (161,060) (2,740,107) (330,486)
----------------------- --------------------- --------------------- -------------------
OTHER INCOME (EXPENSE)
Interest revenue 168 18,295 30,253 18,295
Interest expense (260,326) (62,669) (573,388) (63,687)
----------------------- --------------------- --------------------- -------------------
(260,158) (44,374) (543,135) (45,392)
----------------------- --------------------- --------------------- -------------------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (1,545,446) (205,434) (3,283,242) (375,878)
INCOME TAXES 25,000 - 169,400 -
----------------------- --------------------- --------------------- -------------------
LOSS BEFORE MINORITY INTEREST (1,520,446) (205,434) (3,113,842) (375,878)
MINORITY INTEREST 411,000 - 789,000 -
----------------------- --------------------- --------------------- -------------------
NET LOSS $ (1,109,446) $ (205,434) $ (2,324,842) $ (375,878)
======================= ===================== ===================== ===================
NET LOSS PER SHARE - BASIC
AND DILUTED $ (0.08) $ (0.04) $ (0.22) $ (0.07)
======================= ===================== ===================== ===================
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES 13,084,669 5,678,000 10,590,387 5,691,889
======================= ===================== ===================== ===================
</TABLE>
F-22
<PAGE> 69
INTERNATIONAL MENU SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
Class N Common
Shares Amount Shares Amount
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Balances, December 31, 1998 3,190,462 $ 4,586 5,884,838 $ 8,164
Share exchange (unaudited) (924,375) $ 924,375 1,386
(1,386)
Issuance of Class X shares
by IMSI in connection
with the acquisition of
businesses (unaudited) 1,389,083 2,084
Issuance of common shares
in connection with
financings (unaudited) 2,722,460 4,084
Net loss
------------------ ----------------- ------------------ ------------------
Balances, September 30, 1999
(unaudited) 3,655,170 $ 5,284 9,531,673 $ 13,634
================== ================= ================== ==================
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-In Accumulated Stockholders'
Capital Deficit Equity
----------------- ----------------- ------------------
<S> <C> <C> <C>
Balances, December 31, 1998 $ 4,871,951 $ (603,543) $ 4,281,158
Share exchange (unaudited) -
Issuance of Class X shares
by IMSI in connection
with the acquisition of
businesses (unaudited) 3,644,257 3,646,341
Issuance of common shares
in connection with
financings (unaudited) 6,597,454 6,601,538
Net loss (2,324,842) (2,324,842)
----------------- ----------------- ------------------
Balances, September 30, 1999
(unaudited) $ 15,113,662 $ (2,928,385) $ 12,204,195
================= ================= ==================
</TABLE>
F-23
<PAGE> 70
INTERNATIONAL MENU SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
------------------------------------------------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,324,842) $ (375,878)
Item not requiring cash
Depreciation and amortization 1,119,067 81,901
Minority interest (789,000) -
Deferred income taxes (169,400) -
Changes in operating assets and liabilities
Accounts receivable 455,868 (142,248)
Inventories (3,998,834) (43,188)
Prepaid expenses (1,515,327) (12,556)
Accounts payable (1,194,199) (57,405)
Accrued liabilities 159,380 12,915
----------------------- -----------------------
(8,257,287) (536,459)
----------------------- -----------------------
INVESTING ACTIVITIES
Purchase of capital assets (2,766,086) (96,556)
Additions to intangible assets (688,371) (85,779)
Acquisitions, net of cash acquired in 1998 -
$2,514, June 1999 $206,302; including bank
overdraft assumed in 1999 - $1,126,779 (4,993,701) -
----------------------- -----------------------
(8,448,158) (182,335)
----------------------- -----------------------
FINANCING ACTIVITIES
Issuance of shares 6,603,879 1,513,408
Proceeds from bank loans 8,236,990 255,000
Convertible debentures issued, net
of issuance costs of $359,024 3,640,976
Proceeds from long term debt 1,155,761 -
Payment of long-term debt and
capital lease principal (535,780) (24,891)
Redemption of Class A preferred stock - (292,868)
----------------------- -----------------------
19,101,826 1,450,649
----------------------- -----------------------
NET CHANGE IN CASH AND
CASH EQUIVALENTS 2,396,381 731,855
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,865,612 299,274
----------------------- -----------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,261,993 $ 1,031,129
======================= =======================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 573,388 $ 63,687
======================= =======================
Cash paid during the period for income taxes $ - $ -
======================= =======================
</TABLE>
F-24
<PAGE> 71
INTERNATIONAL MENU SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CANADIAN DOLLARS)
(UNAUDITED)
===============================================================================
1. ORGANIZATION
The Company and its subsidiaries develop, market and produce a series
of specialty food products for sale to food distributors, food
retailer chains and specialty food retailers.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial statements and the instructions to Form 10-QSB
and Regulation S-B. Consequently, the accompanying unaudited
consolidated financial statements are not presented with footnotes
required by generally accepted accounting principles. These financial
statements should be read in conjunction with the audited consolidated
financial statements for December 31, 1998 recently filed on Form
10-SB with the SEC.
The interim unaudited financial statements presented reflects all
adjustments (including normal recurring adjustments) which are, in the
opinion of management, necessary to produce a fair statement of the
financial position and results of operations for the periods included
in this report.
3. FOREIGN CURRENCY TRANSLATION
a) Translation of foreign subsidiaries' accounts
Assets and liabilities of the Company's foreign subsidiaries
are translated from their local currencies to the functional
currency at the exchange rate in effect at the balance sheet
date. Revenues and expenses are translated at the average
exchange rate prevailing during the year. The adjustments
resulting from translating the financial statements foreign
subsidiaries are recorded in comprehensive income in a
separate component of equity. The Company's functional
currency is the Canadian dollar. Consequently, no adjustments
have arisen from the translation of foreign subsidiaries
accounts because all foreign subsidiaries currently reside
and operate in Canada.
b) Translation of foreign currency transactions
Transactions incurred in currencies other than the functional
currency are converted to the functional currency at the
transaction date. Monetary assets and liabilities denominated
in a currency other than the functional currency are
converted to the functional currency at the exchange rate in
effect at each period end. All foreign currency transaction
translation gains or losses have been included in earnings.
4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February, 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", which has been adopted by the Company. Upon the
adoption of SFAS No. 128, the Company is presenting basic earnings per
share and diluted earnings per share. Basic earnings per share is
computed by dividing the net earnings available to common shareholders
by the weighted average number of common shares outstanding for the
year. Diluted earnings per share is derived by adjusting the basic
earnings per share calculation to reflect the effect of securities
with dilutive potential. The computation of diluted earnings per share
does not include securities with dilutive potential that would have an
anti-dilutive effect on earnings per share.
F-25
<PAGE> 72
In June 1998, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for the reporting and presentation of
comprehensive income and its components. The Company's adoption of
SFAS No. 130 has had no significant impact on the Company's
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the reporting and identification of
operating segments and requires certain financial and descriptive
information regarding those segments. The Company operates in one
business segment and consequently the adoption of SFAS No. 131 had no
material effect on the consolidated financial statements.
In June 1999, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes
standards for the reporting and accounting for derivative instruments.
Presently, the Company's use of derivative instruments and hedging
arrangements is not significant. Management is in the process of
determining the impact of SFAS No. 133 on the consolidated financial
statements.
5. ACQUISITIONS
Period ended June 30, 1999 (unaudited)
During the period ended September 30, 1999, International Menu
Solutions Inc. ("IMSI"), a Canadian subsidiary of the Company,
acquired the businesses set out in the table below which have been
accounted for using the purchase method:
<TABLE>
<CAPTION>
Tasty Batters (1) DC Foods(2)
-------------------- --------------------
Acquisition date April 15, 1999 May 10, 1999
<S> <C> <C>
Estimated purchase price including acquisition costs $ 2,235,000 $ 15,725,000
- - ------------------------------------------------------------------------------------------------------------
Assigned to fair values of net assets acquired:
Current assets 1,382,544 1,857,491
Capital assets 493,877 3,391,083
Current liabilities (677,196) (1,557,793)
Long-term liabilities (757,532) (1,680,472)
- - ------------------------------------------------------------------------------------------------------------
441,693 2,010,309
- - ------------------------------------------------------------------------------------------------------------
Goodwill $ 1,793,307 $ 13,714,691
============================================================================================================
</TABLE>
(1) IMSI acquired all of the outstanding shares of Tasty Selections Inc.
("Tasty Selections"), a manufacturer of muffin and cookie batters
located in Concord, Ontario operating under the trade name "Tasty
Batters". Tasty Selections was acquired by paying cash of $1,000,000
and by issuing 442,750 Class N shares of the Company and 442,750 Class
X shares of IMSI to the vendors, collectively valued at $1,160,000
(see Note 8).
(2) IMSI acquired all of the issued and outstanding shares of 1005549
Ontario Inc, the sole shareholder of D.C. Foods Processing Inc. a
provider of custom and private label food processing services to
Canadian and International markets located in Waterloo, Ontario
(collectively "D.C. Foods"). Pursuant to the terms of the purchase
agreement, the purchase price payable to the former shareholders of
1005549 Ontario Limited was satisfied by paying $4,000,000 in cash; by
issuing 893,333 Class X shares of IMSI and 893,333 Class N shares of
the Company; and by issuing 250,000 Class E Series 1 shares, 250,000
Class E Series 2 shares, 250,000 Class E Series 3 shares and 250,000
Class E Series 4 shares of IMSI. The Class E Series shares are
exchangeable into common shares of the Company based on the earnings
recorded by D.C. Foods in 1999 and 2002 (see Note 8). An independent
valuations expert valued the total consideration issued by IMSI at
$15,600,000.
F-26
<PAGE> 73
On May 17, 1999, IMSI acquired the remaining 41% equity interest in
Norbakco, having acquired 59% interest on December 1, 1998. The
consideration paid for the additional interest was the issue by IMSI
of 53,000 Class X Shares, the issue by the Company of 53,000 Class N
Shares and the purchase from the selling shareholders shareholder
loans made to Norbakco in the amount of $180,000.
Goodwill arising from the above acquisitions is being amortized
straight-line over a 20 to 40 year period depending on the business
acquired.
Unaudited supplemental pro forma results of operations
The following table presents unaudited pro-forma revenue, net loss and
loss per share for the nine months ended September 30, 1999 assuming IMSI
had acquired the above businesses, except for Norbakco which is not
material, on January 1, 1999:
<TABLE>
<S> <C>
Revenue $ 27,903,000
Net loss (2,019,000)
Net loss per share $ (0.18)
</TABLE>
6. INVENTORY
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
Raw materials $ 2,774,520 $ 957,704
Work in process 1,148,134 27,185
Finished goods 2,220,123 315,001
- - ----------------------------------------------------------------------------------
$ 6,142,777 $ 1,299,890
==================================================================================
</TABLE>
7. BANKING FACILITIES AND CONVERTIBLE DEBENTURES
As of September 30, 1999, the Company and its subsidiaries have
utilized an aggregate of approximately $7,800,000 of authorized lines
of credit totaling $10,000,000 (unaudited) (December 31, 1998 -
utilized an aggregate of $1,030,000 of authorized lines of credit
totaling $1,750,000). The lines of credit bear interest at Canadian
prime plus 1.5% at June 30, 1999 or 7.75% (unaudited) (prime plus 1.5%
or 8.25% at December 31, 1998). The credit facilities are secured by a
general assignment of book debts, a general security agreement over
all assets of the Company, life insurance on certain executives
totaling $2,500,000 and a priority agreement with other lenders of the
Company.
In addition to the authorized lines of credit, the Company has a
revolving facility of $3,500,000 for equipment loans, bearing interest
at prime plus 1 1/4% and a forward exchange contract facility totaling
$7,500,000.
On May 10, 1999, the Company's subsidiary IMSI issued approximately
$4,000,000 in convertible debentures to two investors. The debentures
will have a term of 48 months, bear interest at 7% per annum for the
first 12 months and 13% thereafter, and will be convertible at the
holder's option at any time into exchangeable shares of IMSI which are
then exchangeable into shares of the Company. IMSI will have the right
to force conversion of the debentures if certain trading statistics
are maintained after July 1, 1999. A total of $359,000 was paid by
IMSI in respect of professional fees and commissions, which have been
recorded as deferred financing costs.
F-27
<PAGE> 74
8. CAPITAL TRANSACTIONS
Reverse acquisition
On July 16, 1998, ANM Holdings Corporation, the predecessor
corporation to the Company, then a non-operating corporation, acquired
all of the outstanding common shares of IMSI. For accounting purposes,
the transaction was treated as a reverse acquisition of ANM by IMSI.
In conjunction with the reverse acquisition transaction, the Company
created and authorized 10,000,000 Class N shares, and issued 4,000,000
Class N shares to the former shareholders of IMSI. The Class N shares
are non-equity participating and are entitled to identical voting
rights as the common stockholders. In addition, one Class N share
together with one Class X share of IMSI are convertible into common
shares of the Company on a one for one basis at the option of the
holder until 2013, at which time the Company can force conversion of
the Class N shares.
In the nine-month period ended September 30, 1999, 924,375 Class N and
924,375 Class X shares of IMSI were exchanged for common shares of the
Company (unaudited)
Private placement financing
During the period November 17 to November 28, 1999, the Company sold,
by private placement, 1,997,300 units for US$0.90 each, consisting of
one common share and one-half of a warrant. In exchange for one
warrant and US$1.40, the holder may purchase one common share of the
Company until May 31, 1999. These warrants were exercised during May
1999. Total proceeds resulting from the exercise of the warrants to
the Company were $2,069,202 (US$1,398,110).
On April 16, 1999, Southbridge Inc. ("Southbridge") subscribed for
1,523,810 common shares of the Company at a subscription price of
$2.625 per common share. Proceeds to the Company, net of issuance
costs, totaled approximately $3,693,000, net of issuance cost of
approximately $307,000. As a part of the subscription, the Company
granted to Southbridge 400,000 warrants which entitle Southbridge to
purchase up to 200,000 common shares at the price of $2.25 per common
share during the period to April 16, 2000 and 200,000 common shares at
the price of $2.625 per common share during the period to April 16,
2001.
Exchangeable share transactions - Acquisitions of TGF/Norbakco and
D.C. Foods
In conjunction with the acquisitions of D.C. Foods and TGF/Norbakco
(acquired in 1998), IMSI issued exchangeable shares to satisfy the
share consideration requirements of the respective share purchase
agreements. The shares are exchangeable into common shares of the
Company at the holder's option based on exchange ratios contained in
the purchase agreements. The exchange ratio is determined by a formula
which is primarily based upon the earnings before interest,
depreciation and taxes ("EBITDA") of the acquired businesses for the
years ending February 28, 1999 and 2000 for TGF/Norbakco and for the
period from December 6, 1998 to December 31, 1999 and the year ending
March 2002 or December 2002 for D.C. Foods and the Company's common
stock market price on those dates.
The value of the exchangeable shares is recorded as minority interest.
Based on the financial results of the acquired operations to-date and
the current market price of the Company's common stock, management has
estimated that approximately 2,630,000 and 1,800,000 shares of the
Company's common stock could be issued pursuant to the future
conversion rights of the holders of the exchangeable shares for
TGF/Norbakco and D.C. Foods, respectively. At such time as the future
conversion rights of the holders of the exchangeable shares is
determined, the value of the remaining minority interest associated
with the individual exchangeable share holder groups will be
reclassified to additional paid in capital. These shares have been
treated for accounting purposes as being issued. It is impossible to
predict with absolute certainty the exact number of shares that could
be issued as the EBITDA of the acquired businesses for the periods
specified above is unknown.
F-28
<PAGE> 75
9. NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
----------------- ---------------- ----------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss per share
Numerator
Net loss available to common shareholders $ 1,109,406 $ 205,434 $ 2,324,842 $ 375,878
----------------- ---------------- ----------------- ---------------
Denominator
Weighted average shares outstanding 13,084,669 5,678,000 10,590,387 5,691,889
----------------- ---------------- ----------------- ---------------
$ 0.08 $ 0.04 $ 0.22 $ 0.07
================= ================ ================= ===============
</TABLE>
No diluted net loss per share disclosure is presented as the
conversion of securities with dilutive potential in all periods had an
anti-dilutive effect on loss per share. The Class N shares outstanding
are considered common stock equivalents for the purposes of the basis
loss per share and weighted average outstanding common shares
calculations.
10. SUBSEQUENT EVENTS (UNAUDITED)
a) Letter of intent - Huxtable's Foods, L.L.C. ("Huxtables").
On October 14, 1999, the Company entered into a letter of intent
to acquire certain assets of Huxtables through a newly formed
subsidiary of the Company. The terms of the letter call for a
cash payment of US$3,000,000 and future payments, payable in
cash or common shares of the Company based on the earnings of
the newly formed subsidiary during the period to December 31,
2002.
b) Acquisition - The Ultimate Cookie Co. Ltd. "UCC"
On October 18, 1999, the Company acquired all of the outstanding
common shares of UCC by paying $175,000 in cash and by issuing
250,000 Class E Series 5 shares and 250,000 Class E Series 6
shares of IMSI which are exchangeable into shares of the Company
based on future earnings of UCC.
c) Exercise of broker options
On October 18, 1999, 172,302 options held by brokers of previous
financings were exercised to purchase an equivalent number of
common shares of the Company. The transaction resulted in
proceeds of US$172,302 to the Company.
d) Share subscription
On October 20, 1999, Southbridge subscribed for 1,555,556
special warrants (the "Warrants") at a price of US$3.00 each.
The Warrants entitle the holder to acquire one Class X shares of
IMSI for each Warrant held for no additional consideration until
the earlier of five days after the date of issuance by the
Ontario Securities Commission (the "Commission") of a receipt
for a preliminary prospectus filed in the province of Ontario or
October 22, 2000. Approximately $4,000,000 of the proceeds
resulting from the subscription for the Warrants is to be held
in escrow until February 29, 2000, pending the approval of
mutually agreeable acquisitions or transactions by the Company.
In addition, the Company is subject to certain penalty
provisions which shall be satisfied by increasing the number of
shares issuable upon surrender of the Warrants by 10% to 32%.
The Company will have to comply with such penalty provisions in
the event that the Company does not raise additional funds or
file the required prospectus documents with the Commission
within the timelines specified in the special warrant indenture.
F-29
<PAGE> 76
AUDITORS' REPORT
To the Board of Directors
TRANSCONTINENTAL GOURMET FOODS INC.
We have audited the balance sheet of TRANSCONTINENTAL GOURMET FOODS INC. as at
February 28, 1998 and 1997 and the statements of retained earnings, income and
cash flow for the periods then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at February 28, 1998 and 1997
and the results of its operations and the cash flow for the periods then ended
in accordance with generally accepted accounting principles.
/s/ KRAFT, ROTHMAN, BERGER, GRILL, SCHWARTZ & COHEN
CHARTERED ACCOUNTANTS
Toronto, Ontario
April 27, 1998, except for Note 16
which is as of December 22, 1998
F-30
<PAGE> 77
TRANSCONTINENTAL GOURMET FOODS INC.
BALANCE SHEET
IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
ASSETS
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
--------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
CURRENT
Cash $ - $ 17,204 $ 73,910
Accounts receivable 1,116,265 213,438 196,835
Inventory (Note 2) 1,291,125 676,162 525,811
Sundry assets 20,922 43,437 27,653
Loans receivable from related companies 36,835 - -
Income taxes recoverable - - 943
--------- --------- ---------
2,465,147 950,241 825,152
FIXED, net (Notes 3, 5, 6 and 7) 1,370,266 1,116,155 877,232
DEFERRED PRODUCT DEVELOPMENT COSTS - 3,962 9,131
INVESTMENT TAX CREDITS RECOVERABLE - - 13,585
--------- --------- ---------
$ 3,835,413 $ 2,070,358 $ 1,725,100
========= ========= =========
LIABILITIES
CURRENT
Bank indebtedness (Note 5) $ 876,522 $ - $ -
Accounts payable and accrued liabilities 864,956 298,061 231,187
Long-term debt (Note 6) 192,000 132,000 193,793
Capital lease obligations (Note 7) 26,927 39,160 41,750
Due to shareholders 83,176 71,731 38,700
Income taxes payable 70,460 41,133 -
--------- --------- ---------
2,114,041 582,085 505,430
LONG-TERM DEBT (Note 6) 594,500 396,000 202,873
CAPITAL LEASE OBLIGATIONS (Note 7) 52,014 28,508 67,668
DEFERRED GOVERNMENT GRANT - 21,717 27,117
CONVERTIBLE DEBENTURES - - 531,000
DEFERRED INCOME TAXES 93,000 41,030 36,030
--------- --------- ---------
$ 2,853,555 $ 1,069,340 $ 1,370,118
--------- --------- ---------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (Note 9) 475,100 540,100 80,400
RETAINED EARNINGS 506,758 460,918 274,582
--------- --------- ---------
981,858 1,001,018 354,982
--------- --------- ---------
$ 3,835,413 $ 2,070,358 $ 1,725,100
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE> 78
TRANSCONTINENTAL GOURMET FOODS INC.
STATEMENT OF RETAINED EARNINGS
IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
--------- --------- ---------
(Unaudited)
(Note 13) (Note 13)
<S> <C> <C> <C>
RETAINED EARNINGS, beginning of period $ 460,918 $ 274,582 $ 136,624
Net earnings for the period 57,317 197,636 141,579
--------- --------- ---------
518,235 472,218 278,203
Dividends paid ( 11,477) ( 11,300) ( 3,621)
--------- --------- ---------
RETAINED EARNINGS, end of period $ 506,758 $ 460,918 $ 274,582
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 79
TRANSCONTINENTAL GOURMET FOODS INC.
STATEMENT OF INCOME
IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
--------- --------- ---------
(Unaudited)
(Note 13) (Note 13)
<S> <C> <C> <C>
SALES $ 3,842,487 $ 5,206,031 $ 3,830,176
--------- --------- ---------
COST OF SALES
Inventory, beginning of period 676,162 525,811 591,650
Direct labour 809,298 1,047,998 623,335
Purchases 1,509,137 1,734,815 1,357,913
Delivery 274,170 289,234 164,075
--------- --------- ---------
3,268,767 3,597,858 2,736,973
Less: Inventory, end of period 1,291,125 676,162 525,811
--------- --------- ---------
1,977,642 2,921,696 2,211,162
--------- --------- ---------
GROSS PROFIT 1,864,845 2,284,335 1,619,014
PRODUCTION EXPENSES 304,668 328,828 253,387
ADMINISTRATIVE EXPENSES 1,082,767 1,345,531 873,495
--------- --------- ---------
EARNINGS BEFORE THE FOLLOWING 477,410 609,976 492,132
Interest 100,321 85,241 103,883
Depreciation and amortization 238,475 247,871 204,270
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES 138,614 276,864 183,979
--------- --------- ---------
Income taxes - current 29,327 74,228 39,200
- deferred 51,970 5,000 3,200
--------- --------- ---------
81,297 79,228 42,400
--------- --------- ---------
NET EARNINGS FOR THE PERIOD $ 57,317 $ 197,636 $ 141,579
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 80
TRANSCONTINENTAL GOURMET FOODS INC.
STATEMENT OF CASH FLOW
IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
-------- -------- --------
(Unaudited)
(Note 13) (Note 13)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings for the period $ 57,317 $ 197,636 $ 141,579
Amortization 238,475 247,871 204,270
Deferred income taxes 51,970 5,000 3,200
Change in non-cash working capital balances related to operations
Accounts receivable (902,827) ( 16,603) ( 49,718)
Inventory (614,963) (150,351) 65,839
Sundry assets 22,515 ( 15,784) 60,727
Accounts payable and accrued liabilities 566,895 66,874 ( 36,680)
Income taxes payable 29,327 42,076 33,170
-------- -------- --------
(551,291) 376,719 422,387
-------- -------- --------
FINANCING ACTIVITIES
Due to shareholders 11,445 71,731 53,151
Dividends paid ( 11,477) ( 11,300) ( 3,621)
Capital lease obligations 11,273 ( 41,750) ( 43,572)
Long-term debt 258,500 131,334 (121,751)
Redemption of share capital ( 65,000) ( 10,000) -
Share capital issued - - 50,000
Deferred government grant ( 21,717) ( 5,400) ( 6,780)
Investment tax credits recoverable - 13,585 22,737
Convertible debentures - (100,000) -
Loans receivable from related companies ( 36,835) - -
-------- -------- --------
146,189 48,200 ( 49,836)
-------- -------- --------
INVESTING ACTIVITY
Purchase of fixed assets (488,624) (481,625) (167,250)
-------- -------- --------
CHANGE IN CASH AND BANK INDEBTEDNESS (893,726) ( 56,706) 205,301
CASH AND BANK INDEBTEDNESS, beginning of period 17,204 73,910 (131,391)
-------- -------- --------
CASH AND BANK INDEBTEDNESS, end of period $ (876,522) $ 17,204 $ 73,910
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 81
TRANSCONTINENTAL GOURMET FOODS INC.
NOTES TO FINANCIAL STATEMENTS
IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(FIGURES AS AT NOVEMBER 30, 1998 AND FOR THE NINE MONTH PERIOD ENDED
NOVEMBER 30, 1998 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) INVENTORY
Inventory is valued at the lower of cost and net realizable
value.
(b) FIXED ASSETS
Fixed assets are recorded at cost. Amortization is being
provided to charge operations with the cost of assets over their
estimated useful lives as follows:
<TABLE>
<S> <C>
Machinery and equipment - 20% per annum, declining balance basis
Artworks, moulds and dies - 20% per annum, declining balance basis
Vehicles - 30% per annum, declining balance basis
Computer - 30% per annum, declining balance basis
Office equipment - 20% per annum, declining balance basis
Leasehold improvements - over term of lease, straight-line basis
</TABLE>
A half year's amortization is taken in the year of acquisition.
Artwork, moulds and dies represent amounts paid to third parties
for packaging design and print set-up.
(c) ASSETS UNDER CAPITAL LEASES
Assets under capital leases are initially recorded at the cost
to otherwise purchase the asset. Amortization is provided to
charge operations with the cost of the assets over their
estimated useful lives on the declining balance basis at the
following annual rates.
Machinery and equipment - 20%
Vehicles - 30%
(d) DEFERRED PRODUCT DEVELOPMENT COSTS
Deferred product development costs are recorded at cost and
amortized on a straight-line basis over five years.
(e) DEFERRED GOVERNMENT GRANT
The deferred government grant is being amortized on a declining
balance at 20% per annum.
F-35
<PAGE> 82
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) FOREIGN CURRENCY TRANSLATIONS
Assets, liabilities, revenues and expenses arising from foreign
currency transactions are translated into Canadian dollars at
the exchange rate in effect on the date of the transactions.
Monetary items denominated in a foreign currency (such as
accounts payable) are adjusted to reflect the exchange rate in
effect at the balance sheet date.
Any exchange gain or loss that arises from translation or
settlement of a foreign currency denominated monetary item is
included in the determination of net loss for the year.
(g) REVENUE RECOGNITION
Revenue is recognized at the time product is shipped to the
customer.
(h) INCOME TAXES
Income taxes are provided for on the allocation basis and
include provision for all income taxes currently payable as well
as those which have been deferred to future years. The deferred
tax balance arises from amortization being claimed for income
tax purposes in amounts differing from those recorded in the
accounts.
(i) ESTIMATES
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reported
period. These estimates are reviewed periodically, and, as
adjustments become necessary, they are reported in earnings in
the period in which they become known.
(j) UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements reflect all
adjustments (including normal recurring adjustments) which are,
in the opinion of management, necessary to produce a fair
statement of the financial position and results of operations
for the periods presented.
2. INVENTORY
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Raw materials $ 234,895 $ 209,056 $ 249,582
Work-in-process 117,660 151,532 111,843
Finished goods 938,570 315,574 164,386
--------- --------- ---------
$ 1,291,125 $ 676,162 $ 525,811
========= ========= =========
</TABLE>
F-36
<PAGE> 83
3. FIXED ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30, 1998
------------------------------------------------------
ACCUMULATED
COST AMORTIZATION NET
---- ------------ ---
<S> <C> <C> <C>
Machinery and equipment $ 2,146,069 $ 1,100,353 $ 1,045,716
Artwork, moulds and dies 311,478 145,024 166,454
Vehicles 68,017 59,858 8,159
Computer hardware 60,682 39,804 20,878
Office equipment 26,984 13,361 13,623
Leasehold improvements 80,569 62,233 18,336
--------- --------- ---------
2,693,799 1,420,633 1,273,166
--------- --------- ---------
Assets under capital lease
Machinery and equipment 127,581 52,148 75,433
Vehicles 113,987 92,320 21,667
--------- --------- ---------
241,568 144,468 97,100
--------- --------- ---------
$ 2,935,367 $ 1,565,101 $ 1,370,266
========= ========= =========
<CAPTION>
FEBRUARY 28, 1998
------------------------------------------------------
ACCUMULATED
COST AMORTIZATION NET
---- ------------ ---
<S> <C> <C> <C>
Machinery and equipment $ 1,729,969 $ 940,290 $ 789,679
Artwork, moulds and dies 304,307 116,072 188,235
Vehicles 68,017 57,489 10,528
Computer hardware 49,081 34,866 14,215
Office equipment 23,082 11,187 11,895
Leasehold improvements 80,569 42,885 37,684
--------- --------- ---------
2,255,025 1,202,789 1,052,236
--------- --------- ---------
Assets under capital lease
Machinery and equipment 77,731 41,769 35,962
Vehicles 113,987 86,030 27,957
--------- --------- ---------
191,718 127,799 63,919
--------- --------- ---------
$ 2,446,743 $ 1,330,588 $ 1,116,155
========= ========= =========
</TABLE>
F-37
<PAGE> 84
3. FIXED ASSETS (Continued)
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
------------------------------------------------------
ACCUMULATED
COST AMORTIZATION NET
---- ------------ ---
<S> <C> <C> <C>
Machinery and equipment $ 1,379,670 $ 786,657 $ 593,013
Artwork, moulds and dies 225,703 78,839 146,864
Vehicles 68,017 52,977 15,040
Computer hardware 39,054 29,370 9,684
Office equipment 18,961 8,728 10,233
Leasehold improvements 41,995 24,488 17,507
--------- --------- ---------
1,773,400 981,059 792,341
--------- --------- ---------
Assets under capital lease
Machinery and equipment 77,731 32,779 44,952
Vehicles 113,988 74,049 39,939
--------- --------- ---------
191,719 106,828 84,891
--------- --------- ---------
$ 1,965,119 $ 1,087,887 $ 877,232
========= ========= =========
</TABLE>
Amortization of assets under capital lease during the period amounted to
$16,670 (February 28, 1998 - $20,971; February 28, 1997 - $34,824).
4. DEFERRED PRODUCT DEVELOPMENT COSTS
Deferred product development costs consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Product development costs $ 48,345 $ 48,345 $ 48,345
Less: Accumulated amortization 48,345 44,383 39,214
-------- -------- --------
$ - $ 3,962 $ 9,131
======== ======== ========
</TABLE>
5. BANK INDEBTEDNESS
The demand bank loan bears interest at 8.25% per annum and is secured by
a general assignment of book debts, inventory and defined values of
certain fixed assets financed separately under long-term debt (Note 6)
and capital lease obligations (Note 7).
F-38
<PAGE> 85
6. LONG-TERM DEBT
The long-term debt is a five year business loan bearing interest at
prime plus 3/4% per annum, payable monthly. As collateral, the Company
has provided a general assignment of accounts receivable, a general
security agreement over all assets, assigned life insurance, assigned
fire insurance over inventory and equipment and a first charge over
certain equipment. The aggregate payments in each of the four succeeding
years are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
-------- -------- --------
<S> <C> <C> <C>
February 28, 1998 $ - $ - $ 193,793
February 28, 1999 - 132,000 165,390
November 30, 1999 192,000 - -
February 28, 2000 - 132,000 37,483
November 30, 2000 202,000 - -
February 28, 2001 - 132,000 -
November 30, 2001 212,000 - -
February 28, 2002 - 132,000 -
November 30, 2002 180,500 - -
-------- -------- --------
786,500 528,000 396,666
Less: Current portion 192,000 132,000 193,793
-------- -------- --------
$ 594,500 $ 396,000 $ 202,873
======== ======== ========
</TABLE>
Interest expense on long-term debt was $87,479 (February 28, 1998 -
$85,241; February 28, 1997 - $34,449).
7. CAPITAL LEASE OBLIGATIONS
The Company has the following obligations under capital leases.
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
-------- -------- --------
<S> <C> <C> <C>
February 28, 1998 $ - $ - $ 52,976
February 28, 1999 - 42,655 45,076
November 30, 1999 34,861 - -
February 28, 2000 - 17,851 17,192
November 30, 2000 30,353 - -
February 28, 2001 - 16,514 14,752
November 30, 2001 11,961 - -
November 30, 2002 11,961 - -
November 30, 2003 6,978 - -
-------- -------- --------
96,114 77,020 129,996
Less: Interest 17,173 9,352 20,578
Current portion 26,927 39,160 41,750
-------- -------- --------
$ 52,014 $ 28,508 $ 67,668
======== ======== ========
</TABLE>
F-39
<PAGE> 86
8. DEFERRED GOVERNMENT GRANT
During 1994, the Company received approximately $59,000 of government
assistance pursuant to an agreement dated June 24, 1993 with the Ontario
Ministry of Agriculture and Food ("Ministry") to assist in the financing
and purchase of certain production equipment. Under the terms of the
Company's agreement with the Ministry, the Company is required to meet
certain requirements and conditions, including maintaining its plant
location in Ontario. If there is a breach of these conditions, part or
all of the assistance may be repayable.
9. CAPITAL STOCK
Share capital consists of the following.
AUTHORIZED
Unlimited CLASS "A" SPECIAL SHARES, non-participating,
non-voting unless dividends in default for 1 year,
dividends at the Bank of Canada's prime rate plus
2% payable quarterly, redeemable and retractable
at amount paid up thereon
Unlimited COMMON SHARES
<TABLE>
<CAPTION>
COMMON SHARES CLASS "A" SPECIAL SHARES
-------------------------- --------------------------------------
TOTAL
NUMBER BOOK NUMBER BOOK BOOK
OF SHARES VALUE OF SHARES VALUE VALUE
--------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, February 28, 1996 $ 9,000 $ 5,400 $ 250 $ 25,000 $ 30,400
Issued - - 500 50,000 50,000
-------- -------- -------- -------- --------
Balance, February 28, 1997 9,000 5,400 750 75,000 80,400
Issued (see (i) below) 3,858 350,000 1,197 119,700 469,700
Redemption - - ( 100) ( 10,000) ( 10,000)
-------- -------- -------- -------- --------
Balance, February 28, 1998 12,858 355,400 1,847 184,700 540,100
Redemption - - ( 650) ( 65,000) ( 65,000)
-------- -------- -------- -------- --------
Balance, November 30, 1998 $ 12,858 $ 355,400 $ 1,197 $ 119,700 $ 475,100
======== ======== ======== ======== ========
</TABLE>
(i) Pursuant to a refinancing agreement which closed March 31, 1997,
the Company's capital stock increased on the following basis.
<TABLE>
<S> <C>
Issue of common shares $ 350,000
Conversion of debentures to Class "A" special shares 81,000
Conversion of shareholder loans to Class "A" special shares 38,700
----------
Increase in share capital March 31, 1998 $ 469,700
==========
</TABLE>
Subsequent to November 30, 1998, the Company redeemed the remaining
Class "A" special shares at $100 per share.
F-40
<PAGE> 87
10. RELATED PARTY TRANSACTIONS
The Company had the following transactions with related parties.
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
----------- --------- --------
<S> <C> <C> <C>
Interest expense on shareholder loans $ 11,000 $ - $ -
Consulting fees paid to shareholders 122,667 158,581 60,992
Allocated administrative cost 130,000 - -
</TABLE>
11. LEASE COMMITMENTS
The Company is committed to a rental for its premises of approximately
$104,044 under agreements expiring in December 1999 as follows.
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
-------- -------- --------
<S> <C> <C> <C>
February 28, 1998 $ - $ - $ 87,435
February 28, 1999 - 92,426 92,426
November 30, 1999 96,041 - -
February 28, 2000 - 80,035 80,035
November 30, 2000 8,003 - -
-------- -------- --------
$ 104,044 $ 172,461 $ 259,896
======== ======== ========
</TABLE>
12. ECONOMIC DEPENDENCE
Approximately 32% (February 28, 1998 - 40%; 1997 - 40%) of sales during
the period are to several regional divisions of one customer. Sales are
negotiated separately with each regional division.
13. COMPARATIVE FIGURES
The comparative figures are for the nine month period ended November 30,
1998 and eleven month period ended February 28, 1997.
14. FINANCIAL INSTRUMENTS
CREDIT RISK
The company is exposed to credit risk on the accounts receivable from
its customers. In order to reduce credit risk, the company reviews the
account and monitors credit worthiness on a regular basis.
F-41
<PAGE> 88
14. FINANCIAL INSTRUMENTS (Continued)
FAIR VALUES OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The carrying amounts of accounts receivable, deposit on equipment, loans
to related companies and accounts payable approximate their fair value
because of the short-term maturities of these items.
The carrying amounts of bank indebtedness, long-term debt and capital
lease obligations approximate fair value because they bear interest
reasonably close to the market rate.
15. UNITED STATES ACCOUNTING PRINCIPLES
The following table reconciles the net income as reported on the
statement of earnings prepared in accordance with Canadian GAAP to the
net income that would have been reported had the financial statements
been prepared in accordance with U.S. GAAP.
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income in accordance with Canadian GAAP $ 88,042 $ 197,636 $ 141,579
Deferred product developments costs 3,057 3,988 ( 7,045)
--------- --------- ---------
Net income in accordance with U.S. GAAP $ 91,099 $ 201,624 $ 134,534
========= ========= =========
Total assets $ 3,885,413 $ 2,066,396 $ 1,715,969
========= ========= =========
Retained earnings $ 537,483 $ 457,861 $ 267,537
========= ========= =========
</TABLE>
(a) STATEMENT OF CASH FLOW
Under Canadian GAAP, bank indebtedness forms a part of cash
equivalents. Under U.S. GAAP, changes in bank indebtedness
represent financing activities. Changes in bank indebtedness
amounted to $932,583 (February 28, 1998 - nil; February 28, 1997
- $(138,053))
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash provided by (used in) operating activities $ ( 501,291) $ 376,719 $ 422,387
Cash provided (used in) by financing activities 1,028,772 48,200 ( 187,889)
Cash used in investing activities ( 488,624 ( 481,625) ( 167,250)
--------- --------- ---------
Change in cash 38,857 ( 56,706) 67,248
Cash, beginning of year 17,204 73,910 6,662
--------- --------- ---------
CASH, END OF YEAR - U.S. GAAP $ 56,061 $ 17,204 $ 73,910
========= ========= =========
</TABLE>
F-42
<PAGE> 89
15. UNITED STATES ACCOUNTING PRINCIPLES (Continued)
(b) ADDITIONAL DISCLOSURES AS REQUIRED IN ACCORDANCE WITH U.S. GAAP
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Allowance for doubtful accounts $ 18,500 $ - $ -
======== ======== ========
</TABLE>
(c) SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income taxes paid $ - $ 32,564 $ 22,326
======== ======== ========
Interest paid $ 100,321 $ 85,241 $ 103,883
======== ======== ========
</TABLE>
(d) Financial Accounting Standards No. 109, "Accounting for Income
Taxes" requires the use of an asset and liability approach for
financial accounting and reporting for income taxes. There would
be no cumulative effect from the adoption of the statement, nor
would the results of operations be different than those reported
under Canadian GAAP.
The following is a summary of the components of the deferred tax
liability amount calculated in accordance with U.S. GAAP.
<TABLE>
<CAPTION>
NOVEMBER 30 FEBRUARY 28
1998 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Tax depreciation in excess of accounting depreciation $ 51,970 $ 5,000 $ 3,200
========= ========= =========
</TABLE>
16. SUBSEQUENT EVENT
On December 1, 1998, all of the Company's common shares were acquired by
a public corporation.
17. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effects of the Year
2000 Issue may be experienced before, on, or after January 1, 2000, and,
if not addressed, the impact on operations and financial reporting may
range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
F-43
<PAGE> 90
AUDITORS' REPORT
To the Shareholders of
1188980 ONTARIO LTD.
(OPERATING AS TASTY BATTERS; THE PREDECESSOR COMPANY TO TASTY SELECTIONS INC.)
We have audited the balance sheet of 1188980 ONTARIO LTD. (OPERATING AS TASTY
BATTERS) as at June 30, 1998 and the statements of income and retained earnings
and cash flows for each of the two fiscal years in the period ended June 30,
1998. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 1998 and the
results of its operations and its cash flow for each of the two fiscal years in
the period ended June 30, 1998 in accordance with generally accepted accounting
principles.
/s/ KRAFT, ROTHMAN, BERGER, GRILL, SCHWARTZ & COHEN
CHARTERED ACCOUNTANTS
Toronto, Ontario
September 1, 1998, except for Note 11
which is as of May 21, 1999
F-44
<PAGE> 91
1188980 ONTARIO LTD.
(OPERATING AS TASTY BATTERS;
PREDECESSOR TO TASTY SELECTIONS INC.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT
Cash (Note 2) $ 241,920 $ 293,575
Accounts receivable 602,018 501,722
Inventory 459,771 334,684
Prepaid expense and deposits 105,834 56,494
---------- ----------
1,409,543 1,186,475
CAPITAL (Note 3) 493,877 528,046
---------- ----------
$1,903,420 $1,714,521
========== ==========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 437,015 $ 492,655
Roynat loan (Note 4) 60,000 60,000
Small business loan (Note 5) 50,000 50,000
Income taxes payable 80,031 33,275
Roynat subordinated debenture (Note 7) 50,150 --
Advances from shareholders 200,000 --
---------- ----------
877,196 635,930
ROYNAT LOAN (Note 4) 90,000 135,000
SMALL BUSINESS LOAN (Note 5) 95,833 133,333
ROYNAT SUBORDINATED DEBENTURE (Note 7) 306,299 358,628
ADVANCES FROM SHAREHOLDERS (Note 6) -- 200,000
DEFERRED INCOME TAXES 65,400 33,747
---------- ----------
1,434,728 1,496,638
---------- ----------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (Note 8) 100 100
RETAINED EARNINGS 468,592 217,783
---------- ----------
468,692 217,883
---------- ----------
$1,903,420 $1,714,521
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE> 92
1188980 ONTARIO LTD.
(OPERATING AS TASTY BATTERS;
PREDECESSOR TO TASTY SELECTIONS INC.)
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEARS ENDED JUNE 30,
1999 1998 1997
--------- --------- ---------
(Unaudited) (Note 12)
(Note 12)
<S> <C> <C> <C>
GROSS SALES $ 4,701,079 $ 5,656,431 $ 4,217,277
Discounts allowed (52,751) (84,890) (46,283)
Rebates and allowances (180,145) (243,289) (177,371)
--------- --------- ---------
NET SALES 4,468,183 5,328,252 3,993,623
COST OF GOODS SOLD 3,364,922 4,118,396 3,191,796
--------- --------- ---------
GROSS PROFIT 1,103,261 1,209,856 801,827
--------- --------- ---------
EXPENSES
Selling 320,712 373,893 304,234
Administrative 292,717 444,742 427,236
Financial 101,995 115,366 61,407
--------- --------- ---------
715,424 934,001 792,877
--------- --------- ---------
INCOME BEFORE INCOME TAXES 387,837 275,855 8,950
--------- --------- ---------
Income taxes - current 105,375 43,283 --
- deferred 31,653 31,689 2,058
Utilization of loss carry-forward -- (10,008) --
--------- --------- ---------
137,028 64,964 2,058
--------- --------- ---------
NET INCOME FOR THE YEAR 250,809 210,891 6,892
RETAINED EARNINGS, beginning of year 217,783 6,892 --
--------- --------- ---------
RETAINED EARNINGS, end of year $ 468,592 $ 217,783 $ 6,892
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE> 93
1188980 ONTARIO LTD.
(OPERATING AS TASTY BATTERS;
PREDECESSOR TO TASTY SELECTIONS INC.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEARS ENDED JUNE 30,
1999 1998 1997
------------ ----------- -----------
(Unaudited) (Note 12)
(Note 12)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income for the year $ 250,809 $ 210,891 $ 6,892
Deferred income taxes 31,653 31,689 2,058
Amortization 47,717 61,486 30,126
------------ ----------- -----------
330,179 304,066 39,076
------------ ----------- -----------
Change in non-cash components of working capital
Increase in accounts receivable (100,296) (147,241) (354,481)
(Increase) decrease in inventory (125,087) 50,483 (385,167)
Increase in prepaid expenses and deposits (49,340) (4,103) (52,391)
Increase (decrease) in accounts payable and accrued liabilities (55,640) 169,356 323,299
Increase in income taxes payable 46,756 33,275 --
------------ ----------- -----------
46,572 405,836 (429,664)
------------ ----------- -----------
FINANCING ACTIVITIES
Proceeds from (payment of) Roynat loan (net) (45,000) (60,000) 255,000
Proceeds from (payment of) small business loan (net) (37,500) (50,000) 233,333
Proceeds from (payment of) Roynat subordinated debentures (2,179) (41,372) 400,000
Advance from shareholders -- -- 200,000
Bank loan -- (10,000) 10,000
Issuance of capital stock -- -- 100
------------ ----------- -----------
(84,679) (161,372) 1,098,433
------------ ----------- -----------
INVESTING ACTIVITY
Purchase of capital assets (13,548) (24,680) (594,978)
------------ ----------- -----------
CHANGE IN CASH (51,655) 219,784 73,791
CASH, beginning of year 293,575 73,791 --
------------ ----------- -----------
CASH, end of year $ 241,920 $ 293,575 $ 73,791
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE> 94
1188980 ONTARIO LTD.
(OPERATING AS TASTY BATTERS;
PREDECESSOR TO TASTY SELECTIONS INC.)
NOTES TO FINANCIAL STATEMENTS
(FIGURES AS AT MARCH 31, 1999 AND THE NINE MONTH PERIOD THEN ENDED
ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) INVENTORIES
Raw materials are valued at the lower of cost and replacement cost.
Finished goods are valued at the lower of cost and net realizable
value. Cost is determined on a first in, first out basis.
(b) CAPITAL ASSETS
Capital assets are stated at cost. Amortization is being provided for
as follows:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment - over 10 years, straight-line basis
Leasehold improvements - over the life of the lease, straight-line basis
Computer equipment - over 5 years, straight-line basis
Office furniture and equipment - over 10 years, straight-line basis
</TABLE>
(c) REVENUE RECOGNITION
Revenue is recognized at the time product is shipped to the
customer.
(d) 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 at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(e) UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements reflect all adjustments
(including normal recurring adjustments) which are, in the opinion of
management, necessary to produce a fair statement of the financial
position and results of operations for the periods presented.
2. CASH
Cash is comprised of the following.
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
<S> <C> <C>
Cash and money market fund $ 368,976 $ 304,701
Outstanding cheques (127,056) (11,126)
--------- ---------
$ 241,920 $ 293,575
========= =========
</TABLE>
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
---------------------------------------- ----
ACCUMULATED
COST AMORTIZATION NET NET
---- ------------ --- ---
<S> <C> <C> <C> <C>
Machinery and equipment $586,311 $129,004 $457,307 $498,801
Leasehold improvements 23,602 4,253 19,349 10,666
Computer equipment 4,260 1,917 2,343 2,982
Office furniture and equipment 19,033 4,155 14,878 15,597
-------- -------- -------- --------
$633,206 $139,329 $493,877 $528,046
======== ======== ======== ========
</TABLE>
F-48
<PAGE> 95
1188980 ONTARIO LTD.
(OPERATING AS TASTY BATTERS;
PREDECESSOR TO TASTY SELECTIONS INC.)
NOTES TO FINANCIAL STATEMENTS
(FIGURES AS AT MARCH 31, 1999 AND THE NINE MONTH PERIOD THEN ENDED
ARE UNAUDITED)
4. ROYNAT LOAN
The loan bears interest at Roynat's floating base rate plus 3.5% per annum,
repayable in monthly payments of $5,000 and is secured by a first charge on
all fixed assets, subject to a prior fixed charge of $250,000 in favour of
the bank (Note 5) on all equipment, except that which was purchased
specifically with Roynat financing, a first floating charge on all other
assets including all trademarks, patents and intellectual property.
The loan is to be repaid as follows.
<TABLE>
<CAPTION>
March 31,
1999
<S> <C>
2000 $ 60,000
2001 60,000
2002 30,000
--------
150,000
Less: Current portion 60,000
--------
$ 90,000
========
</TABLE>
5. SMALL BUSINESS LOAN
The small business loan bears interest at prime plus 3% per annum,
repayable monthly in equal payments of $4,166.67 plus interest and is
secured by a $250,000 chattel first mortgage on equipment.
The loan is repayable over the next five years as follows.
<TABLE>
<CAPTION>
March 31,
1999
<S> <C>
2000 $ 50,000
2001 50,000
2002 45,833
--------
145,833
Less: Current portion 50,000
--------
$ 95,833
========
</TABLE>
6. ADVANCES FROM SHAREHOLDERS
These advances bear interest at Roynat's base rate plus 3.5% per annum with no
specific terms of repayment and are secured by a general security agreement over
all assets of the company. The loans have been postponed in favour of the
company's bankers and Roynat Inc.. Subsequent to March 31, 1999, the loans were
repaid.
F-49
<PAGE> 96
1188980 ONTARIO LTD.
(OPERATING AS TASTY BATTERS;
PREDECESSOR TO TASTY SELECTIONS INC.)
NOTES TO FINANCIAL STATEMENTS
(FIGURES AS AT MARCH 31, 1999 AND THE NINE MONTH
PERIOD THEN ENDED ARE UNAUDITED)
7. ROYNAT'S SUBORDINATED DEBENTURE
The debenture bears interest at Roynat's base rate plus 3.5% per annum,
has been postponed to the bank and is secured by the same terms as the
Roynat loan (Note 4). The principal amount of the loan is repaid
annually, calculated as 20% of net after tax profit with a balloon
payment on August 1, 2001.
8. CAPITAL STOCK
AUTHORIZED
1,000,000 Class "A" special shares, non-voting, fully participating
redeemable
1,000,000 Class "B" special shares, non-voting, 100%,
non-cumulative, redeemable
1,000,000 Common shares
ISSUED
10 Class "A" special shares $ 10
90 Common shares 90
----
$100
====
9. CONTRACT AND COMMITMENTS
The company has a lease for its operating premises which expires
December 31, 1999. The remaining minimum lease payment amounts to
$68,828.
10. FINANCIAL INSTRUMENTS
The company uses the following methods and assumptions to estimate the
fair value of each class of financial instruments.
(a) Cash, accounts receivable and all current liabilities - the
carrying amounts approximate fair value because of the short
maturity of those instruments.
(b) Long-term portion of Roynat loan, advances from shareholders,
small business loan, subordinated debenture - the carrying
amounts approximate fair value because the interest rate is
floating with prime.
11. UNITED STATES ACCOUNTING PRINCIPLES
The company prepares its financial statements in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP")
which generally conform to generally accepted accounting principles in
the United States ("U.S. GAAP"), except for the following.
F-50
<PAGE> 97
1188980 ONTARIO LTD.
(OPERATING AS TASTY BATTERS;
PREDECESSOR TO TASTY SELECTIONS INC.)
NOTES TO FINANCIAL STATEMENTS
(FIGURES AS AT MARCH 31, 1999 AND THE NINE MONTH
PERIOD THEN ENDED ARE UNAUDITED)
11. UNITED STATES ACCOUNTING PRINCIPLES (Continued)
(a) ADDITIONAL DISCLOSURES AS REQUIRED IN ACCORDANCE WITH U.S.
GAAP
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Allowance for doubtful accounts $ 4,000 $ 12,038 $18,000
======== ======== =======
</TABLE>
(b) SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Income taxes paid $ 58,619 $ -- $ --
======== ======== =======
Interest paid $ 76,283 $117,763 $79,057
======== ======== =======
</TABLE>
(c) Under U.S. GAAP, Financial Accounting Standards No. 109
"Accounting for Income Taxes" requires the use of an asset and
liability approach for financial accounting and reporting for
income taxes. There would be no cumulative effect from the
adoption of the statements, nor would the results of
operations be different than those reported under Canadian
GAAP.
The following is a summary of the components of the deferred tax
liability amount calculated in accordance with U.S. GAAP.
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Tax depreciation in excess of accounting depreciation $65,400 $33,747 $55,383
======== ======= =======
</TABLE>
12. FINANCIAL STATEMENTS
The 1999 figures are for the nine months ended March 31, 1999 and the
1997 figures are for the period from the date of incorporation, July 8,
1996 to June 30, 1997.
13. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effects of the Year
2000 Issue may be experienced before, on, or after January 1, 2000,
and, if not addressed, the impact on operations and financial reporting
may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
F-51
<PAGE> 98
Report of Independent Auditors
Board of Directors
1005549 Ontario Limited
We have audited the consolidated balance sheets of 1005549 Ontario Limited as
at December 6, 1998 and December 7, 1997 and the consolidated statements of
earnings, stockholders' equity and cash flows for the years then ended. 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 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 consolidated 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of 1005549 Ontario
Limited as at December 6, 1998 and December 7, 1997 and the results of its
operations and their cash flows for the years then ended in accordance with
generally accepted accounting principles in Canada.
Generally accepted accounting principles in Canada vary in certain significant
respects from generally accepted accounting principles in the United States.
Application of generally accepted accounting principles in the United States
would have affected results of operations for the years ended December 6, 1998
and December 7, 1997 and stockholders' equity as at December 6, 1998 and
December 7, 1997 to the extent summarized in note 15 to the consolidated
financial statements.
/s/ KPMG LLP
Chartered Accountants
Waterloo, Canada
May 10, 1999
F-52
<PAGE> 99
1005549 ONTARIO LIMITED
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Amounts expressed in Canadian Dollars)
=======================================================================================================================
December 6, December 7,
1998 1997
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 91,228 $ 116,981
Accounts receivable (note 2) 1,407,918 1,094,734
Inventories (note 3) 405,070 331,047
Income taxes recoverable - 84,316
Prepaid expenses - 7,222
Due from shareholders - 18,968
-----------------------------------------------------------------------------------------------------------------
1,904,216 1,653,268
Capital assets (note 4) 3,116,255 2,820,047
Goodwill (note 5) 142,735 149,460
- - -----------------------------------------------------------------------------------------------------------------------
$ 5,163,206 $ 4,622,775
=======================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Bank indebtedness (note 6) $ 259,490 $ -
Accounts payable 837,626 938,851
Accrued liabilities 105,708 598,083
Income taxes payable 215,665 -
Due to shareholders 104,742 -
Current portion of long-term debt (note 7) 77,437 225,315
Current portion of obligations under capital lease (note 8) 222,823 172,792
-----------------------------------------------------------------------------------------------------------------
1,823,491 1,935,041
Long-term debt (note 7) 682,957 759,473
Capital lease obligations (note 8) 708,634 611,069
Redeemable shares (note 9) 810,000 543,350
Deferred income taxes 87,000 61,560
Stockholders' equity:
Share capital (note 11) 20 20
Contributed surplus 47,267 47,267
Retained earnings 1,003,837 664,995
-----------------------------------------------------------------------------------------------------------------
1,051,124 712,282
- - -----------------------------------------------------------------------------------------------------------------------
$ 5,163,206 $ 4,622,775
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-53
<PAGE> 100
1005549 ONTARIO LIMITED
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
(Amounts expressed in Canadian Dollars)
====================================================================================================================
December 6, December 7,
1998 1997
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 17,579,530 $ 12,154,824
Cost of revenue 15,306,944 10,186,249
- - --------------------------------------------------------------------------------------------------------------------
Gross profit 2,272,586 1,968,575
Operating expenses:
Automotive 36,680 30,534
Bad debts 42,250 (6,198)
Bank charges 6,078 4,315
Business and realty taxes 14,830 41,356
Equipment rental 24,093 -
Insurance 33,898 28,605
Management wages 64,032 518,930
Office and general 31,105 30,726
Office wages 82,172 63,153
Professional fees and dues 47,248 56,687
Profit sharing 63,249 60,631
Repairs and maintenance 320,718 309,202
Telephone 9,987 10,534
Travel and entertainment 20,694 23,951
Gain on disposal of capital assets (34,385) -
Amortization 439,175 362,915
Utilities 56,254 63,426
Interest on long-term debt 116,606 131,753
Other (income) expense 2,970 (5,352)
--------------------------------------------------------------------------------------------------------------
1,377,654 1,725,168
- - --------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 894,932 243,407
Income taxes: (note 10)
Current 264,000 39,300
Deferred 25,440 16,320
--------------------------------------------------------------------------------------------------------------
289,440 55,620
- - --------------------------------------------------------------------------------------------------------------------
Net earnings $ 605,492 $ 187,787
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-54
<PAGE> 101
1005549 ONTARIO LIMITED
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
(Amounts expressed in Canadian Dollars)
============================================================================================================================
Share Contributed Retained
capital surplus earnings Total
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances, at December 31, 1996 $ 20 $ 47,267 $ 481,208 $ 528,495
Net earnings - - 187,787 187,787
Dividends - - (4,000) (4,000)
- - ----------------------------------------------------------------------------------------------------------------------------
Balances, at December 7, 1997 20 47,267 664,995 712,282
Net earnings - - 605,492 605,492
Redemption premium on
redeemable shares (note 9) - - (266,650) (266,650)
- - ----------------------------------------------------------------------------------------------------------------------------
Balances, at December 6, 1998 $ 20 $ 47,267 $ 1,003,837 $ 1,051,124
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-55
<PAGE> 102
1005549 ONTARIO LIMITED
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Amounts expressed in Canadian Dollars)
=======================================================================================================================
December 6, December 7,
1998 1997
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 605,492 $ 187,787
Items not involving cash:
Amortization 439,175 362,915
Deferred income taxes 25,440 16,320
Gain on disposal of capital assets (34,385) -
Changes in operating assets and liabilities:
Accounts receivable (313,184) 29,770
Inventories (74,023) (7,426)
Income taxes 299,981 (174,550)
Prepaid expenses 7,222 239
Due from shareholders 18,968 (14,981)
Accounts payable (101,225) (162,218)
Accrued liabilities (492,375) 297,972
Due to shareholders 104,742 -
- - -----------------------------------------------------------------------------------------------------------------------
485,828 535,828
Cash flows from investing activities:
Purchase of capital assets (789,273) (929,248)
Proceeds on disposal of capital assets 95,000 -
-----------------------------------------------------------------------------------------------------------------
(694,273) (929,248)
Cash flows from financing activities:
Net advance (repayment) of bank indebtedness 259,490 -
Payments on long-term debt (224,394) (74,175)
Borrowings on capital lease obligations 333,025 681,661
Payments on capital lease obligations (185,429) (261,978)
Dividends - (4,000)
-----------------------------------------------------------------------------------------------------------------
182,692 341,508
- - -----------------------------------------------------------------------------------------------------------------------
Decrease in cash (25,753) (51,912)
Cash and cash equivalents, beginning of year 116,981 168,893
- - -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 91,228 $ 116,981
- - -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents comprised of:
Cash $ 68,853 $ 28,322
Cash equivalents with maturities less than ninety days 22,375 88,659
- - -----------------------------------------------------------------------------------------------------------------------
$ 91,228 $ 116,981
- - -----------------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 129,199 $ 128,910
Income taxes $ 129,741 $ 233,043
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-56
<PAGE> 103
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements
(Amounts expressed in Canadian Dollars)
================================================================================
The company is incorporated under the laws of the Province of Ontario and
its principal business activity is food processing.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
The accompanying consolidated financial statements are presented in
accordance with accounting principles generally accepted in Canada
(Canadian GAAP).
The consolidated financial statements include the accounts of 1005549
Ontario Limited and its subsidiary, D.C. Food Processing Inc. All
significant inter-company transactions and balances have been
eliminated on consolidation. These financial statements are prepared
on the basis of their historical costs and do not include any
adjustments that may result on the acquisition of consolidated
1005549 Ontario Limited by International Menu Solutions Corporation
as more fully described in note 16.
(b) Revenue recognition:
Revenue is recognized at the point the goods are shipped.
(c) Inventories
Inventories have been valued at the lower of cost determined on a
first-in, first-out basis, and net realizable value.
(d) Capital assets:
Capital assets are stated at acquisition cost. Amortization is provided
using the following methods and annual rates:
<TABLE>
<CAPTION>
================================================================================================
Asset Basis Rate
------------------------------------------------------------------------------------------------
<S> <C> <C>
Building Declining balance 5%
Equipment Declining balance 20%
Scales Declining balance 20%
Computer equipment Declining balance 30%
Equipment under capital lease Straight-line 5 years
================================================================================================
</TABLE>
(e) Goodwill:
Goodwill represents the excess of purchase price over the fair
value of identifiable assets acquired and is amortized on a
declining balance basis at the annual rate of 5%. 1005549 Ontario
Limited reviews the carrying value of goodwill on an annual basis.
Based on estimated discounted future cash flows, it has been
determined that there is no impairment in the value of goodwill.
F-57
<PAGE> 104
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 2
(Amounts expressed in Canadian Dollars)
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(f) Deferred income taxes:
The company accounts for income taxes on the deferred tax allocation
method. Under this method, timing differences between reported and
taxable income result in provision for taxes not currently payable.
Such timing differences arise principally as a result of claiming
depreciation and other amounts for tax purposes at amounts differing
from those charged to income.
(g) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from these estimates.
2. ACCOUNTS RECEIVABLE:
Accounts receivable are net of allowances for doubtful accounts of
$15,175 at December 6, 1998 and $901 at December 7, 1997.
3. INVENTORIES:
<TABLE>
<CAPTION>
============================================================================================================
1998 1997
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 259,524 $ 220,697
Finished product 145,546 110,350
- - ------------------------------------------------------------------------------------------------------------
$ 405,070 $ 331,047
============================================================================================================
</TABLE>
F-58
<PAGE> 105
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 3
(Amounts expressed in Canadian Dollars)
================================================================================
4. CAPITAL ASSETS:
<TABLE>
<CAPTION>
==========================================================================================================================
December 6, December 7,
1998 1997
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 235,800 $ 235,800
Building 1,203,178 1,147,880
Computer equipment 3,586 2,226
Equipment 1,008,174 708,329
Scales 22,056 14,361
Parking lot 36,084 34,500
Equipment under capital lease 2,186,402 1,823,525
--------------------------------------------------------------------------------------------------------------------------
4,695,280 3,966,621
Less accumulated amortization 1,579,025 1,146,574
--------------------------------------------------------------------------------------------------------------------------
$ 3,116,255 $ 2,820,047
==========================================================================================================================
</TABLE>
The amortization of equipment under capital lease amounted to $237,478 in
1998 (1997 - $173,874).
5. GOODWILL:
<TABLE>
<CAPTION>
====================================================================================================================
December 6, December 7,
1998 1997
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 192,800 $ 192,800
Less accumulated amortization 50,065 43,340
- - --------------------------------------------------------------------------------------------------------------------
$ 142,735 $ 149,460
====================================================================================================================
</TABLE>
6. BANK INDEBTEDNESS:
Bank indebtedness bears interest at prime plus .75% and is secured by a
general security agreement covering all assets other than real property,
a guarantee and postponement of claim for $50,000 signed by two of the
shareholders, and an assignment of life insurance over two of the
shareholders.
F-59
<PAGE> 106
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 4
(Amounts expressed in Canadian Dollars)
===============================================================================
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
=========================================================================================================================
December 6, December 7,
1998 1997
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank mortgage, payable in monthly instalments of
$6,500 plus interest at 7.52%, due October 2010 $ 640,642 $ 666,937
Bank loan, payable in monthly instalments of $4,010
plus interest at Royal Bank prime plus 1%, due
October 2001 115,717 155,920
Prime plus 1% term loan, payable in blended monthly
instalments of $705, due May 1999 4,035 11,931
Mortgage payable, no monthly instalments, interest
payable only at 1% per month, repaid during the
year - 150,000
-------------------------------------------------------------------------------------------------------------------------
760,394 984,788
Current portion of long-term debt 77,437 225,315
-------------------------------------------------------------------------------------------------------------------------
$ 682,957 $ 759,473
=========================================================================================================================
=========================================================================================================================
Annual principal payments over each of the next five years are as follows:
-------------------------------------------------------------------------------------------------------------------------
1999 $ 77,437
2000 78,317
2001 63,867
2002 38,607
2003 41,616
-------------------------------------------------------------------------------------------------------------------------
$ 299,844
=========================================================================================================================
</TABLE>
F-60
<PAGE> 107
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 5
(Amounts expressed in Canadian Dollars)
===============================================================================
8. OBLIGATIONS UNDER CAPITAL LEASE:
<TABLE>
<CAPTION>
==================================================================================================================
December 6, December 7,
1998 1997
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Year ending December 6:
1998 $ - $ 217,882
1999 285,494 211,393
2000 244,505 170,403
2001 228,005 153,903
2002 228,005 153,903
2003 109,637 36,021
-----------------------------------------------------------------------------------------------------------
Total minimum lease payments 1,095,646 943,505
Less amount representing interest (at rates
ranging from 6.35% to 14.79%) 164,189 159,644
-----------------------------------------------------------------------------------------------------------------
Present value of net minimum capital
lease payments 931,457 783,861
Current portion of obligations under capital lease 222,823 172,792
-----------------------------------------------------------------------------------------------------------------
$ 708,634 $ 611,069
=================================================================================================================
</TABLE>
Interest of $63,484 (1997 - $48,210) relating to capital lease
obligations has been included in interest on long-term debt.
9. REDEEMABLE SHARES:
<TABLE>
<CAPTION>
========================================================================================================================
Number of December 6, Number of December 7,
shares 1998 shares 1997
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Authorized:
Unlimited number of
Class C non-voting,
redeemable, retractable
special shares - $ - 1,000 $ 543,350
Unlimited number of
Class D non-voting,
redeemable, retractable
special shares 810 810,000 - -
------------------------------------------------------------------------------------------------------------------------
810 $ 810,000 1,000 $ 543,350
========================================================================================================================
</TABLE>
F-61
<PAGE> 108
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 6
(Amounts expressed in Canadian Dollars)
===============================================================================
9. REDEEMABLE SHARES (CONTINUED):
The company has issued redeemable, retractable special shares. Under
Canadian generally accepted accounting principles, these shares are
presented as liabilities in the consolidated financial statements at
their redemption amount.
On December 4, 1998, the share capital of 1005549 Ontario Limited was
amended to authorize an unlimited number of non-voting redeemable,
retractable Class D special shares. 810 Class D special shares, with a
redemption amount of $810,000, and 200 Class A common shares were issued
and exchanged for 1,000 Class C special shares, with a redemption amount
of $543,350, and 200 Class B convertible shares. The excess, $266,650, of
their redemption amount over their carrying amount was charged to
retained earnings in 1998.
10. INCOME TAXES:
<TABLE>
<CAPTION>
===============================================================================================================
December 6, December 7,
1998 1997
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Earnings before income taxes $ 894,932 $ 243,407
Combined Canadian basic federal and
provincial income tax rate 44.6% 44.6%
Income taxes based on combined Canadian
basic federal and provincial income tax rate 399,140 108,560
Increase in taxes resulting from:
Manufacturing and processing allowance (56,823) -
Tax reductions to certain private companies (44,595) (43,836)
Other items (8,282) (9,104)
- - ---------------------------------------------------------------------------------------------------------------
$ 289,440 $ 55,620
===============================================================================================================
</TABLE>
F-62
<PAGE> 109
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 7
(Amounts expressed in Canadian Dollars)
===============================================================================
11. SHARE CAPITAL:
<TABLE>
<CAPTION>
==================================================================================================================
1998 1997
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Authorized:
Unlimited number of common shares
Unlimited number of Class A common shares
Unlimited number of Class B convertible,
common shares
Issued:
200 Class A common shares $ 20 $ -
200 Class B convertible common shares - 20
------------------------------------------------------------------------------------------------------------------
$ 20 $ 20
==================================================================================================================
</TABLE>
12. FINANCIAL INSTRUMENTS:
The carrying value of the company's accounts receivable due from
shareholders, due to shareholders, bank indebtedness, accounts payable,
accrued liabilities, short-term investments approximate their fair values
due to their demand nature or relatively short periods to maturity.
The fair value of the company's long-term debt and obligations under
capital lease has been determined to equal their carrying values, as the
current financing arrangements represent the borrowing rate presently
available to the company for loans with similar terms and maturities.
13. NATURE OF OPERATIONS AND SEGMENTED INFORMATION:
Management has determined that the company operates in one dominant
industry segment which involves the processing of food items. All of the
company's operations, assets and employees are located in Canada and
revenues are generated from sales in Canada.
14. CONCENTRATION OF CREDIT RISK:
At December 6, 1998, six customers accounted for 43% (1997 - 74%) of
total accounts receivable. The company maintains reserves for potential
credit losses but historically has not experienced any significant losses
related to individual customers or groups of customers.
F-63
<PAGE> 110
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 8
(Amounts expressed in Canadian Dollars)
===============================================================================
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The company follows Canadian generally accepted accounting principles
which are different in some respects from those applicable in the United
States.
(a) Since redemption of the shares described in note 9 is outside the
control of the company, the shares are classified as liabilities
under Canadian GAAP. For U.S. GAAP purposes, such redeemable shares
can be classified outside stockholders' equity and below
liabilities. This classification difference has no impact on net
income or stockholders' equity for U.S. GAAP purposes.
(b) Under Canadian GAAP the income tax provision is based on the
deferral method and adjustments are generally not made for changes
in income tax rates. Under U.S. GAAP, deferred tax liabilities are
based on the asset and liability method and are measured using the
enacted tax rate expected to apply to taxable income in the periods
in which the deferred tax liability is expected to be settled.
The following presents a reconciliation of net earnings from Canadian
GAAP to U.S. GAAP:
<TABLE>
<CAPTION>
================================================================================================================================
December 6, December 7,
1998 1997
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings under Canadian GAAP $ 605,492 $ 187,787
Income tax adjustment under the asset
and liability method (4,719) (8,752)
- - --------------------------------------------------------------------------------------------------------------------------------
Net earnings under U.S. GAAP $ 600,773 $ 179,035
- - --------------------------------------------------------------------------------------------------------------------------------
The following table presents stockholders' equity under U.S. GAAP.
<CAPTION>
================================================================================================================================
December 6, December 7,
1998 1997
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stockholders' equity under Canadian GAAP $ 1,051,124 $ 712,282
Income tax adjustment under the asset
and liability method (49,790) (45,071)
- - --------------------------------------------------------------------------------------------------------------------------------
$ 1,001,334 $ 667,211
================================================================================================================================
</TABLE>
F-64
<PAGE> 111
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 9
(Amounts expressed in Canadian Dollars)
===============================================================================
16. SUBSEQUENT EVENTS:
On February 15, 1999, the share capital of 1005549 Ontario Limited was
amended to authorize unlimited number of voting, redeemable, retractable
Class E special shares. 2000 Class E special shares and 200 Class B
convertible common shares were issued and exchanged for 200 Class A
common shares.
On May 7, 1999, the stated capital of the Class E special shares was
increased from $10 to $1,962,510.
On May 10, 1999, all of the outstanding capital stock was acquired by
International Menu Solutions Corporation including the shares described
in note 9 and all of the shares described in note 11.
17. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE:
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range
from minor errors to significant systems failure which could affect a
company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting
the company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
F-65
<PAGE> 112
1005549 ONTARIO LIMITED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
March 7, 1999 March 8, 1998
-------------------- -------------------
ASSETS
<S> <C> <C>
Current Assets
Accounts receivable $1,673,490 $ 954,672
Inventory 391,729 331,977
Prepaid expenses and other current assets 23,785 18,830
---------- ----------
2,089,004 1,305,479
Capital assets 3,084,030 2,823,794
Goodwill 141,790 148,015
---------- ----------
$5,314,824 $4,277,288
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank indebtedness $ 196,430 $ 149,886
Accounts payable and accrued liabilities 1,279,734 1,161,293
Current portion of long-term obligations 300,480 397,507
---------- ----------
1,776,644 1,708,686
Long-term obligations 1,395,328 1,224,931
Deferred income taxes 61,560 45,240
Redeemable shares 810,000 543,350
STOCKHOLDERS' EQUITY
Common stock 20 20
Additional paid up capital 47,267 47,267
Retained earnings 1,224,005 707,794
---------- ----------
1,271,292 755,081
---------- ----------
$5,314,824 $4,277,288
========== ==========
</TABLE>
F-66
<PAGE> 113
1005549 ONTARIO LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
December 7, 1998 December 8, 1997
to March 7, 1999 to March 8, 1998
-------------------- ------------------
<S> <C> <C>
REVENUE $ 4,879,226 $ 3,430,535
----------- -----------
EXPENSES
Cost of goods sold 4,299,923 3,178,932
Selling expenses 6,998 6,033
Administrative expenses 215,691 127,401
----------- -----------
4,522,612 3,312,366
----------- -----------
INCOME FROM OPERATIONS 356,614 118,169
OTHER INCOME (EXPENSE)
Interest revenue 1,627 --
Interest expense (23,198) (35,297)
----------- -----------
(21,571) (35,297)
----------- -----------
NET INCOME BEFORE INCOME TAXES 335,043 82,872
INCOME TAXES 114,875 40,070
----------- -----------
NET INCOME $ 220,168 $ 42,802
=========== ===========
</TABLE>
F-67
<PAGE> 114
1005549 ONTARIO LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
December 7, 1998 December 8, 1997
to March 7, 1999 to March 8, 1998
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 220,168 $ 42,802
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 108,645
80,205
Deferred income taxes
(25,440) (16,320)
Changes in operating assets and liabilities:
Accounts receivable (265,572) 140,062
Inventory
13,341 (930)
Prepaid expenses and other current assets
(23,785) 7,360
Accounts payable and accrued liabilities 15,993 (291,325)
--------- ---------
Net cash flow from operating activities
43,350 (38,146)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITY:
Purchases of capital assets
(75,475) (82,510)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term obligations
(89,235) (226,728)
Proceeds from long-term obligations
93,192 80,517
Proceeds from bank indebtedness (63,060) 149,886
--------- ---------
Net cash flow from financing activities
(59,103) 3,675
--------- ---------
NET CHANGE IN CASH (91,228) (116,981)
CASH, BEGINNING OF PERIOD 91,228 116,981
--------- ---------
CASH, END OF PERIOD $ -- $ --
========= =========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
--------- ---------
Interest $ 23,198 $ 35,297
========= =========
income taxes $ 215,665 $ --
========= =========
</TABLE>
F-68
<PAGE> 115
1005549 ONTARIO LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CANADIAN DOLLARS)
1. ORGANIZATION
The Company and its subsidiaries develop, market and produce a series of
speciality food products for sale to food distributors, food retailer
chains and speciality food retailers.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of presentation
The consolidated financial statements include the accounts of
1005549 Ontario Limited and its subsidiary, D.C. Food Processing
Inc. All significant inter-company transactions and balances
have been eliminated on consolidation. These financial
statements are prepared on the basis of their historical costs
and do not include any adjustments that may result on the
acquisition of consolidated 1005549 Ontario Limited by
International Menu Solutions Corporation (see Note 6).
The unaudited interim financial statements presented reflects
all adjustments (including normal recurring adjustments) which
are, in the opinion of management, necessary to produce a fair
statement of the financial position and results of operations
for the periods presented.
b) Revenue recognition
Revenue is recognized at the time goods are shipped to the
customer.
c) Inventories
Inventories have been valued at the lower of cost and determined
on a first-in, first-out basis, and the net realizable value.
F-69
<PAGE> 116
1005549 ONTARIO LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d) Capital assets
Capital assets are stated at acquisition cost. Amortization is
provided using the following methods and annual rates.
<TABLE>
<CAPTION>
Asset Basis Rate
----- ----- ----
<S> <C> <C>
Building Declining Balance 5%
Equipment Declining Balance 20%
Scales Declining Balance 20%
Computer Equipment Declining Balance 30%
Equipment under Straight Line 5 years
Capital Lease
</TABLE>
e) Goodwill
Goodwill represents the excess of the purchase price over the
fair value of the identifiable assets acquired and is amortized
on a declining balance basis at the annual rate of 5%.
Management reviews the carrying value of goodwill on an annual
basis. Based on estimated discounted future cash flows, it has
been determined that there is no impairment in the value of
goodwill.
f) Financial instruments
The carrying value of the Company's accounts receivable due from
shareholders, due to shareholders, bank indebtedness, accounts
payable, accrued liabilities, short-term investments approximate
their fair values due to their demand nature or relatively short
periods due to maturity.
The fair value of the Company's long-term debt and obligations
under capital lease has been determined to equal their carrying
values, as the current financing arrangements represent the
borrowing rate presently available to the Company for loans with
similar terms and maturities.
F-70
<PAGE> 117
1005549 ONTARIO LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
g) Nature of operations and segmented information
Management has determined that the Company operates in one
dominant industry segment which involves the processing of food
items. All of the Company's operations, assets, and employees
are located in Canada and revenues are generated from sales in
Canada.
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
March 7, 1999 March 8, 1998
Accumulated
Cost depreciation Net book value Net book value
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Land 235,800 - 235,800 235,800
Equipment under
capital lease 2,052,364 1,071,711 980,653 1,002,638
Building 1,215,425 188,727 1,026,698 1,023,070
Computer Equipment 32,855 1,432 31,423 1,088
Equipment 1,119,107 342,133 776,974 524,180
Scales 22,056 10,093 11,963 13,143
Parking Lot 36,084 15,565 20,519 23,875
-------------------------------------------------------------------------------
4,713,691
1,629,661 3,084,030 2,823,794
===============================================================================
</TABLE>
F-71
<PAGE> 118
1005549 ONTARIO LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CANADIAN DOLLARS)
4. REDEEMABLE SHARES
<TABLE>
<CAPTION>
Number of
Shares March 7, Number of March 8,
1999 Shares 1998
---------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Authorized:
Unlimited number of Class C,
non-voting, redeemable,
retractable special shares 0 $-- 1,000 $543,350
Unlimited number of Class D,
non-voting, redeemable,
retractable special shares 810 810,000 -- --
-------------------------------------------------------------------
810 $810,000 1,000 $543,350
-------------------------------------------------------------------
</TABLE>
The Company has issued redeemable, retractable special shares. These
shares are presented as liabilities in the consolidated financial
statements at their redemption amount.
On December 4, 1998, the share capital of 1005549 Ontario Limited was
amended to authorize an unlimited number of non-voting redeemable,
retractable Class D special shares. 810 Class D special shares, with a
redemption amount of $810,000, and 200 Class A common shares were issued
and exchanged for 1,000 Class C special shares, with a redemption amount
of $543,350, and 200 Class B convertible shares. The excess, $266,650, of
their redemption amount over their carrying amount was charged to
retained earnings in 1998.
5. SUBSEQUENT EVENTS
On May 7, 1999, the stated capital of the Class E special shares was
increased from $10 to $1,962,510.
On May 10, 1999, all of the outstanding shares of capital stock of the
Company were acquired by International Menu Solutions Corporation.
F-72
<PAGE> 119
[LETTERHEAD OF CORBIN & WERTZ]
INDEPENDENT AUDITORS' REPORT
To the Members of
Huxtable's Foods, L.L.C.
We have audited the accompanying balance sheet of Huxtable's Foods, L.L.C. (a
Delaware limited liability company) (the "Company") as of December 31, 1998 and
the related statements of operations, members' capital (deficit) and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Huxtable's Foods, L.L.C. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Corbin & Wertz
CORBIN & WERTZ
Irvine, California
April 30, 1999
F-73
<PAGE> 120
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Huxtable's Foods, L.L.C.
We have audited the accompanying statements of operations, members' capital
(deficit) and cash flows of HUXTABLE'S FOODS, L.L.C. (a
Delaware limited liability company) for the year ended December 31, 1997.
These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of Huxtable's Foods, L.L.C. operations and
its cash flows for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for start-up costs in 1997 to comply with Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities."
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
June 22, 1998
F-74
<PAGE> 121
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash $ 73,000
Accounts receivable, net of allowance for
doubtful accounts of $67,000 566,000
Inventories 689,000
Prepaid expenses 40,000
-----------
Total current assets 1,368,000
Property and equipment, net 1,457,000
Other assets 31,000
-----------
$ 2,856,000
===========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable $ 574,000
Accrued liabilities and other 172,000
Current portion of long-term debt 177,000
Current portion of obligations under capital leases 123,000
-----------
Total current liabilities 1,046,000
-----------
Long-term liabilities:
Accrued preferred return 998,000
Long-term debt, net of current portion 140,000
Obligations under capital leases, net of current
portion 100,000
Other 12,000
-----------
Total long-term liabilities 1,250,000
-----------
Members' capital:
Members' accounts 871,000
Notes and accrued interest receivable from
related parties (311,000)
-----------
Total members' capital 560,000
-----------
$ 2,856,000
===========
</TABLE>
See accompanying notes to financial statements
F-75
<PAGE> 122
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 12,303,000 $ 11,269,000
Cost of goods sold 9,322,000 8,431,000
------------ ------------
Gross profit 2,981,000 2,838,000
Operating expenses:
Selling, general and administrative 3,425,000 3,505,000
Non-cash compensation -- 203,000
------------ ------------
Loss from operations (444,000) (870,000)
Other income (expense):
Interest expense, net of interest income of
$4,000 and $4,000, respectively (138,000) (89,000)
------------ ------------
Loss before cumulative effect of change
in accounting (582,000) (959,000)
Cumulative effect of change in accounting for
start-up costs -- (34,000)
------------ ------------
Net loss $ (582,000) $ (993,000)
============ ============
</TABLE>
See accompanying notes to financial statements
F-76
<PAGE> 123
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF MEMBERS' CAPITAL
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Notes and
Members' Accounts Accrued Interest
------------------------------------------- Receivable From
Preferred Regular Total Related Parties Total
----------- ---------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 1,957,000 $(3,109,000) $(1,152,000) $ (311,000) $(1,463,000)
Conversion of members' notes and accrued interest
payable 2,810,000 -- 2,810,000 -- 2,810,000
Capital contribution 865,000 -- 865,000 -- 865,000
Awards of sharing ratios to employees and others 203,000 -- 203,000 -- 203,000
Accrued preferred return (382,000) -- (382,000) -- (382,000)
Net loss (24,000) (969,000) (993,000) -- (993,000)
----------- ---------- ----------- ----------- -----------
Balance, December 31, 1997 5,429,000 (4,078,000) 1,351,000 (311,000) 1,040,000
Conversion of members' notes and accrued interest
payable 510,000 -- 510,000 -- 510,000
Accrued preferred return (408,000) -- (408,000) -- (408,000)
Net loss (14,000) (568,000) (582,000) -- (582,000)
----------- ---------- ----------- ----------- -----------
Balance, December 31, 1998 $ 5,517,000 (4,646,000) $ 871,000 $ (311,000) $ 560,000
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-77
<PAGE> 124
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(582,000) $(993,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 332,000 310,000
Compensation expense in connection with
awards of sharing ratios -- 203,000
Provision for doubtful accounts (25,000) 12,000
Gain on sale of equipment -- (10,000)
Interest expense in connection with conversion
of note payable 30,000 --
Changes in operating assets and liabilities:
Accounts receivable 241,000 (325,000)
Inventories (31,000) (176,000)
Prepaid expenses 20,000 (15,000)
Other assets 7,000 33,000
Accounts payable, accrued liabilities and other (112,000) (27,000)
--------- ---------
Net cash used in operating activities (120,000) (988,000)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (33,000) (263,000)
Proceeds from sale of equipment -- 11,000
--------- ---------
Net cash used in investing activities (33,000) (252,000)
--------- ---------
Cash flows from financing activities:
Payments from short-term notes payable -- (30,000)
Proceeds from capital contributions -- 865,000
Proceeds from members' notes payable 480,000 150,000
Payments on long-term debt (128,000) (73,000)
Payments on obligations under capital leases (142,000) (128,000)
--------- ---------
Net cash provided by financing activities 210,000 784,000
--------- ---------
Net change in cash 57,000 (456,000)
Cash, beginning of year 16,000 472,000
--------- ---------
Cash, end of year $ 73,000 $ 16,000
========= =========
</TABLE>
Continued
F-78
<PAGE> 125
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF CASH FLOWS - CONTINUED
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Supplemental disclosures of each flow information:
Cash paid during the year for:
Interest $ 136,000 $ 109,000
============ =============
Income taxes $ 800 $ 800
============ =============
</TABLE>
Supplemental disclosures of non-cash investing and financing activities:
During 1998, the Company incurred capital lease obligations of $111,000
for the acquisition of machinery and equipment.
During 1998 and 1997, members converted $510,000 and $2,810,000,
respectively, of debt and accrued interest into members capital (see Note
9).
During 1997, the Company granted sharing ratios to employees and others
which were valued at $203,000 (see Note 9).
During 1998 and 1997, the Company accrued $408,000 and $382,000 of
preferred return, respectively.
See accompanying notes to financial statements
F-79
<PAGE> 126
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1998 and 1997
NOTE 1 - ORGANIZATION, BUSINESS AND LIQUIDITY
Organization and Business
Huxtable's Foods, L.L.C. (the Company), a Delaware limited liability company,
was established on May 30, 1995. Under the Limited Liability Agreement (the
"Agreement"), the Company is owned by preferred members and regular members.
The Company processes and assembles gourmet sauces, meal replacement foods and
holiday food packages for distribution to retail stores and supermarket
commissaries, principally in the western United States.
Liquidity and Risks
The Company had losses of $582,000 and $993,000 for the years ended December 31,
1998 and 1997, respectively.
The Company's ability to continue in existence is dependent on, among other
factors, the Company's ability to generate adequate cash flows from operations
and from debt or equity financing to fund its operations and repay its
obligations. The Company has addressed the negative trend mentioned above by
focusing its efforts on its core profitable product lines, obtaining debt
financing of $480,000 from existing members in 1998 and maintaining a bank line
of credit of $1,000,000 (see Note 7). Management believes that these plans are
sufficient to allow the Company to adequately fund its operations through at
least December 31, 1999. In the event that additional funds are required, the
majority owners have committed to provide such funding.
The Agreement
Under terms of the Agreement, expiring July 31, 2025, profits are to be
allocated to all members pro-rata in accordance with each member's sharing ratio
(as defined). Losses are allocated approximately 98 percent to Huxtable's
Comestibles, Inc. and approximately two percent to the other members in total
(as defined). In addition, the preferred members are entitled to an annual
cumulative preferred return equal to seven percent of their unreturned capital
contributions, totaling approximately $408,000 and $382,000 for the years ended
December 31, 1998 and 1997, respectively. As a result of the Company not having
positive operating cash flows for both years, the preferred return is classified
as long-term in the accompanying balance sheet.
F-80
<PAGE> 127
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998 and 1997
NOTE 1 - ORGANIZATION, BUSINESS AND LIQUIDITY, continued
Members may not assign, sell, or transfer their membership interests without the
consent of a majority of the other members. Also, one of the regular members
(Huxtable's Comestibles, Inc.) is required to offer to sell its membership
interest in the Company to the preferred members if certain key employees' (who
are the majority shareholders of Huxtable's Comestibles, Inc.) employment with
the Company is terminated for any reason.
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 reporting period.
Actual results could differ from those estimates.
Inventories
Inventories consist primarily of food and related packaging products and are
stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets or
lease terms, ranging from three to ten years. Maintenance and repairs are
charged to expense as incurred. Significant renewals and betterments are
capitalized. At the time of retirement or other disposition of property and
equipment, the cost and accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in operations.
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 then measured based on fair value and is charged to operations in the
period in which such impairment is determined by management. As of December 31,
1998 the Company's management believes that no impairment of the carrying value
of its property and equipment exists.
F-81
<PAGE> 128
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Organization Costs
Organization costs represent the costs incurred to set up the Company and
prepare the Agreement and were being amortized on a straight-line basis over
five years.
During 1997, the Company adopted Statement of Position 98-5, "Reporting on the
Costs of Start-up Activities." The cumulative effect of adopting this statement,
which requires costs of start-up activities to be expensed as incurred, was a
write off of $34,000 of previously capitalized organization costs.
Concentrations of Risk
The Company maintains cash balances at financial institutions that are secured
by the Federal Deposit Insurance Corporation up to $100,000. The Company had in
aggregate approximately $247,000 of uninsured balances at December 31, 1998.
A substantial portion of the customers' ability to pay their receivables is
dependent on the strength of the supermarket industry. Receivables are unsecured
and the Company is at risk to the extent such amounts become uncollectible.
The Company's three largest and four largest customers represent approximately
59 percent and 55 percent of net sales for the years ended December 31, 1998 and
1997, respectively, and 64 percent of December 31, 1998 accounts receivable.
Revenue Recognition
Revenues are recorded when products are shipped.
Income Taxes
The members intend that the Company be classified as a partnership for Federal
and California State tax purposes. As a result, no taxes are paid at the Company
level or reflected in the Company's financial statements except for the $800
minimum tax in California. The tax returns, the qualification of the Company as
a limited liability company for tax purposes and the amount of allocable income
or loss are subject to examination by federal and state taxing authorities. If
such examinations were to result in changes to allocable Company income or loss,
the tax liability of the members could be changed accordingly. No such
examinations are currently pending.
F-82
<PAGE> 129
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (SFAS No. 123) encourages, but does not require, companies to
record compensation cost for grants of equity instruments to employees at fair
value. The Company has chosen to continue to account for these grants using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25
(see Note 3). Accordingly, compensation cost for warrants issued to employees is
measured as the excess, if any, of the estimated fair value of the warrants at
the date of grant over the amount the employee must pay to acquire the equity
interest. Beginning in 1996, grants of equity instruments to non-employees are
accounted for using SFAS No. 123.
Statements of Cash Flows
For the purposes of the statements of cash flows, the Company considers all
highly liquid investments with an original maturity date of 90 days or less to
be cash.
Reclassifications
Certain 1997 amounts have been reclassified to conform to the 1998 presentation.
NOTE 3 - RELATED PARTY TRANSACTIONS
Members' Notes Payable
During 1998 and 1997, all members' notes and accrued interest payable were
converted to members' capital as described in Note 9 below. Accrued interest on
these notes was approximately $30,000 in 1998.
Warrants
The Company has a management warrant pool pursuant to which officers, employees,
consultants and other advisors may be granted warrants to acquire up to an
aggregate of 13.67 percent of the Company at a price of $45,000 per one percent
of the Company. At December 31, 1998, the Company has 1.287 percent warrant pool
available for future grants.
F-83
<PAGE> 130
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998 and 1997
NOTE 3 - RELATED PARTY TRANSACTIONS, continued
Notes and Accrued Interest Receivable from Related Parties
Notes and accrued interest receivable from related parties consist of the
following at December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Notes receivable from officers of the
Company, due July 2000, bearing interest
at 9%, payable quarterly beginning
January 1998 $ 178,000
Note receivable from Huxtable's Comestibles,
Inc., due August 1996, bearing interest at
8% through August 1996 with default interest
at 18% on the principal and accrued interest
balance as of August 1996 thereafter until
the note is paid 105,000
Accrued interest 28,000
-----------
$ 311,000
===========
</TABLE>
Beginning January 1, 1997, the Company stopped accruing interest on these notes.
These amounts are included as a reduction of members' capital on the
accompanying balance sheets.
NOTE 4 - PROPERTY AND EQUIPMENT
As of December 31, 1998 property and equipment consisted of the following:
<TABLE>
<S> <C>
Machinery and equipment $ 1,210,000
Computer equipment and furniture 206,000
Transportation equipment 66,000
Leasehold improvements 1,026,000
-----------
2,508,000
Less accumulated depreciation and amortization (1,051,000)
-----------
$ 1,457,000
===========
</TABLE>
F-84
<PAGE> 131
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998 and 1997
NOTE 5 - LONG-TERM DEBT
At December 31, 1998 long-term debt consisted of the following:
<TABLE>
<S> <C>
Promissory note payable to a shareholder
of Huxtable's Comestibles, Inc., due in
varying monthly principal installments
plus interest at 11% through February 2000,
guaranteed by certain Company officers $ 157,000
Promissory note payable to a vendor, bearing
interest at prime plus 0.25%, due in monthly
installments of principal and interest
ranging from $5,000 and $6,000 through May
2001, guaranteed by certain Company officers 129,000
Other 31,000
-----------
317,000
Less current position (177,000)
-----------
$ 140,000
===========
</TABLE>
Future principal maturities of long-term debt as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Years Ending
December 31
------------
<S> <C>
1999 $ 177,000
2000 103,000
2001 33,000
2002 4,000
-----------
$ 317,000
===========
</TABLE>
NOTE 6 - OBLIGATIONS UNDER CAPITAL LEASES
The Company is a lessee of certain property and equipment under capital leases
that expire through May 2003 (see Note 4). Terms of the leases call for monthly
payments ranging from $355 to $2,460. The assets and liabilities under capital
leases are recorded at the lower of the present value of the minimum lease
payments or the fair market value of the related assets. The assets are
depreciated over their estimated useful lives.
F-85
<PAGE> 132
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998 and 1997
NOTE 6 - OBLIGATIONS UNDER CAPITAL LEASES, continued
Future minimum lease payments under capital leases are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31
-----------
<S> <C>
1999 $ 147,000
2000 59,000
2001 28,000
2002 28,000
2003 12,000
-----------
274,000
Less amounts representing interest (51,000)
-----------
Present value of minimum capital lease payments 223,000
Less current portion (123,000)
-----------
$ 100,000
===========
</TABLE>
The following is an analysis of the leased equipment under capital leases as of
December 31, 1998, which is included in property and equipment (see Note 4).
<TABLE>
<S> <C>
Machinery and equipment $ 793,000
Less accumulated depreciation (426,000)
-----------
$ 367,000
===========
</TABLE>
NOTE 7 - LINES OF CREDIT
The Company has a $1,000,000 revolving line of credit with a bank which expires
on October 2, 1999. Interest on the borrowings is payable monthly at the bank's
prime rate (prime rate was 7.75% at December 31, 1998) plus 1%. Under the terms
of the agreement, the Company may borrow up to 80% of eligible accounts
receivable, as defined. At December 31, 1998, the Company had no outstanding
advances under this agreement. All members' notes payable are subordinated to
these borrowings.
F-86
<PAGE> 133
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998 and 1997
NOTE 7 - LINES OF CREDIT, continued
The credit agreement contains various financial covenants. At December 31, 1998,
the Company was in compliance with these covenants.
The Company also has overdraft agreements with another bank totaling $85,000. At
December 31, 1998, the Company had no outstanding advances under these
agreements.
NOTE 8 - LEASE COMMITMENTS
The Company leases certain property and equipment under operating lease
agreements. The leases expire at various dates through 2004 and provide for
monthly payments ranging from $300 to $23,000. The main production facility
lease payments are guaranteed by certain officers of the Company.
The future minimum aggregate lease payments under operating lease agreements
with an initial or noncancelable term of more than one year at December 31, 1998
are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31
------------
<S> <C>
1999 $ 378,000
2000 344,000
2001 351,000
2002 359,000
2003 357,000
2004 304,000
------------
$ 2,093,000
============
</TABLE>
For the years ended December 31, 1998 amd 1997, rent expense was approximately
$380,000 each year.
NOTE 9 - MEMBERS' CAPITAL
In January 1997, Austin Yellowstone (the former majority owner) exercised its
warrant for a 41.026 percent preferred sharing ratio in exchange for the
forgiveness of $1,600,000 in debt. Also in January 1997, Austin Yellowstone
converted $1,060,000 of debt and accrued interest into members' capital for a
preferred sharing ratio of 19.069 percent. During 1997, Austin Yellowstone and a
related entity dissolved. Various individuals and entities were assigned their
preferred member interests.
F-87
<PAGE> 134
HUXTABLE'S FOODS, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998 and 1997
NOTE 9 - MEMBERS' CAPITAL, continued
The Company accepted the surrender of all remaining outstanding warrants in
January 1997 in return for regular and preferred sharing ratios totaling 4.405
and 2.8 percent, respectively. All of the preferred sharing ratio grants and 0.8
percent of the regular sharing ratio grants vested immediately, with the
remaining two percent of the regular sharing ratio grants vesting ratably over
36 months. No associated capital contribution was required for these sharing
ratios. Based on an estimate of fair value as determined by management,
$203,000 was recorded as compensation expense as a result of granting these
preferred sharing ratios.
In January 1997, the Company issued a 10 percent regular sharing ratio, of which
20 percent vested immediately and 80 percent vests ratably over 48 months, to an
officer of the Company without an associated contribution to capital. This
sharing ratio cannot be diluted until certain conditions are met. There was no
compensation expense recorded in connection with the award of the sharing ratio,
as the fair value of the sharing ratio, based on management's estimate, at the
date of grant was zero. The Company also agreed to pay this officer $100,000 if
certain conditions are met in the future.
Between February and April 1997, the Company received $865,000 in additional
contributions from existing preferred members for a sharing ratio of 11.476
percent.
During July 1997, certain preferred members made loans to the Company totaling
$150,000. Effective July 31, 1997, these loans were converted to members'
capital for a preferred sharing ratio of 1.951 percent.
During November 1997, the Company awarded regular sharing ratios totaling 4.783
percent to three employees. These awards did not require a capital contribution
and vest ratably over 36 months. There was no compensation expense recorded in
connection with the award of these, sharing ratios, as the fair value of the
sharing ratio, based on management's estimate, at the date of grant was zero.
During March 1998, certain preferred members made loans to the company totaling
$480,000. Effective December 1998, these loans and related accrued interest were
converted to members' capital for a preferred sharing ratio of 5.849 percent.
F-88
<PAGE> 135
HUXTABLE'S FOODS, L.L.C.
BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
(UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
----------- -----------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 237,000 $ 118,000
Accounts receivable 862,000 999,000
Inventory 943,000 919,000
Prepaid expenses and other current assets 48,000 93,000
----------- -----------
Total current assets 2,090,000 2,129,000
Property and equipment, net 1,243,000 1,430,000
Other assets 24,000 27,000
----------- -----------
$ 3,357,000 $ 3,586,000
=========== ===========
LIABILITIES AND MEMBERS' CAPITAL (DEFICIENCY)
Current liabilities
Bank loans $ 900,000 $ 600,000
Accounts payable and accrued liabilities 1,121,000 1,027,000
Current portion of long term debt 190,000 168,000
Current portion of lease obligations 59,000 37,000
----------- -----------
Total current liabilities 2,270,000 1,832,000
Long-term liabilities
Accrued preferred return 1,530,000 896,000
Long-term debt, net of current portion 45,000 193,000
Obligations under capital lease, net of current
portion 58,000 117,000
----------- -----------
Total long-term liabilities 1,633,000 1,206,000
----------- -----------
Members' capital (deficiency)
Members' accounts (235,000) 859,000
Notes and accrued interest receivable from
related parties (311,000) (311,000)
----------- -----------
Total members' capital (deficiency) (546,000) 548,000
----------- -----------
$ 3,357,000 $ 3,586,000
=========== ===========
</TABLE>
F-89
<PAGE> 136
HUXTABLE'S FOODS, L.L.C.
INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUE $ 7,436,000 $ 7,657,000
----------- -----------
OPERATING EXPENSES
Cost of goods sold 5,734,000 5,820,000
Selling expenses 959,000 890,000
Research and development 211,000 228,000
Administrative expenses 1,226,000 1,321,000
----------- -----------
8,132,000 8,259,000
----------- -----------
LOSS FROM OPERATIONS (694,000) (602,000)
OTHER INCOME (EXPENSE)
Interest income -- 3,000
Interest expense (78,000) (82,000)
----------- -----------
(78,000) (79,000)
----------- -----------
NET LOSS $ (772,000) $ (681,000)
=========== ===========
</TABLE>
F-90
<PAGE> 137
HUXTABLE'S FOODS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(772,000) $(681,000)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 235,000 253,000
Changes in operating assets and liabilities:
Accounts receivable (296,000) (219,000)
Inventory (254,000) (229,000)
Prepaid expenses and other current assets (8,000) 28,000
Accounts payable and accrued liabilities 375,000 67,000
--------- ---------
Net cash used in operating activities (720,000) (781,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITY:
Purchases of property and equipment (21,000) (13,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to members 193,000 480,000
Payments on long-term debt (82,000) (100,000)
Payments on obligations under capital leases (106,000) (84,000)
Proceeds from bank loans 900,000 600,000
--------- ---------
Net cash provided by financing activities 905,000 896,000
--------- ---------
NET CHANGE IN CASH 164,000 102,000
CASH, BEGINNING OF PERIOD 73,000 16,000
--------- ---------
CASH, END OF PERIOD $ 237,000 $ 118,000
========= =========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
--------- ---------
Interest $ 78,000 $ 82,000
========= =========
income taxes $ 800 $ 800
========= =========
Supplemental disclosure of non-cash investing and financing activities:
During the periods ended September 30, 1999 and 1998, the Company
converted notes payable to members and accrued interest of $198,000
and $485,000 to members capital, respectively.
</TABLE>
F-91
<PAGE> 138
HUXTABLE'S FOODS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(UNITED STATES DOLLARS)
1. ORGANIZATION, BUSINESS AND LIQUIDITY
Organization and Business
Huxtable's Foods, L.L.C. (the Company), a Delaware limited liability
company, was established on May 30, 1995. Under the Limited Liability
Agreement (the "Agreement"), the Company is owned by preferred members
and regular members.
The Company processes and assembles gourmet sauces, meal replacement
foods and holiday food packages for distribution to retail stores and
supermarket commissaries, principally in the western United States.
Liquidity and Risks
The Company had losses of $772,000 and $681,000 for the nine-month
periods ended December 31, 1999 and 1998, respectively.
The Company's ability to continue in existence is dependent on, among
other factors, the Company's ability to general adequate cash flows from
operations and from debt or equity financing to fund its operations and
repay its obligations. The Company has addressed the negative trend
mentioned above by focusing its efforts on its core profitable product
lines, obtaining debt financing from existing members in 1998 and 1999
and maintaining a bank line of credit of $1,000,000. Management believes
that these plans are sufficient to allow the Company to adequately fund
its operations through at least December 31, 1999. In the event that
additional funds are required, the majority owners have committed to
provide such funding.
The Agreement
Under terms of the Agreement, expiring July 31, 2025, profits are to be
allocated to all members pro-rata in accordance with each member sharing
ratio (as defined). Losses are allocated approximately 98% to Huxtable's
Comestibles, Inc. and approximately two percent to the other members in
total (as defined). In addition, the preferred members are entitled to an
annual cumulative preferred return equal to seven percent of their
unreturned capital contributions. As a result of the Company not having
positive operating cash flows for both years, the preferred return is
classified as long-term in the accompanying balance sheets.
F-92
<PAGE> 139
HUXTABLE'S FOODS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(UNITED STATES DOLLARS)
1. ORGANIZATION, BUSINESS AND LIQUIDITY (CONTINUED)
Members may not assign, sell, or transfer their membership interests
without the consent of a majority of the other members. Also, one of the
regular members (Huxtables' Comestibles, Inc.) is required to offer to
sell its membership interest in the Company to the preferred members if
certain key employees' (who are the majority shareholders of Huxtable's
Comestibles, Inc.) employment with the Company is terminated for any
reason.
2. SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements presented reflects all
adjustments (including normal recurring adjustments) which are, in the
opinion of management, necessary to produce a fair statement of the
financial position and results of operations for the periods included in
this report.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INVENTORIES
Inventories consist primarily of food and related packaging products and
are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related
asssets or lease terms, ranging from three to ten years. Maintenance and
repairs are charged to expense as incurred. Significant renewals and
betterments are capitalized. At the time of retirement or other
disposition of property and equipment, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss
is reflected in operations.
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 then measured based on fair value and
is charged to operations in the period in which such an impairment is
determined by management. As of December 31, 1998, the Company's
management believes that no impairment of the carrying value of its
property and equipment exists.
F-93
<PAGE> 140
HUXTABLE'S FOODS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ORGANIZATION COSTS
Organization costs represent the costs incurred to set up the Company and
prepare the Agreement and were being amortized on straight-line basis
over five years.
During 1997, the Company adopted Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities." The cumulative effect of adopting
this statement, which requires cots of start-up activities to be expensed
as incurred, was a write-off of $34,000 of previously capitalized
organization costs.
CONCENTRATIONS OF RISK
The Company maintains cash balances as financial institutions that are
secured by the Federal Deposit Insurance Corporation up to $100,000. The
Company had in aggregate approximately $247,000 of uninsured balances at
December 31, 1998.
A substantial portion of the customers' ability to pay their receivables
is dependent on the strength of the supermarket industry. Receivables are
unsecured and the Company is at risk to the extent such amounts become
uncollectible.
The Company's three largest and four largest customers represent
approximately 59 percent and 55 percent on net sales for the years ended
December 31, 1998 and 1997, respectively, and 64 percent and 46 percent
of December 31, 1998 and 1997 accounts receivable, respectively.
REVENUE RECOGNITION
Revenues are recorded when products are shipped.
INCOME TAXES
The members intend that the Company be classified as partnership for
Federal and California State tax purposes. As a result, no taxes are paid
at the Company level or reflected in the Company's financial statements
except for the $800 minimum tax in California. The tax returns, the
qualification of the Company as a limited liability company for tax
purposes and the amount of allocable income or loss are subject to
examination by federal and state taxing authorities. If such examinations
were to result in changes to allocable Company income or loss, the tax
liability of the members could be changed accordingly. No such
examinations are currently pending.
F-94
<PAGE> 141
HUXTABLE'S FOODS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(UNITED STATES DOLLARS)
STATEMENTS OF CASH FLOWS
For the purposes of the statements of cash flows, the Company considers
all highly liquid investments which an original maturity date of 90 days
or less to be cash.
3. PROPERTY AND EQUIPMENT
As of September 30, 1999 and 1998, property and equipment consisted of
the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Machinery and equipment $1,231,000 $1,089,000
Computer equipment and furniture 206,000 202,000
Transportation equipment 66,000 61,000
Leasehold improvements 1,026,143 1,026,000
---------- ----------
2,529,000 2,378,000
Less accumulated depreciation and amortization (1,286,000) (948,000)
---------- ----------
Net book value $1,243,000 $1,430,000
========== ==========
</TABLE>
F-95
<PAGE> 142
HUXTABLE'S FOODS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(UNITED STATES DOLLARS)
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Promissory note payable to shareholder of
Huxtable's Comestibles, Inc., due in varying
monthly principal installments plus interest
at 11% through February 2000, guaranteed by
certain Company officers $ 75,000 $ 175,000
Promissory note payable to a vendor, bearing
interest at prime plus 0.25%, due in monthly
installments of principal and interest
ranging from $5,000 and $6,000 through May 2001,
guaranteed by certain Company Officers 129,000 141,000
Other 31,000 45,000
---------- ----------
235,000 361,000
Less current portion (190,000) (168,000)
---------- ----------
$ 45,000 $ 193,000
========== ==========
</TABLE>
5. SUBSEQUENT EVENT
On November 12, 1999 substantially all of the Company's assets and liabilities
were acquired by Huxtable's Kitchens Inc., a subsidiary of International Menu
Solutions Corporation.
F-96
<PAGE> 143
INTERNATIONAL MENU SOLUTIONS CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
CANADIAN DOLLARS
<TABLE>
<CAPTION>
- - ------------------------------------------------ -----------------------------------------------------------------------------
Historical
International Menu Historical
Solutions Huxtables Foods,
Corporation ("IMSC") L.L.C. ("Huxtables") Pro forma
September 30, 1999 September 30, 1999 Adjustments
(unaudited) (unaudited) (unaudited) Note
--------------------- -------------------- --------------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,262,000 $ 348,000 $ 6,600,000 3 b)
(4,528,000) 2 (v)
Accounts receivable 4,182,000 1,267,000 -
Inventory 6,143,000 1,386,000 -
Prepaid expenses and other current assets 1,690,000 69,000 -
- - ----------------------------------------------------------------------- ---------------- ---------------
16,277,000 3,070,000 2,072,000
CAPITAL ASSETS, NET 11,199,000 1,827,000 -
INTANGIBLE ASSETS, NET 19,710,000 - 1,850,000 2 (v)
- - ----------------------------------------------------------------------- ---------------- ---------------
$ 47,186,000 $ 4,897,000 $ 3,922,000
======================================================================= ================ ===============
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 8,902,000 $ 1,323,000 $ (1,323,000) 2 (v)
Accounts payable 3,343,000 1,103,000 -
Accrued liabilities 1,247,000 544,000 400,000 2 (v)
Current portion of capital lease obligations 326,000 - -
Current portion of long-term debt 697,000 - -
- - ----------------------------------------------------------------------- ---------------- ---------------
14,515,000 2,970,000 (923,000)
CAPITAL LEASE OBLIGATIONS 1,141,000 172,000
LONG-TERM DEBT 3,014,000 309,000 (309,000) 2 (v)
DUE TO STOCKHOLDERS - 1,793,000 (1,793,000) 2 (v)
CONVERTIBLE DEBENTURES ISSUED BY SUBSIDIARY 4,000,000 -
DEFERRED INCOME TAXES 610,000 -
- - ----------------------------------------------------------------------- ---------------- ---------------
23,280,000 5,244,000 (3,025,000)
- - ----------------------------------------------------------------------- ---------------- ---------------
MINORITY INTEREST 11,701,000 - -
- - ----------------------------------------------------------------------- ---------------- ---------------
STOCKHOLDERS' EQUITY
Capital stock 19,000 -
Additional paid-in capital 15,114,000 10,784,000 (10,784,000) 2 (v)
6,600,000 3 b)
Retained earnings (deficit) (2,928,000) (11,131,000) 11,131,000 2 (v)
- - ----------------------------------------------------------------------- ---------------- ---------------
12,205,000 (347,000) 6,947,000
- - ----------------------------------------------------------------------- ---------------- ---------------
$ 47,186,000 $ 4,897,000 $ 3,922,000
======================================================================= ================ ===============
<CAPTION>
- - ------------------------------------------------------------------------
Pro forma
IMSC Consolidated
September 30, 1999
(unaudited)
------------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,682,000
Accounts receivable 5,449,000
Inventory 7,529,000
Prepaid expenses and other current assets 1,759,000
- - -------------------------------------------------- -----------------
21,419,000
CAPITAL ASSETS, NET 13,026,000
INTANGIBLE ASSETS, NET 21,560,000
- - -------------------------------------------------- -----------------
$ 56,005,000
================================================== =================
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 8,902,000
Accounts payable 4,446,000
Accrued liabilities 2,191,000
Current portion of capital lease obligations 326,000
Current portion of long-term debt 697,000
- - -------------------------------------------------- -----------------
16,562,000
CAPITAL LEASE OBLIGATIONS 1,313,000
-
LONG-TERM DEBT 3,014,000
-
DUE TO STOCKHOLDERS -
CONVERTIBLE DEBENTURES ISSUED BY SUBSIDIARY 4,000,000
DEFERRED INCOME TAXES 610,000
-
- - -------------------------------------------------- -----------------
25,499,000
- - -------------------------------------------------- -----------------
-
MINORITY INTEREST 11,701,000
- - -------------------------------------------------- -----------------
STOCKHOLDERS' EQUITY
Capital stock 19,000
Additional paid-in capital
21,714,000
Retained earnings (deficit) (2,928,000)
- - -------------------------------------------------- -----------------
18,805,000
- - -------------------------------------------------- -----------------
$ 56,005,000
================================================== =================
</TABLE>
F-97
<PAGE> 144
INTERNATIONAL MENU SOLUTIONS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
CANADIAN DOLLARS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------
Historical
International
Menu
Solutions Historical Historical Historical
Corporation Tasty Selections DC Food Processing Huxtable's Foods
("IMSC") Inc. ("Tasty") Inc. ("DC") L.L.C. ("Huxtables")
Nine months ended January 1, 1999 to December 6, 1998 to Nine months ended
September 30, 1999 date of acquisition date of acquisition September 30, 1999
(unaudited) (unaudited) (unaudited) (unaudited)
------------------ ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
REVENUE $ 21,680,000 $ 1,344,000 $ 7,496,000 $ 11,040,000
- - ------------------------------------------------------------- ------------- -------------- --------------
COSTS AND EXPENSES
Cost of goods sold 18,783,000 1,015,000 6,771,000 8,513,000
Selling expenses 1,327,000 97,000 49,000 1,424,000
Research and development 371,000 - - 313,000
Administrative expenses 3,611,000 79,000 143,000 1,822,000
Amortization of intangibles 328,000 - 2,000 -
- - ------------------------------------------------------------- ------------- -------------- --------------
(24,420,000) (1,191,000) (6,965,000) (12,072,000)
- - ------------------------------------------------------------- ------------- -------------- --------------
INCOME(LOSS) FROM OPERATIONS (2,740,000) 153,000 531,000 (1,032,000)
- - ------------------------------------------------------------- ------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest revenue 30,000 - - -
Interest expense (573,000) (34,000) (68,000) (116,000)
- - ------------------------------------------------------------- ------------- -------------- --------------
(543,000) (34,000) (68,000) (116,000)
- - ------------------------------------------------------------- ------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (3,283,000) 119,000 463,000 (1,148,000)
INCOME TAXES 169,400 (33,000) (162,000) -
- - ------------------------------------------------------------- ------------- -------------- --------------
NET INCOME (LOSS) (3,113,600) 86,000 301,000 (1,148,000)
MINORITY INTEREST 789,000 - - -
- - ------------------------------------------------------------- ------------- -------------- --------------
NET INCOME (LOSS) $ (2,324,600) $ 86,000 $ 301,000 $ (1,148,000)
============================================================= ============= ============== ==============
LOSS PER SHARE - DILUTED AND BASIC $ (0.22)
================================================================================================================================
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES 10,590,387 - - -
================================================================================================================================
<CAPTION>
- - ---------------------------------------------------------------------------------------
Pro Forma
IMSC Consolidated
Nine-months
ended
Pro Forma September 30, 1999
Adjustments Note (unaudited)
----------- ---- ------------------
<S> <C> <C> <C>
REVENUE $ - $ 41,560,000
- - -------------------------------------------- ----------- --------------
COSTS AND EXPENSES
Cost of goods sold - 35,082,000
Selling expenses - 2,897,000
Research and development - 684,000
Administrative expenses - 5,655,000
Amortization of intangibles 220,000 4 550,000
- - -------------------------------------------- ----------- --------------
(220,000) (44,868,000)
- - -------------------------------------------- ----------- --------------
INCOME(LOSS) FROM OPERATIONS (220,000) (3,308,000)
- - -------------------------------------------- ----------- --------------
OTHER INCOME (EXPENSE)
Interest revenue - 30,000
Interest expense (210,000) 3 a) (1,001,000)
- - -------------------------------------------- ----------- --------------
(210,000) (971,000)
- - -------------------------------------------- ----------- --------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (430,000) (4,279,000)
INCOME TAXES - (25,600)
- - -------------------------------------------- ----------- --------------
NET INCOME (LOSS) (430,000) (4,304,600)
MINORITY INTEREST (97,000) 5 692,000
- - -------------------------------------------- ----------- --------------
NET INCOME (LOSS) $ (527,000) $ (3,612,600)
============================================ =========== ==============
LOSS PER SHARE - DILUTED AND BASIC $ (0.31)
======================================================== ==============
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES 1,178,494 2 11,768,881
======================================================== ==============
</TABLE>
F-98
<PAGE> 145
INTERNATIONAL MENU SOLUTIONS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
CANADIAN DOLLARS
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Historical Historical
International Historical Transcontinental Historical Historical
Menu Solutions Pasta Gourmet Tasty DC Food
Corporation Kitchens Foods Batters Processing
("IMSC") ("Pasta") ("TGF") ("Tasty") Inc. ("DC")
Nine months Nine months Nine months Nine months Nine months
ended ended ended ended ended
September 30, September 30, September 30, September 30, September 7,
1998 1998 1998 1998 1998
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
--------------- -------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 2,170,000 $ 695,000 $ 1,790,000 $ 3,512,000 $ 12,803,000
- - --------------------------------------------------- -------------- -------------- --------------- ----------------
COSTS AND EXPENSES
Cost of goods sold 1,933,000 418,000 1,157,000 2,743,000 11,468,000
Selling expenses 132,000 84,000 287,000 255,000 86,000
Research and development 103,000 - - - -
Administrative expenses 322,000 198,000 361,000 340,000 563,000
Amortization of intangibles 10,000 - - - 4,000
- - ---------------------------------------------------- ------------- -------------- --------------- ----------------
2,500,000 700,000 1,805,000 3,338,000 12,121,000
- - ---------------------------------------------------- ------------- -------------- --------------- ----------------
INCOME(LOSS) FROM OPERATIONS (330,000) (5,000) (15,000) 174,000 682,000
- - ---------------------------------------------------- ------------- -------------- --------------- ----------------
OTHER INCOME (EXPENSE)
Interest revenue 18,000 - - - -
Interest expense (64,000) (13,000) (79,000) (82,000) (94,000)
- - ---------------------------------------------------- ------------- -------------- --------------- ----------------
(46,000) (13,000) (79,000) (82,000) (94,000)
- - ---------------------------------------------------- ------------- -------------- --------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (376,000) (18,000) (94,000) 92,000 588,000
INCOME TAXES - 6,000 33,000 (32,000) (206,000)
- - ---------------------------------------------------- ------------- -------------- --------------- ----------------
NET INCOME (LOSS) (376,000) (12,000) (61,000) 60,000 382,000
MINORITY INTEREST - - - - -
- - ---------------------------------------------------- ------------- -------------- --------------- ----------------
NET INCOME (LOSS) $ (376,000) $ (12,000) $ (61,000) $ 60,000 $ 382,000
==================================================== ============= ============== =============== ================
LOSS PER SHARE - DILUTED AND BASIC $ (0.07)
==================================================== ============= ============== =============== ================
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES 5,691,889 - - - -
==================================================== ============= ============== =============== ================
<CAPTION>
- - -------------------------------------------------------------------------------------------
Historical
Huxtable's Pro Forma
Foods L.L.C. IMSC
("Huxtables") Consolidated
Nine months Nine months
ended ended
September 30, September 30,
1998 Pro Forma 1998
(unaudited) Adjustments Note (unaudited)
--------------- ------------- ---------------
<S> <C> <C> <C> <C>
REVENUE $ 11,360,000 $ - $ 32,330,000
- - --------------------------------------------------- ------------- ---------------
COSTS AND EXPENSES
Cost of goods sold 8,635,000 - 26,354,000
Selling expenses 1,320,000 - 2,164,000
Research and development 338,000 - 441,000
Administrative expenses 1,954,000 - 3,738,000
Amortization of intangibles - 507,000 4 521,000
- - --------------------------------------------------- ------------- ---------------
12,247,000 507,000 33,218,000
- - --------------------------------------------------- ------------- ---------------
INCOME(LOSS) FROM OPERATIONS (887,000) (507,000) (888,000)
- - --------------------------------------------------- ------------- ---------------
OTHER INCOME (EXPENSE)
Interest revenue - - 18,000
Interest expense (122,000) (210,000) 3a) (664,000)
- - --------------------------------------------------- ------------- ---------------
(122,000) (210,000) (646,000)
- - --------------------------------------------------- ------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (1,009,000) (717,000) (1,534,000)
INCOME TAXES - - (199,000)
- - --------------------------------------------------- ------------- ---------------
NET INCOME (LOSS) (1,009,000) (717,000) (1,733,000)
MINORITY INTEREST - 2,000 5 2,000
- - --------------------------------------------------- ------------- ---------------
NET INCOME (LOSS) $ (1,009,000) $ (715,000) $ (1,731,000)
=================================================== ============= ===============
LOSS PER SHARE - DILUTED AND BASIC $ (0.20)
=================================================== ============= ===============
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES - 2,859,893 2 8,551,782
=================================================== ============= ===============
</TABLE>
F-99
<PAGE> 146
INTERNATIONAL MENU SOLUTIONS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
CANADIAN DOLLARS
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
Historical Historical Historical
International Menu Pasta Kitchens Norbakco Ltd.
Solutions ("Pasta") ("Norbakco")
Corporation ("IMSC") Nine Months Ended Six months ended
Year ended September 30, 1998 November 30, 1998
December 31, 1998 (unaudited) (undaudited)
-------------------- -------------------- -----------------------
<S> <C> <C> <C>
REVENUE $ 6,096,000 $ 694,000 $ 1,976,000
- - -------------------------------------------------------------- -------------------- --------------------
COSTS AND EXPENSES
Cost of goods sold 4,730,000 418,000 1,762,000
Selling expenses 610,000 84,000 50,000
Research and development 426,000 - -
Administrative expenses 765,000 198,000 170,000
Amortization of intangibles 67,000 - -
- - --------------------------------------- -------------------- -------------------- --------------------
6,598,000 700,000 1,982,000
- - -------------------------------------------------------------- -------------------- --------------------
INCOME(LOSS) FROM OPERATIONS (502,000) (6,000) (6,000)
- - -------------------------------------------------------------- -------------------- --------------------
OTHER INCOME (EXPENSE)
Interest revenue 25,000 - -
Interest expense (98,000) 13,000 (20,000)
- - -------------------------------------------------------------- -------------------- --------------------
(73,000) 13,000 (20,000)
- - -------------------------------------------------------------- -------------------- --------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (575,000) 7,000 (26,000)
INCOME TAXES - - -
- - -------------------------------------------------------------- -------------------- --------------------
NET INCOME (LOSS) (575,000) 7,000 (26,000)
MINORITY INTEREST 26,000 - -
- - -------------------------------------------------------------- -------------------- --------------------
NET INCOME (LOSS) $ (549,000) $ 7,000 $ (26,000)
============================================================== ==================== ====================
LOSS PER SHARE - DILUTED AND BASIC $(0.09)
===========================================================================================================
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES 6,419,141 - -
===========================================================================================================
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
Historical
Transcontinental Historical Historical
Gourmet Foods Tasty Batters DC Food Processing
("TGF") ("Tasty") Inc. ("DC")
Eleven months ended Twelve months ended Twelve months ended
November 30, 1998 December 31, 1998 December 6, 1998
(unaudited) (unaudited) (unaudited)
--------------------- -------------------- -----------------------
<S> <C> <C> <C>
REVENUE $ 4,247,000 $ 5,574,000 $ 17,580,000 #
- - --------------------------------------------------------------- -------------------- ---------------------
COSTS AND EXPENSES
Cost of goods sold 2,825,000 4,287,000 15,979,000
Selling expenses 539,000 392,000 21,000
Research and development - - -
Administrative expenses 688,000 461,000 561,000
Amortization of intangibles - - 7,000
- - --------------------------------------------------------------- -------------------- ---------------------
4,052,000 5,140,000 16,568,000
- - --------------------------------------------------------------- -------------------- ---------------------
INCOME(LOSS) FROM OPERATIONS 195,000 434,000 1,012,000
- - --------------------------------------------------------------- -------------------- ---------------------
OTHER INCOME (EXPENSE)
Interest revenue - - -
Interest expense (117,000) (126,000) (117,000)
- - --------------------------------------------------------------- -------------------- ---------------------
(117,000) (126,000) (117,000)
- - --------------------------------------------------------------- -------------------- ---------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST 78,000 308,000 895,000
INCOME TAXES (29,000) (88,000) (289,000)
- - --------------------------------------------------------------- -------------------- ---------------------
NET INCOME (LOSS) 107,000 220,000 606,000
MINORITY INTEREST - - -
- - --------------------------------------------------------------- -------------------- ---------------------
NET INCOME (LOSS) $ 107,000 $ 220,000 $ 606,000
=============================================================== ==================== =====================
LOSS PER SHARE - DILUTED AND BASIC
============================================================================================================
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES - - -
============================================================================================================
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------
Historical
Huxtable's Foods Pro Forma
L.L.C. ("Huxtables") IMSC Consolidated
Twelve months ended Twelve months ended
December 31, 1998 Pro Forma December 31, 1998
(unaudited) Adjustments Note (Unaudited)
-------------------- --------------------- -------------- --------------------
<S> <C> <C> <C> <C>
REVENUE $ 18,254,000 $ - $54,421,000
- - -------------------------------------------------------------- --------------------- --------------------
COSTS AND EXPENSES
Cost of goods sold 15,129,000 - 45,130,000
Selling expenses 945,000 - 2,641,000
Research and development 450,000 - 876,000
Administrative expenses 2,389,000 - 5,232,000
Amortization of intangibles - 662,000 4 736,000
- - -------------------------------------------------------------- --------------------- --------------------
18,913,000 662,000 54,615,000
- - -------------------------------------------------------------- --------------------- --------------------
INCOME(LOSS) FROM OPERATIONS (659,000) (662,000) (194,000)
- - -------------------------------------------------------------- --------------------- --------------------
OTHER INCOME (EXPENSE)
Interest revenue 6,000 - 31,000
Interest expense (211,000) (280,000) 3a) (956,000)
- - -------------------------------------------------------------- --------------------- --------------------
(205,000) (280,000) (925,000)
- - -------------------------------------------------------------- --------------------- --------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (864,000) (942,000) (1,119,000)
INCOME TAXES - - (348,000)
- - -------------------------------------------------------------- --------------------- --------------------
NET INCOME (LOSS) (864,000) (942,000) (1,467,000)
MINORITY INTEREST - 115,000 5 141,000
- - -------------------------------------------------------------- --------------------- ----------------------
NET INCOME (LOSS) $(864,000) $ (827,000) $ (1,326,000)
============================================================== ===================== ======================
LOSS PER SHARE - DILUTED AND BASIC $ (0.13)
===================================================================================== ======================
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES - 3,858,543 2 10,277,684
===================================================================================== ======================
</TABLE>
F-100
<PAGE> 147
FOOTNOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying pro forma consolidated balance sheets as of September
30, 1999 and pro forma consolidated statements of operations for the
nine-month periods ended September 30, 1999 and 1998 and for the year
ended December 31, 1998 of International Menu Solutions Corporation
("IMSC") have been prepared to give effect to the business combinations
involving Pasta Kitchens ("Pasta"), Transcontinental Gourmet Foods Inc.
("Transcontinental"), Tasty Selections Inc. ("Tasty Selections"), 1005549
Ontario Limited ("D.C. Foods") and Huxtable's Kitchens, L.L.C.
("Huxtable's") and related transactions described elsewhere herein on the
basis of the assumptions described in Notes 2 to 4 below. The pro forma
consolidated balance sheet and pro forma consolidated statement of
operations of IMSC have been prepared from the following:
a) The audited consolidated financial statements of IMSC for the year
ended December 31, 1998 and the unaudited consolidated financial
statements of IMSC for the nine-month periods ending September 30,
1999 and 1998;
b) The unaudited financial statements of Pasta for the nine-month
period ended September 30, 1998;
c) The unaudited financial statements of TGF for the eleven-month
period ended November 30, 1998; and for the nine-month period
ended September 30, 1998;
d) The unaudited financial statements of Tasty for the year ended
December 31, 1998; for the four-month period ended March 31, 1999
and for the nine-month period ended September 30, 1998; and
e) The audited consolidated financial statements of D.C. Foods for
the year ended December 6, 1998 and the unaudited consolidated
financial statements for the period from December 7, 1998 to April
30, 1999 and for the nine month period ended September 6, 1998;
and
f) The audited financial statements of Huxtable's for the year ended
December 31, 1998 and the unaudited financial statements of
Huxtable's for the nine-month periods ending September 30, 1999
and 1998. The statements of operations for Huxtable's which were
originally stated in US dollars were translated to Canadian
dollars at the average exchange rate prevailing during the
respective periods. The average exchange rates used were 1.4837,
1.4836 and 1.4847 for the year ended December 31, 1998, the nine
month-period ended September 30, 1998 and the nine-month period
ended September 30, 1999, respectively. The balance sheet of
Huxtable's as of September 30, 1999 was translated at the exchange
rate of 1.4699.
The pro forma consolidated balance sheet and pro forma consolidated
statement of operations are not intended to reflect the financial
position of IMSC which would have actually resulted had the combination,
related transactions and other pro forma adjustments been effected on the
dates indicated. Further, the pro forma financial information is not
necessarily indicative of the financial position that may prevail in the
future.
F-101
<PAGE> 148
2. PRO FORMA ASSUMPTIONS RELATING TO ACQUISITIONS
During the year ended December 31, 1998, the Company acquired the
businesses, set out in the table below, which have been accounted for
using the purchase method:
<TABLE>
<CAPTION>
Pasta Kitchen (i) TGF/Norbakco (ii) Tasty (iii) D.C. Foods (iv) Huxtable's (v)
----------------- ----------------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
Purchase price including
acquisition costs $ 395,000 $ 5,290,000 $ 2,235,000 $ 15,725,000 $ 4,828,000
Assigned fair values
of net assets acquired
Current assets 105,000 2,922,000 1,278,000 1,857,000 3,070,000
Capital assets 200,000 2,223,000 502,000 3,391,000 1,827,000
Current liabilities (146,000) (2,818,000) (558,000) (1,558,000) (1,647,000)
Long-term liabilities - (1,199,000) (621,000) (1,680,000) (172,000)
- - ------------------------------------------------------------------------------------------------------------------------------
159,000 1,128,000 601,000 2,010,000 3,078,000
- - ------------------------------------------------------------------------------------------------------------------------------
Intangible assets acquired $ 236,000 $ 4,072,000 $ 1,634,000 $ 13,715,000 $ 1,750,000
==============================================================================================================================
</TABLE>
(i) The Company acquired the assets of Pasta Kitchen for cash
consideration of approximately $375,000. Additional consideration,
currently estimated at $340,000, is payable, at the option of the
Company, in cash or common shares during 1999 based on the
achievement of certain revenue targets. Due to the contingent
nature of the additional consideration, its value will be recorded
as additional purchase price when the conditions are resolved. As
of October 31, 1999, the conditions were not resolved.
(ii) The Company acquired all of the outstanding shares of TGF and 59%
of the outstanding shares of Norbakco Ltd. ("Norbakco"), a sister
corporation of TGF. Cash consideration of $1,000,000 was paid to
the vendors on closing. Of this amount, $860,000 was allocated to
TGF and $140,000 was used to purchase notes payable to the former
shareholders of Norbakco. An additional cash payment of estimated
at approximately $582,000 is payable during 1999 based on the net
book value of TGF in excess of $1,000,000 ($550,000 has been paid
to date). The balance of the purchase price was satisfied by the
issue to the selling shareholders of three classes of shares of
stock of IMSI: 300,000 Class B shares, 100,000 Class C shares and
59,000 Class D shares, all of which were issued on December 1,
1998. Such shares are exchangeable for shares of the common stock
of the Company in accordance with formulas contained in the share
attributes for the Class B shares, the Class C shares and the
Class D shares, respectively. The value of $3,400,000 assigned to
the exchangeable shares was determined based on a valuation
performed by an investment banking firm. Acquisition costs of the
acquisition totalled approximately $110,000.
On May 17, 1999, the Company acquired, through IMSI, the remaining
41% equity interest in Norbakco. The consideration paid for the
purchased shares was 53,000 Class X shares of IMSI and 53,000
Class N shares of the Company, and the purchase by IMSI of
shareholder loans made to Norbakco in the aggregate amount of
$180,000. As part of the issue of the 53,000 Class X shares and
the 53,000 Class N shares, IMSI and the Transcontinental
shareholders agreed to reduce the number of shares of common stock
of the Company that the 300,000 Class B shares may be exchanged
for by 53,000 shares. As a result of this transaction, the
purchase price of TGF/Norbakco increased by $180,000 and the
Company owned 100% of the shares of both companies acquired.
F-102
<PAGE> 149
(iii) The Company acquired all of the outstanding shares of Tasty for
initial consideration of valued at $2,160,000. Cash of $1,000,000
was paid and 442,750 Class X exchangeable shares of IMSI and
442,750 Class N shares of the Company were issued to the selling
shareholders of Tasty on closing. Additional consideration is
payable in shares of common stock of the Company to a selling
shareholder of Tasty based on the following two formulae (such
formula to be selected by the selling shareholder):
(a) 4 times the EBITDA for IMSI's Canadian bakery operations
for the year ended December 31, 2001 less $2,160,000, or
(b) 3 times the EBITDA for IMSI's Canadian bakery operations
for the year ended December 31, 2002 less $2,160,000,
in each case divided by the weighted average closing price for the
shares of common stock of the Company for the twenty (20) trading
days prior to the last day for which the foregoing amount is
selected on the OTC Bulletin Board, or exchange upon which the
shares of the common stock of the Company are traded. Due to the
contingent nature of the additional consideration payable, its
value will be recorded as additional purchase price when the
conditions are resolved
Professional fees and other acquisition costs related to the Tasty
acquisition totalled approximately $75,000.
(iv) The Company acquired all of the outstanding shares of D.C. Foods
for total consideration valued at $15,600,000. Under the terms of
the agreement, the Company paid $4,000,000 in cash, issued 893,333
Class X exchangeable shares of IMSI, issued 893,000 Class N shares
of the Company, issued 250,000 Class E Series 1 shares, issued
250,000 Class E Series 2 shares, issued 250,000 Class E Series 3
shares and issued 250,000 Class E Series 4 shares of IMSI to the
selling shareholders of D.C. Foods. An independent valuations
expert appraised the value of the exchangeable shares issued in
the transaction. Professional fees and other acquisition costs
related to the D.C. Foods acquisition totalled approximately
$125,000.
(v) The Company purchased substantially all of the operating assets of
Huxtable's by paying cash of US$3,080,000 (CD$4,528,000) on the
closing date and committing to make future earn-out payments
payable in cash or common shares of the Company based on the
financial performance of the acquired business during the period
from November 1, 1999 to December 31, 2002. Due to the contingent
nature of the additional consideration, its value will be recorded
as additional purchase price when the payment conditions are
resolved. Acquisition costs are estimated at $300,000.
3. PRO FORMA ASSUMPTIONS RELATING TO ACQUISITION FINANCING
a) CONVERTIBLE LOAN: On May 10, 1999, IMSI and the Company entered
into a loan agreement with First Ontario Fund ("First Ontario")
and Bank of Montreal Capital Corporation ("BMOCC") with respect to
a CDN$4 Million financing. The funding was advanced as to $1.5
Million by BMOCC and as to $2.5 Million by First Ontario. The
financing was secured by general security granted by each of IMSI
and the Company, a guarantee and general security agreement from
each of IMSI's subsidiaries, a mortgage of the premises owned by
Prime at 620 Colby Drive, Waterloo, Ontario, and a share pledge
agreement executed by the Company pursuant to which it pledged its
common shares in the capital of IMSI to First Ontario and BMOCC.
F-103
<PAGE> 150
The terms of the loan are as follows: (a) the interest rate for
the period ending April 15, 2000 is 7% per annum and thereafter
until maturity on April 15, 2003 is 13% per annum; (b) the
outstanding debt is convertible, at the option of the holder, into
Class X shares of IMSI at a price of $2.62 per share; (c) the
holder has the right to acquire a number of Class N shares equal
to the number of Class X shares received; (d) IMSI has the option
to force conversion into Class X and N shares at any time after
July 1, 1999 provided that (i) the Company's common stock trades
on a major North American stock exchange approved by the lenders,
(ii) the Company's common stock has a cumulative trading volume
during a twenty day period of the greater of (1) 300,000 shares of
common stock, or (2) five percent of the number of issued shares
of common stock that are not subject to any escrow agreement or
resale restrictions set out in the Ontario Securities Act, and
(iii) the weighted average trading price during such twenty day
period is not less than the United States Dollar equivalent of $CD
5.50.
b) SPECIAL WARRANTS. On October 22, 1999, Southbridge Equities Inc.,
a corporation organized under the laws of the Province of Ontario,
Canada ("Southbridge Equities"), subscribed for 1,555,556 special
warrants ("Special Warrants") of IMSI, for an aggregate
consideration of approximately US$4.7 million (CDN$6,600,000).
Each Special Warrant entitles Southbridge Equities, upon exercise
thereof without any further consideration, to receive one
Non-voting Class X share (an "Exchangeable Share") of IMSI. Such
Special Warrants are immediately exercisable and any Special
Warrant not exercised by October 22, 2000 (or earlier under
certain circumstances) will be deemed to have been exercised as of
such date. The Special Warrants are subject to customary
anti-dilution adjustment provisions. In addition, each Special
Warrant will be exercisable for (i) 1.1 Exchangeable Shares in the
event that IMSI does not receive a receipt for a (final)
prospectus issued by the Ontario Securities Commission by August
5, 2000, and (ii) 1.2 Exchangeable Shares in the event that IMSI
is not able to obtain additional financing of least US$7 million
by March 30, 2000 or certain trading volume and price targets for
the Company's common stock are not met. Also, in the event that
IMSI is not able to obtain such additional financing by March 30,
2000, the Special Warrants will be deemed to be amended to change
all references to Exchangeable Shares to refer to the common stock
of the Company. These securities were sold in an offshore
transaction in reliance on Regulation S under the Securities Act
of 1933, as amended. In connection with such subscription, the
Company and its subsidiary entered into additional agreements with
Southbridge Equities which, among other thing, address
registration rights. The proceeds will be used to fund previously
announced acquisitions and expansion plans.
4. PRO FORMA ASSUMPTIONS RELATING TO AMORTIZATION OF INTANGIBLE ASSETS
ACQUIRED
Goodwill that arose on the business combinations of Pasta and
TGF/Norbakco is amortized over a 20-year period. No seperately
identifiable intangible assets were purchased in these acquisitions.
Intangible assets which arose on the business combinations related to
D.C. Foods and Tasty have been classified as "goodwill" and are
amortized over a 40-year period. Intangible assets ("goodwill") which
arose on the Huxtable's acquisition are amortized over 20-years. The
Company has engaged an independent valuations expert to determine the
value and useful life of separately identifiable intangible assets
(such as employees, customer relationships, leases, technology, etc)
that were purchased in these acquisitions. Consequently, the allocation
of the excess of purchase price over the fair value of assets acquired
to the various intangible assets acquired has not yet been determined.
Therefore, the amount of amortization of intangible assets on the pro
forma income statements is not indicative of the amount that will
actually be recorded once the valuation exercise is complete.
F-104
<PAGE> 151
5. PRO FORMA ASSUMPTIONS RELATING TO PARTICIPATION OF MINORITY STOCKHOLDERS
OF IMSI
In conjunction with the acquisitions of D.C. Foods and TGF/Norbakco, IMSI
issued exchangeable shares to satisfy the share consideration
requirements of the respective share purchase agreements. The shares are
exchangeable into common shares of the Company at the holder's option
based on exchange ratios contained in the purchase agreements. The
exchange ratio is determined by a formula which is primarily based upon
the earnings before interest, depreciation and taxes ("EBITDA") of the
acquired businesses for the years ending February 28, 1999 and 2000 for
TGF/Norbakco and for the period from December 6, 1998 to December 31,
1999 and the year ending March 2002 or December 2002 for D.C. Foods and
the Company's common stock market price on those dates.
The value of the exchangeable shares is recorded as minority interest.
Based on the financial results of the acquired operations to-date and the
current market price of the Company's common stock, management has
estimated that approximately 2,630,000 and 1,800,000 shares of the
Company's common stock could be issued pursuant to the future conversion
rights of the holders of the exchangeable shares for TGF/Norbakco and
D.C. Foods, respectively. At such time as the future conversion rights of
the holders of the exchangeable shares is determined, the value of the
remaining minority interest associated with the individual exchangeable
share holder groups will be reclassified to additional paid in capital.
These shares have been treated for accounting purposes as being issued.
It is impossible to predict with absolute certainty the exact number of
shares that could be issued as the EBITDA of the acquired businesses for
the periods specified above is unknown.
Based on the number of weighted average outstanding common shares (which
includes the Class N shares outstanding) and the estimated number of
common shares that would be issued pursuant to the conversion rights of
the IMSI exchangeable shares above, the minority interest stockholders
have an interest of approximately 25% of IMSI. Consequently, in the pro
forma income statements, the minority interest participation is
calculated at 25% of the consolidated net loss of IMSI in each of the
periods presented.
F-105
<PAGE> 1
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made the 18 day of October, 1999,
BETWEEN:
MICHAEL ESKENAZI,
of the City of Baie D'Urfe, in the Province of Quebec
(hereinafter called "Michael")
GINA ESKENAZI,
of the City of Baie D'Urfe, in the Province of Quebec
(hereinafter called "Gina")
FELIX AND NORTON INTERNATIONAL INC.,
a corporation incorporated under the laws of Canada
(hereinafter called "FNII")
(Michael, Gina and FNII, being hereinafter collectively called the
"Vendors")
OF THE FIRST PART,
- and -
INTERNATIONAL MENU SOLUTIONS INC.,
a corporation incorporated under the laws of the Province of
Ontario,
(hereinafter called the "Purchaser")
OF THE SECOND PART,
- and -
INTERNATIONAL MENU SOLUTIONS CORPORATION,
a corporation incorporated under the laws of the State of Nevada
(hereinafter called "IMSC")
OF THE THIRD PART.
WHEREAS the Purchaser wishes to acquire all of the issued and outstanding
shares of The Ultimate Cookie Company, Inc. (herein called the "Corporation");
WHEREAS Michael is the owner of 600 Class B shares of the Corporation and
369,723 Class C shares of the Corporation (collectively, the "Michael Shares");
<PAGE> 2
Page 2
AND WHEREAS Gina is the owner of 341,316 Class G shares of the Corporation
(the "Gina Shares");
AND WHEREAS FNII is the owner of 515.75 Class A shares in the capital of
the Corporation (the "FNII Shares");
AND WHEREAS the Purchaser wishes to purchase the Michael Shares, the Gina
Shares and the FNII Shares, being all of the issued and outstanding shares in
the capital of the Corporation.
THIS AGREEMENT WITNESS THAT in consideration of the respective covenants,
agreements, representations, warranties and indemnities herein contained and for
other good and valuable consideration (the receipt and sufficiency of which are
acknowledged by each party,) the parties covenant and agree as follows:
ARTICLE I
INTERPRETATION
1.01 Defined Terms
All capitalized terms used in this Agreement and not defined above shall have
meanings set forth in Schedule A to this Agreement.
1.02 Currency
Unless otherwise indicated, all dollar amounts referred to in this
Agreement are expressed in Canadian funds.
1.03 Sections and Headings
The division of this Agreement into sections and the insertion of headings
are for convenience of reference only and shall not affect the interpretation of
this Agreement. Unless otherwise indicated, any reference in this Agreement to a
section or a Schedule refers to the specified section of or Schedule to this
Agreement.
1.04 Number, Gender and Persons
In this Agreement, words importing the singular number only shall include
the plural and vice versa, words importing gender shall include all genders and
words importing persons shall include individuals, corporations, partnerships,
associations, trusts, unincorporated organizations, governmental bodies and
other legal or business entities.
<PAGE> 3
Page 3
1.05 Accounting Principles
Any reference in this Agreement to "generally accepted accounting
principles" refers to generally accepted accounting principles as approved from
time to time by the Canadian Institute of Chartered Accountants or any successor
institute.
1.06 Entire Agreement
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral, including
the letter of intent dated June 25, 1999 and accepted on June 29,1999 among the
Purchaser, IMSC, Tasty Selections Inc., Michael, Gina and 2905710 Canada Inc.
There are no conditions, covenants, agreements, representations, warranties or
other provisions, express or implied, collateral, statutory or otherwise,
relating to the subject matter hereof except as herein provided.
1.07 Time of Essence
Time shall be of the essence of this Agreement.
1.08 Applicable Law
This Agreement shall be constructed, interpreted and enforced in
accordance with, and the respective rights and obligations of the parties shall
be governed by, the laws of the Province of Ontario and the federal laws of
Canada applicable therein, and each party hereby irrevocably and unconditionally
submits to the non-exclusive jurisdiction of the courts of such province and all
courts competent to hear appeals therefrom.
1.09 Severability
If any provision of this Agreement is determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, such
determination shall not impair or affect the validity, legality or
enforceability of the remaining provisions hereof, and each provision hereof is
hereby declared to be separate, severable and distinct.
1.10 Successors and Assigns
This Agreement shall enure to the benefit of and shall be binding on and
enforceable by the parties and, where the context so permits, their respective
successors and permitted assigns. No party may assign any of its rights or
obligations hereunder without the prior written consent of the other parties.
<PAGE> 4
Page 4
1.11 Amendment and Waivers
No amendment or waiver of any provision of this Agreement shall be binding
on any party unless consented to in writing by such party. No waiver of any
provision of this Agreement shall constitute a waiver of any other provision,
nor shall any waiver constitute a continuing waiver unless otherwise expressly
provided.
1.12 Background
Immediately prior to the date of this Agreement, the Corporation was
reorganized in accordance with Schedule 1.12 hereof.
1.13 Schedules
The following Schedules are attached to and form part of this Agreement:
Schedule A - Defined Terms
Schedule B - Representations and Warranties of the Vendors with
respect to the Corporation
Schedule C - Representations and Warranties of the Vendor
Schedule D - Representations and Warranties of the Purchaser and
IMSC
Schedule 1.12 - Corporate Reorganization
Schedule 2.03 - Allocation of Purchase Price
Schedule 4.01(i) - Form of Opinion of Vendors' Counsel
Schedule 4.01(r) - Licensed Recipes
Schedule 4.01(k) - Form of Release
Schedule 4.01(1) - Michael Employment Agreement
Schedule 4.02(g) - Forms of Opinion of Purchaser's Counsel and U.S.
counsel to IMSC
Schedule 4.02(j) - Support Agreement
Schedule 4.02(o) - Form of Release
Schedule A1.01(d) - Annual Financial Statements
Schedule A1.01(dd) - Interim Financial Statements
Schedule A1.01(hh) - Permitted Encumbrances
Schedule B1.06 - Condition of Property and Assets
Schedule B1.08 - Location of Real Property
Schedule B1.10 - Real Property Leases
Schedule B1.11 - Inventories
Schedule B1.13 - Intellectual Property
Schedule B1.14 - Insurance Policies
Schedule B1.16 - Contracts
Schedule B1.17 - Licenses and Permits
Schedule B1.18 - Regulatory and Third Party Consents
Schedule B1.26 - Accounts and Attorneys
<PAGE> 5
Page 5
Schedule B 1.27 - Directors and Officers
Schedule B 1.29 - Non-Arm's Length Transactions
Schedule B 1.31 - Employee Plans
Schedule B 1.33 - Employee Matters
Schedule B 1.35 - Major Customers
In some instances, the information called for by the Agreement may be
provided by cross-reference or other reference from one Schedule to another
Schedule. Disclosure of any agreement or other matter in the Schedules, whether
or not in response to a requirement contained in this Agreement to schedule
material matters, matters constituting a material adverse effect or matters
exceeding a specific monetary threshold, shall not be deemed to be an admission
that such agreement or other matter is or could be material, constitutes or
could constitute a material adverse effect, a material adverse change or
necessarily will exceed such threshold. In addition, disclosure of any matter in
any of the Schedules shall constitute disclosure to the Purchaser and IMSC for
all purposes with respect to the Agreement including, without limitation, the
Schedules and any agreement ancillary thereto or referred to therein.
1.14 Best of Knowledge
Any reference in this Agreement to "the best of the knowledge" of a party
or to "the knowledge" of a party will mean the actual knowledge of the party and
the knowledge which such party would have had if such party had conducted a
reasonably prudent inquiry into the relevant subject matter.
1.15 Materiality
In this Agreement, "material" when used to describe a contract, lease or
other agreement, means in the case of the Corporation, a contract, lease or
other agreement with a term in excess of six (6) months or pursuant to which one
or more payments in excess of $10,000.00 in the aggregate become due.
ARTICLE II
PURCHASE AND SALE OF PURCHASED SHARES
2.01 Purchase and Sale of Purchased Shares
Subject to the terms and conditions hereof, at the Closing Time the
Vendors covenant and agree to sell, assign and transfer to the Purchaser and the
Purchaser covenants and agrees to purchase from the Vendors, all but not less
than all of the Purchased Shares.
<PAGE> 6
Page 6
2.02 Purchase Price
The aggregate purchase price payable by the Purchaser to the Vendors for
the Purchased Shares (herein called the "Purchase Price") shall be equal to the
aggregate of the following:
(a) Four (4) times the adjusted EBITDA of the Corporation for the one
(1) year period ending April 30, 2000 (herein called the "April
Amount");
and
(b) the amount being the greater of (i) 25% of the Year 2002 Amount (as
hereinafter defined), minus the April Amount, and (ii) zero, (herein
called the "December 2002 Amount");
and
(c) the actual dollar amount of any approved scientific research tax
credits for the period ending April 30th 2000.
For the purpose of the foregoing, the terms referred to above shall have the
following meanings:
(1) "Adjusted EBITDA" shall mean the earnings before interest, income taxes,
depreciation, amortization and scientific research tax credits, as
calculated in accordance with Canadian generally accepted accounting
principles and past practice, including actual management salaries and
bonuses paid. For the purpose of determining the Adjusted EBITDA, the
following shall apply:
(i) in the event that any expenses are charged to the Corporation by an
affiliate for services not reasonably required in the normal course
of the Corporation's business and past practice, such expenses shall
not be included in the Adjusted EBITDA calculations;
(ii) the $10,000.00 amount to be paid by the Corporation on account of
the Vendors legal fees shall not be included; and
(iii) the Adjusted EBITDA shall be determined based upon the financial
statements of the Corporation, either audited or reviewed, as
determined by the Purchaser. The Purchaser acknowledges that
financial statements will need to be prepared and/or audited in
connection with the closing of the transaction, at December 31, 1999
and at April 30, 2000. The Purchaser agrees that only costs of such
preparation and audit in connection with one of the foregoing
statements shall be included in the Adjusted EBITDA calculation
provided that the Purchaser shall be entitled to determine which of
the foregoing dates will be included.
<PAGE> 7
Page 7
(2) "Year 2002 Amount" shall be determined (without duplication) in accordance
with the aggregate of:
(i) the amount of the net sales (net of rebates, sales discounts,
shipping, insurance, product returns, bad debts and applicable
taxes) (herein called the "Net Sales") in the year 2002, of cookie
dough or cookies by the Corporation and Tasty Selections Inc.
("TSI") or any company in the IMSI group. This amount will be
reduced by the amount of the Net Sales of cookies or dough of a
different type and style than those currently prepared by the
Corporation, provided that (1) they are prepared using recipes not
originated by or similar to the recipes of the Corporation, and (2)
neither Michael nor any employee under his direct control was
involved in developing or promoting such sales, and
(ii) the amount of Net Sales in the year 2002 of any products sold by any
company in the IMSI group under the trademarks related to the
Corporation or any other trademarks directly or indirectly
controlled by Michael; and
(iii) the amount of Net Sales in the year 2002 in the Province of Quebec
of TSI products (including all other bakery products of the IMSI
group), provided that in the event of an acquisition by TSI or IMSI,
products manufactured by the acquired company shall only be included
in the net sales calculation where such products are cookie products
similar to the products of the Corporation or where Michael or any
employee under his direct control is involved in the development or
promotion of such sales; and
(iv) the amount of Net Sales in the year 2002 in the Province of Quebec
of, subject to IMSI's prior written approval, any other products of
the IMSI group other than those enumerated above that Michael or any
employee under his direct control is involved in developing or
promoting.
2.03 Payment of Purchase Price
The Purchase Price shall be paid and satisfied partly in cash (herein
called the "Cash Amount") and partly through the issuance of Class E Series 5
Shares and Class E Series 6 Shares, in the capital of the Purchaser (herein
called the "Share Amount") to the Vendors in accordance with Schedule 2.03
hereof.
(a) The Cash Amount. A cash amount equal to the net book value of the
Corporation determined as at April 30th 2000 (herein called the "Net Book
Value") based upon the financial statements for the fiscal year ended April
30th, 2000. Such cash amount shall be payable in two parts, the first part in
the amount of $175,000.00 on closing by certified cheque, and the second part in
the amount of the Net Book Value minus $175,000.00 by certified cheque, upon
receipt of the audited financial statements for the Corporation for the fiscal
year ended April 30th, 2000.
<PAGE> 8
Page 8
The said second part shall be paid by the Purchaser to the Vendors not later
than the fifteenth day following the approval of the financial statements,
audited or engagement as determined by IMSI, by the board of directors of IMSC
or the President of IMSC and in any event not later than July 31, 2000, unless
the calculation is contested by the Purchaser prior to July 31, 2000, in which
event the portion of the Net Book Value that is not contested shall be paid
within the said period and the dispute with respect to the balance shall be
arbitrated in accordance with section 2.05 hereof. In the event that the Net
Book Value is less than $175,000.00, the Vendors will not be required to repay
to the Purchaser any portion of the said $175,000.00.
(b) April Share Amount. By the delivery at the Closing Time of 250,000 Class E
Series 5 Shares registered according to the entitlements of the Vendors set out
in Schedule 2.03.
(c) December 2002 Share Amount. By the delivery at the Closing Time of 250,000
Class E Series 6 Shares registered according to the entitlements of the Vendors
set out in Schedule 2.03.
(d) Application of the Purchase Price. The Purchase Price shall be allocated in
accordance with Schedule 2.03.
(e) Issuance of Class N Shares. Upon determination of the number of IMSC Common
Shares into which the Vendors are entitled to exchange their Class E Series 5
Shares, IMSC shall issue to each of the Vendors at the time of such
determination an equivalent number of Class N Shares in the capital of IMSC
provided that the Vendors agree that at the time of conversion of Class E Series
5 Shares into IMSC Common Shares, an equivalent number of Class N Shares will be
surrendered to IMSC for cancellation by the relevant Vendor or Vendors, as
applicable.
Upon determination of the number of IMSC Common Shares into which the
Vendors are entitled to exchange their Class E Series 6 Shares, IMSC shall issue
to each of the Vendors at the time of such determination an equivalent number of
Class N Shares in the capital of IMSC provided that the Vendors agree that at
the time of conversion of Class E Series 6 Shares into common stock of JMSC, an
equivalent number of Class N Shares will be surrendered to IMSC for cancellation
by the relevant Vendor or Vendors, as applicable.
2.04 Escrow of Class E Shares
On the Closing Date, the Vendors shall enter into an escrow agreement with
the Purchaser and IMSC, in form and substance satisfactory to the Vendors and
the Purchaser, which will provide that the Class E Series 5 Shares and the Class
E Series 6 Shares received by the Vendors pursuant to section 2.03(b), including
any IMSC Common Shares received by the Vendors in accordance with the rights,
privileges, restrictions and conditions attached to such Class E Shares, shall
be held in escrow and released as follows:
(a) with respect to the Class E Series 5 Shares received pursuant to
Section 2.03(b) as follows:
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1/3 released on August 31, 2000;
1/3 released on August 31, 2001; and
1/3 released on August 31, 2002.
(b) with respect to the Class E Series 6 Shares received pursuant to
Section 2.03(c) as follows:
100% released within fifteen (15) days of April 30, 2003.
In the event that securities regulators have additional escrow requirements
relating to the Class E Series 5 Shares and Class E Series 6 Shares, the
Vendor's agree to comply with such requirements. Subject to any such additional
escrow requirements of any applicable securities regulators, the Class E Series
5 Shares and the Class E Series 6 Shares will be immediately released from
escrow in the event that Michael's Employment Agreement dated the date hereof is
terminated without cause, or a court of competent jurisdiction has finally
determined that Michael was constructively dismissed by the Corporation and all
right of appeal has been dismissed or the time for bring such appeal has
expired.
2.05 Arbitration
Any dispute between the parties with respect to the calculation of the
Purchase Price, the Cash Amount and the Share Amount shall be submitted to
arbitration in accordance with the following provisions:
(a) the arbitrator shall be a single arbitrator in accordance with the
Arbitrations Act (Ontario) and shall be a professional accountant
who is a partner with Ernst & Young or its successor who is
appointed by mutual agreement of the parties, or in the event the
parties are unable to agree upon an arbitrator within ten (10) days
of notice given by one party to the other of a dispute, any party
may apply to a Judge of the Superior Court of Justice to appoint a
partner of Ernst & Young as the arbitrator. The arbitrator shall be
at arm's-length from the parties;
(b) the arbitrator shall be instructed that time is of the essence in
proceeding with the determination of the dispute and, in any event,
the arbitration award must be rendered within thirty (30) days of
the submission of such dispute to arbitration;
(c) the arbitration shall take place in Toronto, Ontario and all
proceedings shall be held in private to the extent that only the
parties hereto, their respective advisors and the arbitrator shall
be present;
(d) the arbitration shall be given in writing and shall be final and
binding on all parties, shall not be subject to any appeal and shall
deal with the question of costs of the arbitration and all matters
related thereto;
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(e) judgment upon the arbitration award rendered may be entered in any
Court having jurisdiction, or, application may be made to such Court
for a judicial recognition of the arbitration award or any order of
enforcement thereof, as the case may be; and
(f) the law to be applied in connection with the arbitration will be the
law applicable to this Agreement.
2.06 Subsection 85(1) Election Under the Tax Act
In connection with the sale and transfer of the Purchased Shares, the
Vendors and the Purchaser shall do, sign, execute and file at the time
prescribed all things, forms and documents necessary or desirable in order to
make joint statutory elections pursuant to the provisions of Subsection 85(1) of
the Tax Act. The Vendors and the Purchaser agree that the elected amount for the
Purchased Shares to be used in the joint statutory elections shall be such
amount as the Vendors advise, provided that if so requested by any of the
Vendors, the Purchaser will execute and file amended elections to amend any
elected amount. The costs of any such amended election shall be borne by the
Vendor or Vendors, as the case may be, which costs shall include reasonable
professional fees incurred by the Purchaser.
2.07 Vendor Legal Fees
The Purchaser acknowledges and agrees that the Corporation will pay up to
but not more than $10,000.00 of the legal fees and disbursements plus any
applicable GST and Quebec sales taxes thereon incurred by the Vendors with
respect to the sale of the Purchased Shares. Any amount in excess of the said
$10,000.00 plus GST and Quebec sales taxes incurred by the Vendors shall be for
the account of the Vendors without indemnity from the Corporation.
2.08 Financing
During the period commencing on the Closing Date and ending on April 30,
2000, the Purchaser shall ensure, subject to adverse economic conditions
affecting the Purchaser on a consolidated basis, that the Corporation shall have
sufficient capital to produce and market its products and the Purchaser will
further preserve, subject to adverse economic conditions affecting the Purchaser
on a consolidated basis and adjustments made to improve the economic condition
of the Corporation, the ability of Michael to operate the Corporation to
maximize the Adjusted EBITDA of the Corporation during such period.
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2.09 Freely Trading Shares
The Purchaser will make available to the Vendors on August 31, 2000,
freely tradable IMSC Common Shares to the extent of the number of IMSC Common
Shares into which the Series 5 special shares released from escrow on August 31,
2000 are exchangeable. If freely tradable shares are not available, the
Purchaser agrees, subject to applicable law, to purchase such Series 5 Special
Shares at a price equal to the number of IMSC Common Shares into which such
Series 5 Special Shares are exchangeable multiplied by the ten (10) day average
trading price of the IMSC Common Shares less usual commissions.
ARTICLE III
COVENANTS
3.01 Access to the Corporation
The Vendors shall forthwith make available to the Purchaser and its
authorized representatives and, if requested by the Purchaser, provide a copy to
the Purchaser of, all title documents, contracts, financial statements, minute
books, share certificate books, share registers, plans, reports, licenses,
orders, permits, books of account, accounting records, constating documents and
all other documents, information or data relating to each of the Corporation and
the Business. The Vendors shall afford the Purchaser and its authorized
representatives reasonable access to the Business and the property, assets,
undertaking, records and documents of the Corporation. At the request of the
Purchaser, the Vendors shall execute or cause to be executed such consents,
authorizations and directions as may be necessary to permit any inspection of
the Business, and any property of the Corporation to enable the Purchaser or its
authorized representatives to obtain full access to all files and records
relating to any of the assets of the Corporation maintained by governmental or
other public authorities. At the Purchaser's request, the Vendors shall
co-operate with the Purchaser in arranging any such meetings as the Purchaser
should reasonably request with:
(a) employees of the Corporation;
(b) customers, suppliers, distributors or others who have or have had a
business relationship with the Corporation; and
(c) auditors, solicitors or any other persons engaged or previously
engaged to provide services to the Corporation who have knowledge of
matters relating to the Corporation and the Business.
provided that a representative of the Vendors shall be entitled to attend each
such meeting.
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In particular, without limitation, the Vendors shall permit the
Purchaser's representatives or consultants to conduct such testing and
inspection in respect of environmental matters at such location of the Business
as the Purchaser may determine, in its sole discretion, acting reasonably, as
may be required to satisfy the Purchaser in respect of such matters, and the
Vendors shall cause the Corporation to conduct, and the Corporation shall
conduct, in co-operation with the representatives or consultants of the
Purchaser, such physical review of the equipment of the Business as is necessary
so as to enable the confirmation of the values carried on the balance sheet of
the Corporation in respect of such assets, to the reasonable satisfaction of the
Purchaser. The exercise of any rights of inspection by or on behalf of the
Purchaser under this section 3.01 shall not mitigate or otherwise affect the
representations and warranties of the Vendors hereunder, which shall continue in
full force and effect as provided herein.
3.02 Delivery of Books and Records
At the Closing Time there shall be delivered to the Purchaser by the
Vendors all of the books and records of and relating to the Corporation and the
Business. The Purchaser agrees that it will preserve the books and records so
delivered to it for a period of five (5) years from the Closing Date, or for
such longer period as is required by any applicable law, and will permit the
Vendors or their authorized representatives reasonable access thereto in
connection with the affairs of the Vendors relating to its matters, but the
Purchaser shall not be responsible or liable to the Vendors for or as a result
of any accidental loss or destruction of or damage to any such books or records.
3.03 Delivery of Documents
The Vendors shall deliver to the Purchaser at the Closing Time all
necessary transfer, assignments and other documentation reasonably required to
transfer the Purchased Shares to the Purchaser with a good and marketable title,
free and clear of all Encumbrances.
3.04 Delivery of Vendors' Closing Documentation
The Vendors shall deliver to the Purchaser all such documents relevant to
the closing of the transaction as contemplated hereby as the Purchaser, acting
reasonably, may request.
3.05 Delivery of Purchaser and IMSCs' Closing Documentation
The Purchaser and IMSC shall deliver to each of the Vendors all such
documents relevant to the closing of the transactions contemplated hereby as the
Vendors, acting reasonably, may request.
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3.06 Co-operation
The parties agree to co-operate in good faith with each other and their
respective legal advisors, accountants and other representatives in connection
with any steps required to be taken in connection with this Agreement.
3.07 Conduct After Closing
The Purchaser acknowledges that the Purchase Price will be affected by the
sales performance of the companies within the IMSI Group after Closing as
contemplated in section 2.02 hereof. During the period from Closing to December
31, 2002, the Purchaser will work with Michael to maximize such sales in
accordance with prudent business practice.
ARTICLE IV
CONDITIONS OF CLOSING
4.01 Conditions of Closing in Favour of the Purchaser
The sale and purchase of the Purchased Shares is subject to the following
terms and conditions for the exclusive benefit of the Purchaser, to be fulfilled
or performed at or prior to the Closing Time:
(a) Representations and Warranties. The representations and warranties of
the Vendors contained in this Agreement shall be true and correct at the Closing
Time, with the same force and effect as if such representations and warranties
were made at and as of such time, and certificates of the Vendors dated the
Closing Date to that effect shall have been delivered to the Purchaser, such
certificates to be in form and substance satisfactory to the Purchaser, acting
reasonably;
(b) Covenants. All of the terms, covenants and conditions of this
Agreement to be complied with or performed by the Vendors at or before the
Closing Time shall have been complied with or performed and certificates of the
Vendors dated the Closing Date to that effect shall have been delivered to the
Purchaser, such certificates to be in form and substance satisfactory to the
Purchaser, acting reasonably;
(c) Regulatory Consents. There shall have been obtained, from all
appropriate federal, provincial, municipal or other governmental or
administrative bodies, such licenses, permits, consents, approvals,
certificates, registrations and authorizations as are required to be obtained by
the Vendors to permit the change of ownership of the Purchased Shares
contemplated hereby including, without limitation, those described in the
Schedules hereto;
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(d) Contractual Consents. The Vendors shall have given or obtained the
notices, consents and approvals described in the Schedules hereto, in each case
in form and substance satisfactory to the Purchaser, acting reasonably;
(e) Material Adverse Change. There shall have been no material adverse
changes in the condition (financial or otherwise), assets, liabilities,
operations, earnings, business or prospects of the Corporation since the date of
the Interim Financial Statements;
(f) No Action or Proceeding. No legal or regulatory action or proceeding
shall be pending or threatened by any person to enjoin, restrict or prohibit the
purchase and sale of the Purchased Shares contemplated hereby;
(g) No Material Damage. No material damage by fire or other hazard to the
whole or any material part of the property or assets of the Corporation shall
have occurred from the date hereof to the Closing Time;
(h) Legal Matters. All actions, proceedings, instruments and documents
required to implement this Agreement, or instrumental thereto, and all legal
matters relating to the purchase of the Purchased Shares, including title of the
Vendors to the Purchased Shares, shall have been approved as to form and
legality by McCarter Grespan Robson Beynon, counsel for the Purchaser, acting
reasonably;
(i) Legal Opinion. The Vendors shall have delivered to the Purchaser a
favourable opinion of Lapointe Rosenstein, counsel to the Vendors, in the form
annexed hereto as Schedule 4.01(i);
(j) Resignation of Directors and Officers. Such directors and officers of
the Corporation as the Purchaser may specify shall have resigned in favour of
nominees of the Purchaser effective as of the Closing Time;
(k) Release by Vendor, Directors and Officers. The Vendors and such
directors and officers of the Corporation as the Purchaser may specify shall
have executed and delivered, at the Closing Time, releases in favour of the
Corporation in the form annexed hereto as Schedule 4.01(k);
(l) Michael Agreement. The Corporation shall have entered into an
employment agreement and a confidentiality and non-compete agreement with
Michael in the form annexed hereto as Schedule 4.01(l);
(m) Share Escrow Agreement. The Vendors shall have entered into an escrow
agreement as required by Section 2.04;
(n) Right of First Refusal Agreement. The Vendors shall have entered into
an agreement granting a right of first refusal;
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(o) Non-Competition Agreement. Gina and FNII shall have entered into a
non-competition agreement with the Purchaser agreeing not to compete with the
Corporation;
(p) Transfer of Trademarks. On or before the Closing Date, all right,
title and interest to the "Ultimate" trademark registered in Canada having
Registration Nos. TMA 328,501 and TMA 329,420 and registered in the United
States having Registration No. 1,924,761, shall have been transferred to the
Corporation without encumbrance;
(q) Transfer of Recipes. On or before the Closing Date, all right, title
and interest to the recipes listed in the attached Schedule B1.13 used by the
Corporation shall have been transferred to the Corporation without encumbrance.
(r) Restatement of License Agreement. FNII and the Corporation shall have
entered into a license agreement to replace the license agreement which came
into effect on July 6, 1994 in form and substance acceptable to FNII and the
Purchaser which restates the July 6, 1994 license agreement and includes the
right for the Corporation to use the recipes listed in the attached
Schedule 4.01(r); and
(s) Royalty Agreement. FNII and TSI shall have entered into a royalty
agreement with respect to the licensing of know-how and trademarks owned by
FNII.
If any of the conditions contained in this section 4.01 shall not be
performed or fulfilled at or prior to the Closing Time to the satisfaction of
the Purchaser, acting reasonably, the Purchaser may, by notice to the Vendors,
terminate this Agreement and the obligations of the Vendors and the Purchaser
under this Agreement shall be terminated. Any such condition may be waived in
whole or in part by the Purchaser.
4.02 Conditions of Closing in Favour of the Vendors
The purchase and sale of the Purchased Shares is subject to the following
terms and conditions for the exclusive benefit of the Vendors, to be fulfilled
or performed at or prior to the Closing Time:
(a) Representations and Warranties. The representations and warranties of
the Purchaser and IMSC contained in this Agreement shall be true and correct at
the Closing Time, with the same force and effect as if such representations and
warranties were made at and as of such time, and certificates of the President
of the Purchaser and IMSC dated the Closing Date to that effect shall have been
delivered to the Vendors, such certificates to be in form and substance
satisfactory to the Vendors, acting reasonably;
(b) Covenants. All of the terms, covenants and conditions of this
Agreement to be complied with or performed by the Purchaser and IMSC at or
before the Closing Time shall have been complied with or performed and
certificates of the President of the Purchaser and IMSC
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dated the Closing Date to that effect shall have been delivered to the Vendors,
such certificate to be in form and substance satisfactory to the Vendors, acting
reasonably;
(c) Regulatory Consents. There shall have been obtained, from all
appropriate federal, provincial, state, municipal or other governmental or
administrative bodies, such licenses, permits, consents, approvals,
certificates, registrations and authorizations as are required by law to be
obtained by the Purchaser or IMSC to permit the change of ownership of the
Purchased Shares and payment of the Purchase Price contemplated hereby,
including those described in Schedules B1.18 hereto, in each case in form and
substance satisfactory to the Vendors, acting reasonably;
(d) No Action or Proceeding. No legal or regulatory action or proceeding
shall be pending or threatened by any person to enjoin, restrict or prohibit the
purchase and sale of the Purchased Shares or the issuance of the Class E Series
5 Shares and Class E Series 6 Shares;
(e) Material Adverse Change. There shall have been no material adverse
changes in the condition (financial or otherwise), assets, liabilities,
operations, earnings, business or prospects of the Purchaser;
(f) Registration Rights. The Purchaser and IMSC shall have caused to be
delivered on agreement with respect to registration rights satisfactory to the
Vendors acting reasonably;
(g) Legal Matters. All actions, proceedings, instruments and documents
required to implement this Agreement, or instrumental thereto, shall have been
approved as to form and legality by Lapointe Rosenstein, acting reasonably;
(h) Legal Opinion. The Purchaser shall have delivered to the Vendors a
favourable opinion of McCarter Grespan Robson Beynon, Canadian counsel to the
Purchaser;
(i) Guarantee. The Vendors shall have been released unconditionally from
all guarantees with respect to the indebtedness of the Corporation;
(j) Support Agreement. The Purchaser, IMSC and the Vendors shall have
entered into and delivered a support agreement in the form annexed as Schedule
4.02(I);
(k) Michael Agreements. The Corporation shall have entered into an
employment agreement and a confidentiality and non-compete agreement with
Michael;
(l) Share Escrow Agreement. The Vendors and Purchaser shall have entered
into the escrow agreement as required by Section 2.04;
(m) Right of First Refusal Agreement. The Purchaser shall have entered
into an agreement granting the Purchaser a right of first refusal;
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(n) Advisory Board. The Purchaser shall have arranged for the appointment
of Michael to the advisory board of the Purchaser; and
(o) Release of Directors and Officers. The Corporation shall have
delivered to the resigning directors and officers a release with respect to
matters addressed within the proper exercise of their duties as directors and
officers, in the form annexed hereto as Schedule 4.02(k).
If any of the conditions contained in this section 4.02 shall not be
performed or fulfilled at or prior to the Closing Time to the satisfaction of
the Vendors, acting reasonably, the Vendors may, by notice to the Purchaser,
terminate this Agreement and the obligations of the Vendors and the Purchaser
under this Agreement shall be terminated. Any such condition may be waived in
whole or in part by the Vendors.
ARTICLE V
CLOSING ARRANGEMENTS
5.01 Place of Closing
The closing shall take place at the Closing Time at the offices of
McCarter Grespan Robson Beynon, counsel for the Purchaser, 675 Riverbend Drive,
Kitchener, Ontario, N2K 3S3.
5.02 Closing
At the Closing Time, upon fulfillment of all the conditions set out in
Article IV that have not been waived in writing by the Purchaser or the Vendors,
subject to all other terms and conditions hereof being complied with the Vendors
shall deliver to the Purchaser certificates respecting all the Purchased Shares,
duly endorsed in blank for transfer, and will cause transfers of such shares to
be duly and regularly recorded in the name of the Purchaser, or its nominee(s),
and will cause a meeting of the board of directors of the Corporation to be
held, at which the directors and officers of the Corporation specified by the
Purchaser pursuant to section 4.01(k) will resign in favour of nominees of the
Purchaser and the Purchaser shall pay the Purchase Price.
5.03 Further Assurances
Each party to this Agreement covenants and agrees that, from time to time
subsequent to the Closing Date, it will at the request and expense of the
requesting party, execute and deliver all such documents, including, without
limitation, all such additional conveyance, transfers, consents and other
assurances and do all such other acts and things as any other party hereto,
acting reasonably, may from time to time request be executed or done in order to
better evidence or perfect or effectuate any provision of this Agreement or of
any agreement or other document executed pursuant to this Agreement or any of
the respective obligations intended to be created hereby or thereby.
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ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
6.01 Survival of Representations and Warranties of the Vendor
The representations, warranties and covenants of the parties contained in
this Agreement and any agreement, instrument, certificate or other document
executed or delivered pursuant hereto shall survive the closing of the
transactions contemplated hereby until the second anniversary of the Closing
Date and, notwithstanding such closing, nor any investigation made by or on
behalf of any party in full force and effect for the benefit of the other
parties during such period, except that:
(a) the representations and warranties set out in sections 1.02, 1.03 and
1.04 of Schedule B and sections 1.01, 1.02, 1.03, 1.04 and 1.05 of Schedule C
and sections 1.01, 1.02, 1.03, 1.04 and 1.05 of Schedule D, (and the
corresponding representations and warranties set out in the certificates to be
delivered pursuant to subsections 4.01(a), 4.01(b), 4.02(a) and 4.02(b) (the
"Closing Certificates")), and covenants shall survive and continue in full force
and effect without limitation of time;
(b) the representations and warranties contained in section 1.22 of
Schedule B shall, in the absence of fraud or negligent or wilful
misrepresentation, survive until the expiration of any applicable limitation
periods imposed by law; and
(c) a claim for any breach of any of the representations and warranties
contained in this Agreement or in any agreement, instrument, certificate or
other document executed or delivered pursuant hereto involving fraud or
fraudulent misrepresentation may be made at any time following the Closing Date,
subject only to applicable limitation periods imposed by law. No claim for
breach of a representation or warranty shall be valid unless the party against
whom such claim is made has been given notice thereof before the date on which
the applicable representation or warranty shall have terminated in accordance
with the foregoing and, provided further that any such claim as aforesaid shall
be made in accordance with Article VII. Upon the expiry of the relevant
limitation periods set forth in this section, no party shall have any further
liability to the others with respect to the representations and warranties
contained herein, except in respect of claims which have theretofore been made
in accordance with the provisions set forth above.
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ARTICLE VII
INDEMNIFICATION
7.01 Indemnification by the Vendors
Subject to Sections 7.08, 7.09 and 7.10 each of the Vendors agrees to
jointly and severally indemnify and save harmless the Purchaser from all Losses
suffered or incurred by the Purchaser as a result of or arising directly or
indirectly out of or in connection with:
(a) any breach by such Vendor of or any inaccuracy of any representation
or warranty of such Vendor contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto (provided that no Vendor
shall be required to indemnify or save harmless the Purchaser in respect of any
breach or inaccuracy of any representation or warranty unless the Purchaser
shall have provided notice to such Vendor in accordance with section 7.03 on or
prior to the expiration of the applicable time period related to such
representation and warranty set out in section 6.01);
(b) any breach or non-performance by such Vendor of any covenant to be
performed by it that is contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto; and
(c) all material liabilities (whether accrued, absolute, contingent or
otherwise) of the Corporation existing at the Closing Time, including any
liabilities for federal, provincial, sales excise, income, corporate or any
other taxes of the Corporation for any period up to and including the Closing
Time, and not disclosed on, provided for or included in this Agreement, the
Schedules hereto or the balance sheets forming part of the Closing Financial
Statements, except those liabilities accruing or incurred subsequent to the
balance sheet date of the Closing Financial Statements in the ordinary course of
the Business.
7.02 Indemnification by the Purchaser and IMSC
(a) The Purchaser and IMSC agree to jointly and severally indemnify and save
harmless the Vendors from all Losses suffered or incurred by the Vendors as a
result of or arising directly or indirectly out of or in connection with:
(i) any breach by the Purchaser or IMSC of or any inaccuracy of any
representation or warranty of the Purchaser or IMSC contained in this Agreement
or in any agreement, instrument, certificate or other document delivered
pursuant hereto (provided that neither the Purchaser nor IMSC shall be required
to indemnify or save harmless any Vendor in respect of any breach or inaccuracy
of any representation or warranty unless any Vendor shall have provided notice
to it in accordance with section 7.03 on or prior to the expiration of the
applicable time period related to such representation and warranty set out in
section 6.02); and
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(ii) any breach or non-performance by the Purchaser or IMSC of any covenant to
be performed by it that is contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto.
7.03 Notice of Claim
In the event that a party (the "Indemnified Party") shall become aware of
any claim, proceeding or other matter (a "Claim") in respect of which another
party (the "Indemnifying Party") agreed to indemnify the Indemnified Party
pursuant to this Agreement, the Indemnified Party shall promptly give written
notice thereof to the Indemnifying Party. Such notice shall specify whether the
Claim arises as a result of a claim by a person not a party hereto against the
Indemnified Party (a "Third Party Claim") or whether the Claim does not so arise
(a "Direct Claim"), and shall also specify with reasonable particularity (to the
extent that the information is available) the factual basis for the Claim and
the amount of the Claim, if known, or, if an amount is not then determinable, if
reasonably possible, an approximate and reasonable estimate of the likely amount
of the Claim.
7.04 Direct Claim
With respect to any Direct Claim, following receipt of notice from the
Indemnified Party of the Claim, the Indemnifying Party shall have thirty (30)
days to make such investigation of the Claim as it considers necessary or
desirable. For the purpose of such investigation, the Indemnified Party shall
make available to the Indemnifying Party the information relied upon by the
Indemnified Party to substantiate the Claim, together with all such other
information as the Indemnifying Party may reasonably request.
7.05 Third Party Claim
With respect to any Third Party Claim, the Indemnifying Party shall have
the right, at its expense, to participate in or assume control of the
negotiation, settlement or defence of the Claim and, in such event, the
Indemnifying Party shall reimburse the Indemnified Party for all the Indemnified
Party's out-of-pocket expenses as a result of such participation or assumption.
If the Indemnifying Party elects to assume such control, the Indemnified Party
shall have the right to participate in the negotiation, settlement or defence of
such Third Party Claim and to retain counsel to act on its behalf provided that
the fees and disbursements of such counsel shall be paid by the Indemnified
Party unless the Indemnifying Party consents to the retention of such counsel or
unless the named parties to any action or proceeding include both the
Indemnifying Party and the Indemnified Party and a representation of both the
Indemnifying Party and the Indemnified Party by the same counsel would be
inappropriate due to the actual or potential differing interests between them
(such as the availability of different defences). If the Indemnifying Party,
having elected to assume such control, thereafter fails to defend the Third
Party Claim within a reasonable time, the Indemnified Party shall be entitled to
assume such control, and the Indemnifying Party shall be bound by the results
obtained by the Indemnified Party with respect to such Third Party Claim. If any
Third Party Claim is of a nature such that
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the Indemnified Party is required by applicable law to make a payment to any
person (a "Third Party") with respect to the Third Party Claim before the
completion of settlement negotiations or related legal proceedings, the
Indemnified Party may make such payment and the Indemnifying Party shall,
forthwith after demand by the Indemnified Party, reimburse the Indemnified Party
for such payment. If the amount of any liability of the Indemnified Party under
the Third Party Claim in respect of which such payment was made, as finally
determined, is less than the amount that was paid by the Indemnifying Party to
the Indemnified Party, the Indemnified Party shall, forthwith after receipt of
the difference from the Third Party, pay the amount of such difference to the
Indemnifying Party.
7.06 Settlement of Third Party Claims
If the Indemnifying Party fails to assume control of the defence of any
Third Party Claim, the Indemnified Party shall have the exclusive right to
contest, settle or pay the amount claimed. Whether or not the Indemnifying Party
assumes control of the negotiation, settlement or defence of any Third Party
Claim, the Indemnifying Party shall not settle any Third Party Claim without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed; provided, however, that the liability of the
Indemnifying Party shall be limited to the proposed settlement amount if any
such consent is not obtained for any reason.
7.07 Co-operation
The Indemnified Party and the Indemnifying Party shall co-operate fully
with each other with respect to Third Party Claims, and shall keep each other
fully advised with respect thereto (including supplying copies of all relevant
documentation promptly as it becomes available).
The Indemnified Party shall make available to the Indemnifying Party and its
advisors all pertinent information and witnesses under its control (including,
if applicable, employees of the Purchaser or the Corporation).
The Indemnified Party shall not permit any right of appeal in respect of any
Third Party Claim to terminate without giving the Indemnifying Party reasonable
notice thereof and an opportunity to contest such Third Party Claim.
7.08 Threshold Amount
Notwithstanding any other provision of this Agreement,
(a) neither the Purchaser nor IMSC shall be entitled to indemnification
hereunder until the aggregate of all claims for indemnification made
by the Purchaser hereunder, whether individually or collectively,
exceeds $25,000.00, in which event the Purchaser shall be
indemnified for the full amount of such claims for indemnification,
and
<PAGE> 22
Page 22
(b) in no event shall the aggregate amount of all claims for
indemnification to be paid by the Vendors, or any of them, to the
Purchaser exceed the Purchase Price.
7.09 Mitigation
The Indemnified Party shall take all reasonable steps to avoid and
mitigate the amount of each Claim and the amount to be paid by the Indemnifying
Party to the Indemnified Party hereunder shall be reduced by the amount of any
(i) insurance proceeds actually received by the Indemnified Party and the
Corporation, if applicable; and (ii) any tax benefit realized by the Indemnified
Party arising from or in connection with the Claim or the payment thereof.
7.10 Set-Off
Any amounts becoming owing by any of the Vendors to the Purchaser
hereunder shall be set-off against amounts owed by the Purchaser to such Vendor
as follows:
(a) firstly against that portion of the Cash Amount to which such Vendor
is entitled to the extent it is not paid as at the date of such claim or
claims for indemnification; and
(b) secondly against that portion of the Share Amount to which such Vendor
is entitled, by a surrender of a number of IMSC Common Shares in the
capital of IMSC into which the Series 5 or Series 6 Shares held by such
Vendor have been exchanged or Series 5 or Series 6 Shares held by the
Vendor to the extent that such Series 5 or 6 Shares have not been
exchanged at the time of such claim or claims for indemnification.
To the extent that the Purchaser has not been fully indemnified after utilizing
its rights of set-off as set forth in this Section 7.10, nothing contained
herein shall preclude the Purchaser from taking any action permitted at law to
recover such deficiency.
ARTICLE VIII
MISCELLANEOUS
8.01 Confidentiality of Information
In the event that the transactions contemplated herein are not consummated
for any reason, the Purchaser covenants and agrees that, except as otherwise
authorized by the Vendors, neither IMSC, the Purchaser nor its representatives,
agents or employees will disclose to third parties, directly or indirectly, any
confidential information or confidential data relating to the Corporation
discovered by IMSC, the Purchaser or their respective representatives as a
result of the Vendors and the Corporation making available to IMSC, the
Purchaser and their respective representatives the information requested by them
in connection with the transactions contemplated herein.
<PAGE> 23
Page 23
If the transactions contemplated herein are not consummated, the Vendors
shall return to the Purchaser and the Purchaser and IMSC shall return to the
Vendors any confidential schedules, documents or other written information
obtained from the relevant party, whether received before or after the date of
this Agreement. In the event that the transactions contemplated herein are not
consummated for any reason, the Vendors covenant and agree that, except as
otherwise authorized by the Purchaser, neither the Vendors nor their
representatives, agents or employees will disclose to third parties, directly or
indirectly, any confidential information or confidential data relating to the
Purchaser and IMSC discovered by the Vendor or its representatives as a result
of the Purchaser and IMSC making available to the Vendors and their
representatives the information requested by them in connection with the
transactions contemplated herein.
8.02 Notices
(a) Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be delivered in person, transmitted by
telecopy or similar means of
recorded electronic communication or sent by registered mail, charges prepaid,
addressed as follows:
(i) if to the Vendors:
c/o Michael Eskenazi
1A Sunny Acres
Bai D'Urfe, Quebec H9X 3B5
with a copy to:
Lapointe Rosenstein
1250 Rene Levesque Blvd. W.
Montreal, Quebec H3B 5E9
Attention: Norman A. Rishikof
Telecopier No.: (514) 925-9001
(ii) if to the Purchaser:
International Menu Solutions Inc.
350 Creditstone Road
Concord, Ontario L4K 3Z2
Attention: Michael A. Steele
Telecopier No.: (416) 366-6368
with a copy to:
McCarter Grespan Robson Beynon
675 Riverbend Drive
Kitchener, Ontario N2K 3S3
Attention: Thomas D. Beynon, Q.C.
Telecopier No.: (519) 742-1841
<PAGE> 24
Page 24
(iii) if to IMSC:
International Menu Solutions Corporation
350 Creditstone Road
Concord, Ontario L4K 3Z2
Attention: Michael A. Steele
Telecopier No.: (416) 366-6368
with a copy to:
McCarter Grespan Robson Beynon
675 Riverbend Drive
Kitchener, Ontario N2K 3S3
Attention: Thomas D. Beynon, Q.C.
Telecopier No.: (519) 742-1841
(b) Any such notice or other communication shall be deemed to have been
given and received on the day on which it was delivered or transmitted (or, if
such day is not a Business Day, on the next following Business Day) or, if
mailed, on the fifth Business Day following the date of mailing; provided,
however, that if at the time of mailing or within three Business Days thereafter
there is or occurs a labor dispute or other event that might reasonably be
expected to disrupt the delivery of documents by mail, any notice or other
communication hereunder shall be delivered or transmitted by means of recorded
electronic communication as aforesaid.
(c) Any party may at any time change its address for service from time to
time by giving notice to the other parties in accordance with this section 8.02.
8.03 Commissions, etc.
The Vendors agree to indemnify and save harmless the Purchaser or IMSC
from and against all Losses suffered or incurred by the Purchaser or IMSC in
respect of any commission or other remuneration payable or alleged to be payable
to any broker, agent or other intermediary who purports to act or have acted for
or on behalf of any of the Vendors, in connection with the transactions
contemplated hereby.
The Purchaser and IMSC agree to indemnify and save harmless the Vendors
from and against all Losses suffered or incurred by the Vendors in respect of
any commission or other remuneration payable or alleged to be payable to any
broker, agent or other intermediary who purports to act or have acted for or on
behalf of the Purchaser or IMSC, in connection with the transactions
contemplated hereby.
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Page 25
8.04 Consultation
The parties shall consult with each other before issuing any press release
or making any other public announcement with respect to this Agreement or the
transactions contemplated hereby and, except as required by any applicable law
or regulatory requirement, none of the Vendors, the Purchaser or IMSC shall
issue any such press release or make any such public announcement without the
prior written consent of the others, which consent shall not be unreasonably
withheld or delayed.
8.05 Disclosure
Prior to any public announcement of the transaction contemplated hereby
pursuant to section 8.04, neither party shall disclose this Agreement or any
aspect of such transaction except to its board of directors, its senior
management, its legal, accounting, financial or other professional advisors, any
financial institution contacted by it with respect to any financing required in
connection with such transaction and counsel to such institution, or as may be
required by any applicable law or any regulatory authority or stock exchange
having jurisdiction.
8.06 Public Announcements
No public announcement or press release not required by law or by
applicable stock exchange rule concerning the purchase sale of the Purchased
Shares shall be made by the Vendors, the Corporation or the Purchaser without
the consent and joint approval of the Vendors and the Purchaser.
8.07 Expenses of Parties
Except as provided in Section 2.08 hereof, each of the parties hereto
shall bear their own expenses in connection with the transactions contemplated
hereby, including with respect to the Vendors, any and all costs with respect to
any reorganization of the Corporation prior to the Closing Date.
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Page 26
8.08 Counterparts
This Agreement may be executed in counterparts, each of which shall
constitute an original and all of which taken together shall constitute one and
the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the parties.
- - ----------------------------------- -------------------------------------
Witness Michael Eskenazi
- - ----------------------------------- -------------------------------------
Witness Gina Eskenazi
FELIX AND NORTON INTERNATIONAL INC.
Per:
- - ----------------------------------- ---------------------------------
Witness
Title:
------------------------------
INTERNATIONAL MENU SOLUTIONS INC.
Per:
---------------------------------
Title:
------------------------------
INTERNATIONAL MENU SOLUTIONS
CORPORATION
Per:
---------------------------------
Title:
------------------------------
<PAGE> 1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into as of
the 12th day of November, 1999, by and among INTERNATIONAL MENU SOLUTIONS USA,
INC., a Delaware corporation (herein called the "Purchaser"), INTERNATIONAL MENU
SOLUTIONS CORPORATION, a Nevada corporation (herein called "IMSC"), and
HUXTABLE'S FOODS, L.L.C., a Delaware limited liability company (herein called
the "Vendor").
RECITALS
A. The Vendor carries on the business of the development and manufacture of
food products, which it markets, distributes and sells to food stores
for sale to end-user customers, and the Vendor wishes to sell the
business and certain of the business assets to the Purchaser; and
B. The Purchaser wishes to purchase the business and certain of the
business assets subject to the terms and conditions of this Agreement.
NOW THEREFORE this Agreement witnesses that in consideration of the
mutual covenants and agreements herein contained, and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties hereto covenant and agree as follows:
ARTICLE 1
INTERPRETATION
1.01 DEFINITIONS. In this Agreement the following terms and
expressions will have the following meanings:
"ACQUISITION CAPITAL" has the meaning given to that term in Section
6.02(g).
"ADJUSTED EBITDA" means for the Purchaser the consolidated earnings
before interest, income taxes, depreciation, amortization, and scientific
research tax credits, as calculated, in accordance with GAAP consistently
applied and past practice and based upon financial information taken from
audited financial statements of the Purchaser. For the purpose of the Adjusted
EBITDA calculations, the following adjustments shall also apply:
(i) any expenses charged to the Purchaser that are not reasonably
required in the ordinary course of the Purchaser's business and
consistent with its and its Affiliates' past practices,
including, without limitation, any nonrecurring costs incurred in
respect of any corporate restructuring, shall be excluded from
the determination of Adjusted EBITDA;
(ii) any expenses charged to the Purchaser for salaries and bonuses
paid to Cliff Marquart and Karen Mitchell (or persons succeeding
them in such positions) shall be excluded from the determination
of Adjusted EBITDA;
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<PAGE> 2
(iii) acquisition-related costs other than reasonable accounting and
audit expenses shall be excluded from the determination of
Adjusted EBITDA;
(iv) the amount of any cash payments by the Purchaser of the Assumed
Liabilities reflected in the demo accrual on the Vendor's
September 30, 1999 balance sheet shall be included as an expense
in the determination of Adjusted EBITDA in the year in which such
Assumed Liability is paid; and
(v) the imputed cost of any Acquisition Capital provided to the
Purchaser by IMSC or any Affiliate of IMSC at a rate of 15% per
annum shall be included as an expense in the determination of the
Adjusted EBITDA for the Final Payment Year. In the event that the
imputed cost of the Acquisition Capital causes the Adjusted
EBITDA for the Final Payment Year to be less than $2,500,000,
then the notional 15% charge shall only be included to the extent
that it reduces such Adjusted EBITDA to $2,500,000.
"AFFILIATE" means a Person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, the Person specified;
"AGREEMENT" means this agreement and all schedules attached to this
agreement, in each case as they may be amended or supplemented from time to
time, and the expressions "hereof", "herein", "hereto", "hereunder", "hereby"
and similar expressions refer to this agreement; and unless otherwise indicated,
references to Articles and Sections are to Articles and Sections in this
agreement, references to Schedules are to Schedules attached to this agreement;
"ASSUMED CONTRACTS" has the meaning given to that term in Section 2.01
(g);
"ASSUMED LIABILITIES" has the meaning given to that term in
Section 3.01;
"AUDITED FINANCIAL STATEMENTS" means the balance sheet of the Vendor as
at December 31, 1998 and the accompanying statements of earnings, retained
earnings and changes in financial position for the year then ended, including
the notes thereto, and the report of the auditors of the Vendor thereon attached
as Schedule 4.01(l);
"BREACH." There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been any
inaccuracy in or breach of, or any failure to comply with or perform, such
representation, warranty, covenant, obligation or other provision.
"BUSINESS" means the development, manufacture, marketing, distribution
and sales of food products by the Vendor primarily in the State of California;
"BUSINESS DAY" means any day, other than Saturday, Sunday or any
statutory holiday in the State of California;
"CLOSING" means the completion of the sale and purchase of the Purchased
Assets pursuant to this Agreement on the Closing Date;
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<PAGE> 3
"CLOSING DATE" means November 12, 1999 or such earlier or later date as
may be agreed upon in writing by the parties;
"CODE" means the Internal Revenue Code of 1986, as amended;
"COMMON STOCK" means the common stock of IMSC, $0.001 par value;
"CONSENT" means any approval, consent, ratification, permission, waiver
or authorization required to consummate the Transactions contemplated by this
Agreement and the Transaction Agreements (including, without limitation, any
Governmental Authorization or consent of a third party to effect the transfer of
the Assumed Contracts or Permits);
"CONTRACT" means, with respect to any Person, any agreement, contract,
obligation, promise or undertaking (whether written or oral and whether express
or implied) that is legally binding and to which such Person is a party;
"DAMAGES" shall include any loss, damage, injury, decline in value, lost
opportunity, Liability, claim, demand, settlement, judgment, award, fine,
penalty, Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature;
"DISCLOSURE SCHEDULE" means the schedule (dated as of the date of the
Agreement) delivered to the Purchaser by the Vendor, a copy of which is attached
to the Agreement and incorporated in the Agreement by reference;
"EARNOUT PAYMENTS" has the meaning given to that term in Section 2.05;
"EBITDA AMOUNT" has the meaning given to that term in Section 2.05(f);
"EMPLOYEE" has the meaning given to that term in Section 4.01(u);
"EMPLOYEE BENEFIT PLAN" means any Employee Benefit Plan as defined in
Section 3(3) of ERISA:
(i) that was established or adopted by the Vendor or any ERISA
Affiliate or is maintained or sponsored by the Vendor;
(ii) in which the Vendor participates;
(iii) with respect to which the Vendor or any ERISA Affiliate is or may
be required or permitted to make any contribution; or
(iv) with respect to which the Vendor or any ERISA Affiliate is or may
become subject to any Liability;
"ENCUMBRANCE" means any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, equity, trust, equitable interest, claim,
preference, right of possession, license, encroachment, covenant, infringement,
interference, Order, proxy, option, right of first refusal, pre-emptive right,
community property interest, legend, defect, impediment, exception, reservation,
limitation, impairment, imperfection of title, condition or restriction of any
nature
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<PAGE> 4
(including any restriction on the voting of any security, any restriction
on the transfer of any security or other asset, any restriction on the receipt
of any income derived from any asset, any restriction on the use of any asset
and any restriction on the possession, exercise or transfer of any other
attribute of ownership of any asset);
"ENVIRONMENTAL LAW" means any federal, state, local or foreign Legal
Requirement relating to pollution, Hazardous Materials or protection of human
health, safety or the environment;
"ENVIRONMENTAL PERMITS" means all permits, certificates, approvals,
registrations and licenses under Environmental Laws;
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended;
"ERISA AFFILIATE" means any Person that is, was or would be treated as a
single employer with the Vendor under Section 414 of the Code;
"ESCROW AGENT" has the meaning given to that term in Section 2.04(c);
"ESCROW AGREEMENT" has the meaning given to that term in Section 2.04
(c);
"ESCROW FUNDS" has the meaning given to that term in Section 2.04(c);
"ESCROW TERMINATION DATE" has the meaning given to that term in Section
2.04(c);
"EXCLUDED ASSETS" has the meaning given to that term in Section 2.02;
"EXCLUDED LIABILITIES" has the meaning given to that term in
Section 3.02;
"FINAL PAYMENT YEAR" has the meaning given to that term in Section 2.05;
"FIRST YEAR PAYMENT" has the meaning given to that term in Section
2.05(b);
"GAAP" means the United States generally accepted accounting principles,
applied on a consistent basis;
"GOVERNMENTAL AUTHORIZATION" means any:
(i) permit, license, certificate, franchise, concession, approval,
consent, ratification, permission, clearance, confirmation, endorsement, waiver,
certification, designation, rating, registration, qualification or authorization
that is or has been be issued, granted, given or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement; or
(ii) right under any Contract with any Governmental Body;
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<PAGE> 5
GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(i) nation, principality, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign or other government;
(iii) governmental or quasi governmental authority of any nature
(including any governmental division, subdivision, department, agency, bureau,
branch, office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal);
(iv) multinational organization or body; or
(v) individual, entity or body exercising, or entitled to exercise,
any executive, legislative, judicial, administrative, regulatory, police,
military or taxing authority or power of any nature;
"GROSS MARGIN" means revenue recorded by the Purchaser from the shipment
of food products less
(i) freight, discounts, off-invoice allowances, spoilage allowances
and product returns; and
(ii) the cost of raw ingredients and packaging for the food products,
the cost of labor to produce the food products and a plant overhead allocation
(excluding depreciation) not to exceed 10.5% of sales.
"HAZARDOUS MATERIALS" means any substance, chemical, waste or other
material that is or may be listed, defined or otherwise identified as hazardous,
toxic or dangerous under any Legal Requirement, as well as any asbestos,
polychlorinated biphenyls ("PCBs"), petroleum, petroleum product or by-product,
crude oil, natural gas, natural gas liquids, liquefied natural gas, or synthetic
gas useable for fuel, and "source," "special nuclear" and "by-product" material
as defined in the Atomic Energy Act of 1954, 42 U.S.C. Sections 2011 et seq.;
"INDEMNITEES" means, with respect to any specified party, the following
Persons:
(i) such party and its successors and assigns;
(ii) such party's current and future Affiliates; and
(iii) the respective Representatives of the Persons referred to in
clauses (i) and (ii) above.
"INDEMNIFIED PARTY" has the meaning given to that term in Section 9.05;
"INDEMNIFYING PARTY" has the meaning given to that term in Section 9.05;
"INITIAL CASH PAYMENT" has the meaning given to that term in Section
2.04(a).
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<PAGE> 6
"INTERIM PERIOD" has the meaning given to that term in Section 2.04(b);
"INTERIM PERIOD OPERATING CASH ADJUSTMENT" has the meaning given to that
term in Section 2.04(b);
"LEASED PROPERTY" has the meaning given to that term in Section 2.01(b);
"LEASE" has the meaning given to that term in Section 2.01(b);
"LEGAL REQUIREMENT" means any federal, state, local, municipal, foreign
or other law, statute, legislation, constitution, principle of common law,
resolution, ordinance, code, edict, decree, proclamation, treaty, convention,
rule, regulation, ruling, directive, Order, pronouncement, requirement,
specification, determination, or decision that is, has been or may as of the
date of this Agreement be issued, enacted, adopted, passed, approved,
promulgated, made, implemented or otherwise put into effect by or under the
authority of any Governmental Body;
"LIABILITY" means any debt, obligation, duty or liability of any nature
(including any unknown, undisclosed, unmatured, unaccrued, unasserted,
contingent, indirect, conditional, implied, vicarious, derivative, joint,
several or secondary liability), regardless of whether such debt, obligation,
duty or liability would be required to be disclosed on a balance sheet prepared
in accordance with GAAP and regardless of whether such debt, obligation, duty or
liability is immediately due and payable;
"LOSSES" in respect of a matter means all claims, demands, proceedings,
losses, damages, liabilities, deficiencies, costs and expenses (including all
legal and other professional fees and disbursements, interest, penalties and
amounts paid in settlements) arising directly or indirectly as a consequence of
that matter;
"MARGIN/EBITDA AMOUNT" has the meaning given to that term in Section
2.05(f);
"ORDER" means any order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence, subpoena,
writ or award that is or has been issued, made, entered, rendered or otherwise
put into effect by or under the authority of any court, administrative agency or
other Governmental Body or any arbitrator or arbitration panel;
"ORDINARY COURSE OF BUSINESS." An action taken by or on behalf of the
Vendor shall not be deemed to have been taken in the "Ordinary Course of
Business" unless such action is:
(i) consistent with the Vendor's past practices and taken in the
ordinary course of the Vendor's normal day to day operations; and
(ii) not required to be authorized by the Vendor's members or the
Vendor's managers, and does not require any other separate or special
authorization of any nature;
"OVERLAPPING TAX PERIOD" has the meaning given to that term in Section
2.10(b);
"PERMITS" has the meaning given to that term in Section 2.01(h) and, for
further clarification, includes Environmental Permits;
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"PERMITTED ENCUMBRANCES" means:
(i) assignments of insurance provided to landlords (or their
mortgagees) pursuant to the terms of any lease and liens or rights reserved in
any lease for rent or for compliance with the terms of such lease;
(ii) security given in the Ordinary Course of Business to any
public utility, municipality or government or to any statutory or public
authority in connection with the operations of the Business, other than security
for borrowed money; and
(iii) the Permitted Encumbrances described in Schedule 4.01(c);
"PERSON" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or vendor with or without share
capital, unincorporated association, trust, trustee, executor, administrator or
other legal personal representative, regulatory body or agency, government or
governmental agency, authority or entity however designated or constituted;
"POST-CLOSING PERIOD" means any taxable period (or portion thereof)
beginning after the close of business on the Closing Date;
"POST-CLOSING TAX PERIOD" has the meaning given to that term in Section
2.10;
"PRE-CLOSING PERIOD" means any Tax period ending on or before the close
of business on the Closing Date or, in the case of any Tax period which
includes, but does not end on, the Closing Date, the portion of such period up
to and including the Closing Date;
"PRE-CLOSING TAX PERIOD" has the meaning given to that term in Section
2.10;
"PROCEEDING" means any action, suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding and any informal proceeding), prosecution, contest, hearing, inquiry,
inquest, audit, examination or investigation that is or has been commenced,
brought, conducted or heard by or before, or that otherwise has involved, any
Governmental Body or any arbitrator or arbitration panel;
"PROFESSIONAL SERVICES AGREEMENT" has the meaning given to that term in
Section 5.01;
"PROPRIETARY ASSET" means any recipe, product formulation, trademark
(whether registered or unregistered and whether or not relating to a published
work), trademark application, trade name, fictitious business name, service mark
(whether registered or unregistered), service mark application, copyright
(whether registered or unregistered), copyright application, trade secret,
know-how, franchise, system, computer software, invention, design, proprietary
product, technology, proprietary right or other intellectual property right or
intangible asset, in any case owned or used by the Vendor in connection with the
Business;
"PURCHASE PRICE" has the meaning given to that term in Section 2.03;
"PURCHASED ASSETS" has the meaning given to that term in Section 2.01;
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"REGISTRATION RIGHTS AGREEMENT" has the meaning given to that term in
Section 4.02(b);
"RELEASE" means any release, spill, leak, emission, discharge, leach,
dumping, emission, escape or other disposal;
"RELATED PARTY" refers to each of the following:
(i) each of the members of the Vendor;
(ii) each individual who is, or who has at any time been, an
officer of the Vendor;
(iii) each member of the family of each of the individuals
referred to in clause (ii) above; and
(iv) any entity (other than the Vendor) in which any one of the
Persons referred to in clauses "(i)", "(ii)" and "(iii)" above holds (or in
which more than one of such individuals collectively hold), directly or
indirectly, beneficially or otherwise, a material voting, proprietary or equity
interest, including, without limitation, any subsidiary of the Vendor;
"REPRESENTATIVES" of a specified party means officers, directors,
employees, attorneys, accountants, advisors and other representatives of such
party;
"SEC" means the Securities and Exchange Commission, or any successor
entity;
"SECOND YEAR PAYMENT" has the meaning given to that term in Section
2.05(d);
"STUB PAYMENT" has the meaning given to that term in Section 2.05(a);
"TAX" or "TAXES" means (a) any net income, alternative or add-on minimum
tax, gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, 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, penalty,
addition-to-tax or additional amount imposed by any governmental authority
(domestic or foreign) responsible for the imposition of any such tax (a "TAXING
AUTHORITY"), (b) any liability of the Vendor for the payment of any amount of
the type described in clause (a) above as a result of being a member of an
affiliated, consolidated, combined or unitary group, and (c) any liability of
the Vendor for the payment of any amount as a result of being party to any Tax
Sharing Agreement or with respect to the payment of any amounts of the type
described in clauses (a) or (b) above as a result of any express or implied
obligation to indemnify any other Person;
"TAX SHARING AGREEMENT" means any existing Tax sharing agreements or
arrangements (whether or not written) binding the Vendor and any other agreement
or arrangement (including any arrangement required or permitted by law) that (a)
requires the Vendor to make any Tax payment to or for the account of any other
person, (b) affords any other person to utilize any tax attributes of the Vendor
to reduce such other person's Taxes; (c) affords the Vendor to utilize any
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tax attributes of any other person to reduce any Taxes of the Vendor; (d)
requires or permits the transfer or assignment of income, revenues, receipts or
gains; or (e) requires or permits the Vendor to determine its Tax liability by
taking into account or by reference to the Tax liability, income, revenues,
receipts or gains of any other Person;
"TAX RETURN" means any return (including any information return),
report, statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information that is or has been filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax;
"TRADE ACCOUNTS RECEIVABLE" means all valid amounts due to the Vendor,
including, but not limited to, amounts due to the Vendor from the sale of food
products, amounts related to "Farm Fresh" rebates, less allowances for bad debts
and spoilage;
"TRADING DAY" means a day on which national stock exchanges and the
National Association of Securities Dealers Automated Quotation (Nasdaq) System
are open for trading;
"TRANSACTION AGREEMENTS" means the Bill of Sale, Escrow Agreement,
Assignment and Assumption Agreement, Trademark and Intellectual Property
Assignment Agreement, Confidentiality Agreement, Professional Services
Agreement, Employment Agreements, Registration Rights Agreement and such other
documents as are contemplated hereby;
"TRANSACTIONS" means (a) the execution and delivery of this Agreement
and the respective Transaction Agreements, and (b) all of the transactions
contemplated by this Agreement and the respective Transaction Agreements,
including, without limitation, the sale of the Purchased Assets by the Vendor to
the Purchaser, the assumption by the Purchaser of the Assumed Liabilities, and
the performance by the Vendor, IMSC and the Purchaser of their respective
obligations under this Agreement, the Transaction Agreements and the exercise by
the Vendor, IMSC and the Purchaser of their respective rights under this
Agreement and the Transaction Agreements.
"TREASURY REGULATIONS" means the U.S. income tax regulations, including
temporary regulations, promulgated under the Code, as of the date hereof;
"UNAUDITED FINANCIAL STATEMENTS" means the balance sheet of the Vendor
as at September 30, 1999 and the accompanying income statement for the nine (9)
months then ended, each as internally generated by the Vendor's management and
subject to adjustment for normal year-end accruals, attached as Schedule
4.01(l);
"1933 ACT" has the meaning given to that term in Section 4.02(b);
"2001 FINAL PAYMENT" has the meaning given to that term in Section
2.05(c)(ii); and
"2002 FINAL PAYMENT" has the meaning given to that term in Section
2.05(e)(ii).
1.02 DISCLOSURE SCHEDULE. The Disclosure Schedule attached to this
Agreement shall form part of this Agreement.
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1.03 BEST OF KNOWLEDGE. Any reference in this Agreement to "the best
of the knowledge of the Vendor" or "the best of the knowledge and belief of the
Vendor" will mean the actual knowledge of the officers and managers of the
Vendor, and the knowledge that the officers would have had if they had conducted
a reasonably prudent inquiry into the relevant subject-matter.
1.04 MATERIALITY. In this Agreement, the term "material," when used as
an adjective, means that any breach, default or deficiency in the satisfaction
of any representation, warranty or covenant so described might reasonably have
(i) a material adverse effect on the value of the Business or the Purchased
Assets, viewed as a whole, or the Transactions, or on the business, condition,
assets, liabilities, operations, financial performance or results of operation
of the Vendor or the Purchaser, respectively, viewed as a whole; or (ii) a
material adverse effect on the ability of the Vendor or the Purchaser to comply
with or perform any covenant or obligation under this Agreement or any other
agreements, certificates and instruments contemplated to be executed and
delivered by the Vendor or the Purchaser in connection with this Agreement.
1.05 HEADINGS, TABLE OF CONTENTS, GENDER AND NUMBER. The inclusion of
headings and a table of contents in this Agreement is for convenience of
reference only and shall not affect the construction or interpretation hereof.
In this Agreement, unless the context requires otherwise, words importing the
singular include the plural and vice versa and words importing gender include
all genders.
1.06 CURRENCY. Except where otherwise expressly provided, all amounts
in this Agreement are stated and shall be paid in currency of the United States
of America.
1.07 ACKNOWLEDGEMENT. Each party hereto acknowledges that it and its
legal counsel have reviewed and participated in the negotiation and settlement
of the terms of this Agreement.
ARTICLE 2
PURCHASE AND SALE
2.01 PURCHASE AND SALE OF ASSETS. Subject to the terms of this
Agreement, at the Closing the Vendor agrees to sell and the Purchaser agrees to
purchase all of the Vendor's right, title and interest in and to the property,
assets and rights used by the Vendor in carrying on the Business, other than the
Excluded Assets and the Excluded Liabilities as set forth in Section 3.02, as a
going concern with all related goodwill (the "Purchased Assets"). The Purchased
Assets include, but are not limited to, the following assets used in connection
with the Business:
(a) all improvements and fixtures (including fixed machinery and
fixed equipment) located in and on the Leased Property, subject
to the terms of the Lease and Legal Requirements;
(b) all rights as lessee under the lease of real property described
in Schedule 4.01(h) (the "Leased Property"), together with all
rights, benefits, options and leasehold improvements relating
thereto or forming part thereof (the "Lease"), subject to the
terms of the Lease and Legal Requirements;
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(c) all machinery, equipment (including trucks, cars and other
vehicles), parts, tools, molds, dies, jigs, pattern, furniture,
furnishings, office equipment and accessories whether located on
the premises of the Vendor or elsewhere, including all of the
assets described in Schedule 4.01(i);
(d) all inventories of finished goods, work in progress, raw
materials and other materials and supplies, including a
reasonable allowance for price variances in obsolesce;
(e) all Trade Accounts Receivable;
(f) the full benefit of all prepaid expenses, other than any prepaid
expenses related to Excluded Assets;
(g) to the extent assignable, all right, title and interest of the
Vendor in the Contracts listed on Schedule 4.01(o), and the
obligations of which have been assumed by the Purchaser pursuant
to Section 3.01 (collectively, the "Assumed Contracts");
(h) to the extent assignable, the full benefit of all permits,
approvals, consents, registrations and other authorizations,
including Environmental Permits and other Governmental
Authorizations, which the Vendor holds and which are required by
the Vendor to own the Purchased Assets or to carry on the
Business (the "Permits");
(i) excepting computer software licensed to the Vendor and not
assignable in accordance with the terms thereof, all right, title
and interest of the Vendor to all Proprietary Assets, in
connection with the Business, including the Proprietary Assets
listed in Schedule 4.01(k);
(j) all computer hardware and, to the extent assignable, software,
including all rights under licenses and other agreements or
instruments relating thereto;
(k) originals of all business and financial records (whether or not
recorded on computer), including all customer lists and lists of
suppliers, all surveys, plans and specifications relating to the
Leased Property and all operating manuals, engineering standards
and specifications and other information used or required to
effectively conduct the Business or operate the Purchased Assets
or any of them;
(l) the goodwill of the Business together with the exclusive right to
represent the Purchaser as carrying on the Business as a
successor to the Vendor and the exclusive right to use the name
"Huxtable" or any variation thereof;
(m) all rights to refunds of Taxes attributable to the Post-Closing
Period with respect to the Business; and
(n) any cash in the bank accounts other than any bank account
established to receive the Purchase Price, of the Vendor in
excess of outstanding checks.
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Notwithstanding anything in this Section 2.01 to the contrary, this
Agreement shall not constitute an agreement to sell, assign, sublease, transfer,
convey or deliver any Purchased Asset or any claim or right or any benefit
arising under or resulting from such Purchased Asset if such sale, assignment,
sublease, transfer, conveyance or delivery is prohibited by any applicable Legal
Requirement or would require the Consent of any Governmental Body or other
Person and such Consent is not obtained prior to Closing. Unless the provisions
of this Section are waived by the Purchaser, in the event that the Closing
proceeds without the sale, assignment, sublease, transfer, conveyance or
delivery of any such Purchased Asset, then following the Closing, the Vendor
shall use its commercially reasonable efforts to obtain promptly such Consents;
provided, however, that the Vendor shall not be required to pay any
consideration therefor other than filing, recordation or similar fees. Pending
receipt of such Consent, the parties shall cooperate with each other in any
mutually agreeable, reasonable and lawful arrangements designed to provide to
the Purchaser the benefits of use of such Purchased Asset. Once the appropriate
Consent for the sale, assignment, sublease, transfer, conveyance or delivery of
any such Purchased Asset not sold, assigned, subleased, transferred, conveyed or
delivered at the Closing is obtained, the Vendor shall sell, assign, transfer,
convey and deliver such Purchased Asset to the Purchaser at no additional cost
to the Purchaser. To the extent that any such Purchased Asset cannot be
transferred or the full benefits of use of any such Purchased Asset cannot be
provided to the Purchaser following the Closing pursuant to this paragraph, the
Purchaser and the Vendor shall enter into such arrangements (including
subleasing, sublicensing or subcontracting) to provide to the Purchaser the
economic (taking into account Tax costs and benefits) and operational
equivalent, to the extent permitted, of obtaining such Consent and the
performance by the Purchaser of the obligations thereunder. The Vendor shall
hold in trust for and pay to the Purchaser promptly upon receipt thereof, all
income, proceeds and other monies received by the Vendor in connection with its
use of any Purchased Asset (net of any Taxes and any other costs imposed upon
the Vendor).
2.02 EXCLUDED ASSETS. The Purchased Assets do not include the
following assets:
(a) the Purchase Price or any rights of the Vendor under this
Agreement or the Transaction Agreements;
(b) any refundable Taxes previously paid by the Vendor and any claim
or right of the Vendor to any refund of Taxes for periods prior
to the Closing Date;
(c) the interest of the Vendor in any litigation and in the proceeds
of any judgment, order or decree issued or made in respect of any
litigation as listed on Schedule 2.02(c);
(d) the interest of the Vendor in any Contract listed on Schedule
2.02(d) as "not to be assumed" or similar words to that effect;
(e) any amount due to the Vendor from a founder, member or manager of
the Vendor and listed on Schedule 2.02(e), and any other claim
against a member or manager of the Vendor not reflected on the
Unaudited Financial Statements;
which assets are referred to in this Agreement as the "Excluded Assets".
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2.03 PURCHASE PRICE. Subject to the terms and conditions of this
Agreement, the aggregate price (the "Purchase Price") to be paid by the
Purchaser to the Vendor for the Purchased Assets shall be an amount equal to the
sum of:
(a) Three Million Eighty Thousand Dollars ($3,080,000), less
(b) the Interim Period Operating Cash Adjustment, plus
(c) the Earnout Payments as calculated pursuant to Section 2.05.
2.04 INITIAL PAYMENTS.
(a) INITIAL CASH PAYMENT. The Purchaser shall make a cash payment to
the Vendor at closing in an amount equal to Two Million Eight
Hundred Eighty Thousand Dollars ($2,880,000) (the "Initial Cash
Payment"), which the Vendor shall use, as necessary, to retire
any borrowed money indebtedness of the Vendor and to pay the
Vendor's transaction costs.
(b) INTERIM PERIOD OPERATING CASH ADJUSTMENT. Within twenty (20) days
of the Closing, the Purchaser shall have calculated the Interim
Period Operating Cash Adjustment, as defined herein, and provided
written notice of such calculation to the Vendor. If the Vendor
does not object to such calculation within fifteen (15) days of
receipt of notice, the calculation shall be final and the
Purchaser and Vendor shall instruct the Escrow Agent as provided
in Section 2.04(c). "Interim Period Operating Cash Adjustment"
shall mean the amounts paid by the Vendor during the period from
and including November 1, 1999 through the Closing Date (the
"Interim Period") to satisfy liabilities of the Vendor (other
than Assumed Liabilities), as distributions to the members of the
Vendor or any other payments other than to satisfy Assumed
Liabilities. For purposes of this Section 2.04(b) only, the term
"Assumed Liabilities" shall include liabilities of the Vendor
paid by the Vendor on or prior to the Closing Date that would
have been "Assumed Liabilities" on the Closing Date if such
liabilities had not been paid by the Vendor prior to the Closing
Date.
(c) ESCROW AGREEMENT. Pursuant to the terms and conditions of the
Escrow Agreement (the "Escrow Agreement") dated as of the date
hereof by and between the Vendor, the Purchaser and McCarter
Grespan Robson Beynon, as escrow agent (the "Escrow Agent"), the
Purchaser will deposit $200,000 (the "Escrow Funds") in an
interest-bearing account with the Escrow Agent. The Escrow
Agreement will terminate on the date the Escrow Agent disburses
the last of the Escrow Funds in accordance with the Escrow
Agreement (the "Escrow Termination Date"). The Escrow Agent will,
pursuant to the joint written instructions of Vendor and
Purchaser, (i) remit to the Purchaser from the Escrow Funds an
amount equal to the Interim Period Operating Cash Adjustment, if
any, and (ii) remit to the Purchaser an amount equal to the
Vendor's share of any Transfer Taxes. The remainder of the Escrow
Funds, after the above-described payments to the Purchaser have
been made, shall be remitted to the Vendor.
2.05 EARNOUT PAYMENTS. The Purchaser shall make up to four earnout
payments
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(collectively, the "Earnout Payments") as follows:
(a) STUB PAYMENT. Within twenty (20) days of the completion of the
Purchaser's audited financial statements for the year ending
December 31, 1999, and in no event later than April 15, 2000, the
Purchaser shall notify the Vendor in writing of the calculation
of the 1999 Adjusted EBITDA. If the Vendor does not object to
such calculation within fifteen (15) days of receipt of notice,
the Purchaser shall promptly pay an amount equal to a multiple of
1999 Adjusted EBITDA (the "Stub Payment"). Such multiple shall be
determined by the Vendor in its sole discretion not later than
April 30, 2000 and shall not exceed four (4) times 1999 Adjusted
EBITDA. For purposes of this Agreement, ----- 1999 Adjusted
EBITDA shall be determined for the period commencing on November
1, 1999 to and including December 31, 1999. Subject to the
conditions of Section 2.05(i) below, the Stub Payment shall be
payable by the Purchaser to the Vendor through the issuance of
shares of Common Stock in an amount determined by dividing the
amount of the Stub Payment by the average closing price of the
Common Stock for the last twenty (20) Trading Days in 1999,
provided that the maximum price per share of Common Stock shall
be $5.00 and the minimum price per share of Common Stock shall be
$3.00.
(b) FIRST YEAR PAYMENT. Within twenty (20) days of the completion of
the Purchaser's audited financial statements for the year ending
December 31, 2000, and in no event later than March 31, 2001, the
Purchaser shall notify the Vendor in writing of the calculation
of the 2000 Adjusted EBITDA. If the Vendor does not object to
such calculation within fifteen (15) days of receipt of notice,
the Vendor shall provide notice of whether it elects to receive
cash or shares of Common Stock subject to the terms of Section
2.05(i) below and the Purchaser shall promptly thereafter pay an
amount equal to one (1) times 2000 Adjusted EBITDA (the "First
Year Payment") to the Vendor.
(c) 2001 FINAL PAYMENT. No later than October 31, 2001, the Vendor
shall notify the Purchaser if the Vendor elects to deem the year
ending December 31, 2001 as the Final Payment Year. If the Vendor
so elects, then within twenty (20) days of the completion of the
Purchaser's audited financial statements for the year ending
December 31, 2001, and in no event later than March 31, 2002, the
Purchaser shall notify the Vendor in writing of the calculation
of the 2001 Adjusted EBITDA. If the Vendor does not object to
such calculation within fifteen (15) days of receipt of notice,
the Vendor shall provide notice of whether it elects to receive
cash or shares of Common Stock subject to the terms of Section
2.05(i) below and the Purchaser shall promptly thereafter pay to
the Vendor an amount (the "2001 Final Payment") equal to:
(i) Five (5) times 2001 Adjusted EBITDA; less
(ii) the Stub Payment to the extent that such deduction would
not reduce the 2001 Final Payment determined in Section
2.05(c)(i) below $7,500,000; less
(iii) the First Year Payment;
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The parties acknowledge that the 2001 Final Payment may be
reduced below $7,500,000 by deduction of the First Year Payment.
(d) SECOND YEAR PAYMENT. If the Vendor fails to elect the year ending
December 31, 2001 as the Final Payment Year, then within twenty
(20) days of the completion of the Purchaser's audited financial
statements for the year ending December 31, 2001, and in no event
later than March 31, 2002, the Purchaser shall notify the Vendor
in writing of the calculation of the 2001 Adjusted EBITDA. If the
Vendor does not object to such calculation within fifteen (15)
days of receipt of notice, the Vendor shall provide notice of
whether it elects to receive cash or shares of Common Stock
subject to the terms of Section 2.05(i) below and the Purchaser
shall promptly thereafter pay to the Vendor an amount equal to
one (1) times 2001 Adjusted EBITDA (the "Second Year
Payment").
(e) 2002 FINAL PAYMENT. In the event that the Vendor fails to elect
the year ending December 31, 2001 as the Final Payment Year, then
the Final Payment Year shall be the year ending December 31,
2002. In that event, then within twenty (20) days of the
completion of the Purchaser's audited financial statements for
the year ending December 31, 2002, and in no event later than
March 31, 2003, the Purchaser shall notify the Vendor in writing
of the calculation of the 2002 Adjusted EBITDA. If the Vendor
does not object to such calculation within fifteen (15) days of
receipt of notice, the Vendor shall provide notice of whether it
elects to receive cash or shares of Common Stock subject to the
terms of Section 2.05(i) below and the Purchaser shall promptly
thereafter pay to the Vendor an amount (the "2002 Final Payment")
equal to:
(i) Five (5) times 2002 Adjusted EBITDA; less
(ii) the Stub Payment to the extent that the such deduction
would not reduce the amount determined in Section 2.05 (e)
below $7,500,000; less
(iii) (A) the First Year Payment plus (B) the Second Year
Payment;
The parties acknowledge that the 2002 Final Payment may be
reduced below $7,500,000 by the deduction of the First Year
Payment and the Second Year Payment.
(f) GROSS MARGIN ADJUSTMENT. Notwithstanding the foregoing, if the
aggregate amount paid to the Vendor under clauses (a) through (e)
(the "EBITDA Amount") is not greater than:
(i) Eighty percent (80%) of the Gross Margin in the Final
Payment Year, plus
(ii) Two (2) times Adjusted EBITDA of the Purchaser for the
Final Payment Year,
(the amount determined by adding clause (i) to clause (ii) is the
"Margin/EBITDA Amount"), then the Purchaser shall be required to
make an additional payment in
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the amount by which the Margin/EBITDA Amount exceeds the EBITDA
Amount.
(g) [INTENTIONALLY DELETED.]
(h) PAYMENT BY CASH OR SHARES. Notwithstanding the foregoing, with
respect to the Earnout Payments referenced in clauses (b) through
(e) above, the Vendor shall have the option, with respect to each
such payment, of receiving such payment (i) in cash or (ii) in
restricted shares of the Common Stock; provided, however, that
if, at the time of each such payment:
(i) the Common Stock is listed for trading on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq
National Market System;
(ii) the value of the trading volume of Common Stock for the
preceding twenty (20) Trading Day period averages $500,000
per day; and
(iii) the outstanding Common Stock has an aggregate market value
of not less than $150,000,000;
then any Earnout Payment made pursuant to this Section 2.05 shall
be made in Common Stock or cash, at the option of the Purchaser.
The share price for determining the number of shares of Common
Stock to be issued to the Vendor shall be the average of the
closing price for the Common Stock for the twenty (20) Trading
Days preceding the date of the determination of the Adjusted
EBITDA for the applicable year.
In the event that the conditions in (i), (ii) and (iii) above are
not satisfied, and the Vendor exercises an option with respect to
an Earnout Payment (other than the Stub Payment) to receive
restricted shares of Common Stock and the average closing price
for the Common Stock for the twenty (20) Trading Day period
preceding such Earnout Payment is less than $5.00 per share, the
Purchaser and IMSC shall have the option to make such payment in
cash.
(i) MAXIMUM SHARE HOLDINGS. Notwithstanding the provisions of this
Section 2.05 and other provisions in this Agreement, the parties
agree that in no event shall the Purchaser be required to issue
shares of Common Stock if it would result in the Vendor and its
Affiliates and Related Parties, holding, in the aggregate, more
than 20% of the total outstanding shares of Common Stock. To the
extent that the Purchaser is otherwise obligated to issue such
shares of Common Stock to pay the total Purchase Price as set
forth in Sections 2.03 and 2.05, but elects not to do so pursuant
to this Section 2.05(i), the Purchaser shall be obligated to pay
to the Vendor such portion of the Earnout Payment in cash.
2.06. DETERMINATION OF EARNOUT PAYMENTS AND INTERIM PERIOD OPERATING
CASH ADJUSTMENT. Any dispute between the parties with respect to the calculation
of any Earnout Payment, including the Adjusted EBITDA and Gross Margin, or the
Interim Period Operating Account Adjustment, shall be submitted to arbitration
in accordance with the following provisions:
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(a) the arbitrator shall be a single arbitrator who shall act in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association and who shall be a certified public
accountant who is a partner with Ernst & Young (or its successor
unless such successor is the result of a business combination
with any accounting firm with whom, and with whose Affiliates,
neither the Purchaser nor the Vendor has a material business or
professional relationship, in which case the parties shall select
another partner of a public accounting firm of recognized
national standing with whom, and with whose Affiliates, neither
the Purchaser nor the Vendor has a material business or
professional relationship) and who is appointed by mutual
agreement of the parties, or in the event the parties are unable
to agree upon an arbitrator within ten (10) days of notice given
by one party to the other of a dispute, any party may apply to
the Senior Federal Court Judge in Los Angeles County to appoint a
partner of Ernst & Young as the arbitrator. The arbitrator shall
be at arm's-length from the parties;
(b) the arbitrator shall be instructed that time is of the essence in
proceeding with the determination of the dispute and, in any
event, the arbitration award shall be rendered as promptly as
possible following the submission of such dispute to arbitration;
(c) the arbitration shall take place in Los Angeles, California,
Kansas City, Missouri or New York, New York, as the parties may
agree (or, in the event that the parties fail to reach an
agreement promptly, New York, New York), and all proceedings
shall be held in private to the extent that only the parties
hereto, their respective advisors and the arbitrator shall be
present;
(d) the arbitration award shall be given in writing and shall include
a finding of facts and application of law and shall be final and
binding on all parties, shall not be subject to any appeal and
shall fully address the question of costs of the arbitration and
all matters related thereto;
(e) judgment upon the arbitration award rendered may be entered in
any court having jurisdiction, or, application may be made to
such court for a judicial recognition of the arbitration award or
any order of enforcement thereof, as the case may be; and
(f) the law to be applied in connection with the arbitration will be
the law applicable to this Agreement.
2.07 [INTENTIONALLY DELETED]
2.08. ALLOCATION OF PURCHASE PRICE; INTEREST. The Purchaser will, in
its sole discretion, allocate the Purchase Price among the Purchased Assets and
will provide notice thereof to the Vendor, and, together with the Vendor, will
report the sale and purchase of the Purchased Assets for all Federal, state and
local tax purposes in a manner consistent with this allocation.
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2.09 TRANSFER TAXES. All transfer, documentary, sales, use, stamp,
registration, value added and other such taxes and fees (including any penalties
and interest) incurred in connection with this Agreement (including any real
property transfer tax and any similar tax) ("Transfer Taxes") shall be
calculated by the Purchaser within twenty (20) days of the Closing Date and
shall be borne and paid 50% by the Purchaser and 50% by the Vendor when due, and
the Purchaser will, at its own expense, file all necessary tax returns and other
documentation with respect to all such Transfer Taxes; provided, however, that,
if required by applicable law, the Vendor will join in the execution of any such
tax returns and other documentation. Any refunds or credits of Transfer Taxes
shall be paid by the Person receiving such refunds or credits 50% to the
Purchaser and 50% to the Vendor. The Purchaser and the Vendor shall instruct the
Escrow Agent as provided in Section 2.04(c).
2.10 ALLOCATION OF TAXES.
(a) Subject to the other provisions of this Agreement, the Vendor
shall be responsible for and shall pay any Taxes arising or
resulting from or in connection with the conduct of the Business
or the ownership of the Purchased Assets attributable to the
Pre-Closing Period, including, without limitation, Taxes arising
or resulting from the sale of the Business and the Purchased
Assets on the Closing Date pursuant to this Agreement, but
excluding Transfer Taxes. The Purchaser shall be responsible for
and shall pay any and all Taxes arising or resulting from or in
connection with the conduct of the Business or the ownership of
the Purchased Assets attributable to the Post-Closing Period.
(b) All real property, personal property, ad valorem or other similar
Taxes (not including income Taxes) levied with respect to the
Purchased Assets and the Business for a taxable period (the
"Overlapping Tax Period"), which includes (but does not end on)
the Closing Date, shall be apportioned between the Vendor and the
Purchaser as of the Closing Date based on the number of days
included in the Overlapping Tax Period through and including the
Closing Date (the "Pre-Closing Tax Period") and the number of
days of such taxable period included in the Overlapping Tax
Period ending after the Closing Date (the "Post-Closing Tax
Period"). The Vendor shall be liable for the proportionate amount
of such Taxes that is attributable to the Pre-Closing Tax Period.
(c) Within ninety (90) days after the Closing, the Purchaser shall
present a statement to the Vendor setting forth the amount of
such Taxes actually attributable to each of the Pre-Closing and
Post-Closing Tax Periods, together with such supporting evidence
as is reasonably necessary and available to calculate such
amount. The Vendor shall pay to the Purchaser the appropriate
amount with respect to reimbursement of such Taxes as provided
hereunder promptly upon receipt of such schedule and payment of
such Taxes. Thereafter, the Vendor shall notify the Purchaser
upon receipt of any bill for real or personal property Taxes
relating to the Purchased Assets, part or all of which are
attributable to the Post-Closing Tax Period, and shall promptly
deliver such bill to the Purchaser who shall pay the same to the
appropriate taxing authority. In the event that the Purchaser
shall thereafter make a payment for which it is entitled to
reimbursement under this Section 2.10, the Vendor shall make such
reimbursement promptly but in no event later than thirty (30)
days after the presentation of a statement setting forth the
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amount of reimbursement to which the Purchaser is entitled along
with such supporting evidence as is reasonably necessary to
calculate the amount of reimbursement.
2.11 ADDITIONAL TAX COVENANTS.
(a) The Vendor shall, at its sole cost and expense, deliver to the
Purchaser by December 31, 1999 clearance certificates, such as
those issued by the State of California pursuant to California
Revenue and Taxation Code Section 6812 (sales tax) and California
Unemployment Insurance Code Section 1731 (employment taxes) (or
similar provisions of law of another jurisdiction) certifying
that the Vendor is not liable for any amounts referred to in
California Revenue and Taxation Code Section 6811 or California
Unemployment Insurance Code Section 1731 (or similar provisions
of law of another jurisdiction). In the event that any amount
with respect to the Pre-Closing Period is required to be paid to
obtain such certificates, the Vendor shall promptly pay such
amounts to the relevant authorities.
(b) Any indemnification payments made hereunder shall be treated as
adjustments to the purchase price for all purposes.
(c) Except as otherwise required under the Code and Treasury
Regulations, the Escrow Funds shall be treated as property of the
Vendor for income tax purposes until such time, if any, that all
or a portion of the Escrow Funds is returned to the Purchaser.
(d) Any payments of income from the Escrow Funds shall be subject to
any withholding required with respect to Taxes. For all income
tax purposes, all interest earned on the Escrow Funds shall be
reportable to the Vendor, except as otherwise required by law.
The Escrow Agent shall file annually all information returns with
the Internal Revenue Service and other governmental authorities
documenting such interest income. As required by law, the parties
hereto will provide the Escrow Agent with appropriate Internal
Revenue Service Forms W-9 for tax identification number
certification, or non-resident alien, certifications.
ARTICLE 3
ASSUMPTION OF LIABILITIES
3.01 ASSUMPTION OF LIABILITIES BY THE PURCHASER. The Purchaser hereby
agrees to assume, pay, discharge and perform, from and after the Closing Date,
all obligations and liabilities of the Vendor existing as at the Closing Date
(collectively, the "Assumed Liabilities") under:
(a) the Assumed Contracts and the Lease;
(b) the Permits listed in Schedule 4.01(x);
(c) the trade payables, other accruals and accrued salaries of the
Vendor with respect to the Business as at the Closing Date,
including any accrued liability for vacation
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pay;
(d) the agreements entered into by the Vendor in the Ordinary Course
of Business for the purchase or sale of goods by the Vendor or
the receipt or provision of services by the Vendor; and
(e) any liabilities for outstanding checks drawn on the bank accounts
of the Vendor in excess of the cash balance in the bank accounts
of the Vendor; provided, however, that the Purchaser shall
deposit the full amount of such deficiency in the applicable
account of the Vendor within two (2) business days after the
Closing.
3.02 EXCLUDED LIABILITIES. Other than the Assumed Liabilities set
forth in Section 3.01 above, the Purchaser will not assume or have any
responsibility with respect to any liability of the Vendor or relating to its
Business or properties, whether liquidated or unliquidated, fixed or contingent,
arising by operation of law or otherwise (the "Excluded Liabilities").
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.01 BY THE VENDOR. As a material inducement to the Purchaser to enter
into this Agreement and to close the Transactions, the Vendor makes the
following representations, warranties and agreements to and with the Purchaser
as follows:
(a) ORGANIZATION. The Vendor is a limited liability company duly
organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary power and
authority: (i) to conduct the Business in the manner in which it
is currently being conducted; (ii) to own and use the Purchased
Assets in the manner in which such assets are currently owned and
used; and (iii) to perform its obligations under the Contracts.
The Vendor is not, and has never been, required to be qualified,
authorized, registered or licensed to do business as a foreign
corporation with respect to the Purchased Assets or the Business
in any jurisdiction other than the jurisdictions identified in
Schedule 4.01(a). The Vendor is in good standing as a foreign
corporation in each of the jurisdictions identified in Schedule
4.01(a).
(b) AUTHORIZATION AND EXECUTION. The Vendor has the absolute and
unrestricted right, power and authority to enter into and to
perform its obligations under this Agreement and all other
agreements, certificates and instruments contemplated to be
executed and delivered by the Vendor in connection with this
Agreement, including, without limitation, the Transaction
Agreements to which the Vendor is or may become a party. The
execution, delivery and performance by the Vendor of this
Agreement and such other agreements, certificates and instruments
have been duly authorized by all necessary action on the part of
the Vendor and its members and managers. Each of this Agreement
and such other agreements, certificates and instruments
constitutes, or upon execution and delivery will constitute, the
legal, valid and binding obligations of the Vendor, enforceable
against the Vendor in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency and other
laws affecting the rights of creditors
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generally and except that equitable remedies may be granted only
in the discretion of a court of competent jurisdiction.
(c) OWNERSHIP OF PURCHASED ASSETS. The Vendor is the legal and
beneficial owner of, has exclusive right to possess, use and
occupy and has good and marketable title to, the Purchased
Assets. At or prior to the Closing Date, the Vendor will have
full legal right, power and authority to sell, transfer or assign
the Purchased Assets to the Purchaser free of all Encumbrances.
The Vendor has all necessary corporate power and authority to
sell, assign and transfer the Purchased Assets to the Purchaser,
and upon consummation of such transfer pursuant to this Agreement
the Purchaser will acquire good and marketable title to all of
such Purchased Assets free and clear of all title defects,
Encumbrances and restrictions of any kind, except for the
Permitted Encumbrances shown in Schedule 4.01(c) securing the
Assumed Liabilities specified therein.
(d) NO OTHER AGREEMENTS. No Person has any written or oral agreement,
option, understanding or commitment, or any right or privilege
(whether by law, pre-emptive or contractual) capable of becoming
an agreement, option or commitment, whether directly or
indirectly for, the purchase or other acquisition from the Vendor
of any of the Purchased Assets, other than in the Ordinary Course
of Business and as disclosed on Schedule 4.01(d).
(e) NO CONTRAVENTION; CONSENTS. Neither the execution and delivery of
this Agreement or any of the Transaction Agreements, nor the
consummation or performance of any of the Transactions, will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with or result in a violation of (A)
any of the provisions of the Vendor's certificate of
formation, Amended and Restated LLC Operating Agreement,
as amended from time to time, or any other incorporation
documents, or (B) any resolution adopted by the Vendor's
members, directors or managers;
(ii) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to
challenge any of the Transactions or to exercise any
remedy or obtain any relief under, any Legal Requirement
or any Order to which the Vendor, or any of the assets
owned or used by the Vendor, is subject;
(iii) except as disclosed on Schedule 4.01(e), contravene,
conflict with or result in a violation of any of the terms
or requirements of, or give any Governmental Body the
right to revoke, withdraw, suspend, cancel, terminate or
modify, any Governmental Authorization or other Permit
that is held by the Vendor or any of its employees or that
otherwise relates to the Business or to any of the assets
owned or used by the Vendor;
(iv) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of
any of the Assumed Contracts;
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(v) give any Person the right to (A) declare a default or
exercise any remedy under any Assumed Contract, (B)
accelerate the maturity or performance of any Assumed
Contract, or (C) cancel, terminate or modify any Assumed
Contract;
(vi) except for payments to management of the Vendor, give any
Person the right to any payment by the Vendor or give rise
to any acceleration or change in the award, grant, vesting
or determination of options, warrants, rights, severance
payments or other contingent obligations of any nature
whatsoever of the Vendor in favor of any Person; or
(vii) result in the imposition or creation of any Encumbrance
upon or with respect to any asset owned or used by the
Vendor.
Except as set forth in Schedule 4.01(e), the Vendor was not, is
not and will not be required to make any filing with or give any
notice to, or to obtain any consent from, any Person in
connection with the execution and delivery of any of the
Transaction Agreements or the consummation or performance of any
of the Transactions.
(f) BUSINESS AND ASSETS. The Purchased Assets owned or leased by the
Vendor are adequate for the lawful conduct, ownership and
operation of the Business. During the two (2) years preceding the
date of this Agreement, there has not been any significant
interruption of operations (being an interruption of more than
one day) of the Business due to inadequate maintenance of any of
the Purchased Assets. With the exception of inventory in transit,
all the Purchased Assets are situated at the locations set out in
Schedule 4.01(f).
(g) LEASED PROPERTY. All leases described in Schedule 4.01(g) and (h)
or otherwise constituting a Purchased Asset are valid, binding
and enforceable in accordance with their terms, and are in full
force and effect; there are no existing defaults by the Vendor
or, to the Vendor's knowledge, the other party thereunder, and no
event of default has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder. The Vendor has
delivered to the Purchaser complete copies of all such leases.
The Vendor has all necessary corporate power and authority to
assign the real and personal property leasehold interests to be
assigned to the Purchaser pursuant to this Agreement, and upon
consummation of such assignment (and the receipt of any necessary
consents with respect to the transfer of any personal property
leases) pursuant to this Agreement the Purchaser will obtain a
valid leasehold interest in such leases, in each case free and
clear of all title defects, Encumbrances and restrictions of any
kind.
(h) REAL PROPERTY. The Vendor does not own any real property or any
interest in real property, except for the leasehold created under
the real property lease identified in Schedule 4.01(h). Schedule
4.01(h) provides a complete description of the
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premises covered by said lease and the facilities, improvements
and fixtures located on such premises.
(i) The Vendor enjoys peaceful and undisturbed possession of
such premises.
(ii) To the Vendor's knowledge, all improvements on all such
real estate conform to applicable Legal Requirements,
including, without limitation, applicable environmental
and occupational safety and health laws and regulations
and zoning and building ordinances, and the properties are
zoned for the various purposes for which such real estate
is presently being used. To the Vendor's knowledge, none
of the buildings and structures located on such real
property, nor any appurtenances thereto or equipment
therein, nor the operation or maintenance thereof,
violates in any manner any restrictive covenants or
encroaches on any property owned by others, nor does any
building or structure of third parties encroach upon such
property. No condemnation proceeding is pending or, to the
best of the Vendor's knowledge, threatened which would
preclude or impair the use of any such property by the
Vendor or the Purchaser for the uses for which intended by
it.
(i) EQUIPMENT. Schedule 4.01(i) identifies all equipment, furniture,
fixtures, improvements and other tangible assets owned by the
Vendor and used in connection with the Business, and accurately
sets forth the date of acquisition, original cost and book value
of each of said assets. Schedule 4.01(i) further identifies all
personal property and other tangible assets leased to the Vendor
and used in connection with the Business. Each asset identified
or required to be identified in Schedule 4.01(i):
(i) is structurally sound, free of defects and deficiencies
and in good condition and repair (ordinary wear and tear
excepted);
(ii) complies in all material respects with, and is being
operated and otherwise used in material compliance with,
all applicable Legal Requirements; and
(iii) is adequate for the uses to which it is being put.
(j) ENVIRONMENTAL MATTERS.
(i) Except as disclosed in Schedule 4.01(j), the Vendor, the
operation of the Business, the Purchased Assets owned or
used by the Vendor and the use, maintenance and operation
thereof by Vendor, or to the Vendor's knowledge, by any
other person have been and are in compliance with all
Environmental Laws. The Vendor has complied with all
reporting and monitoring requirements under all
Environmental Laws. The Vendor has received no notice of
any non-compliance with any Environmental Laws.
(ii) The Vendor has obtained all Environmental Permits
necessary in order to operate the Business in compliance
with Environmental Laws, each of which is listed in
Schedule 4.01(x), and complete and correct copies
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thereof have been provided to the Purchaser. Each
Environmental Permit is valid, subsisting and in good
standing, and the Vendor is not in default or breach of
any Environmental Permit and no proceeding is pending or
threatened to revoke or limit any Environmental Permit.
(iii) Except as disclosed in Schedule 4.01(x), or except in
compliance with applicable Environmental Laws, no
Hazardous Materials have come to be located on or in any
of the Purchased Assets owned, leased or used by the
Vendor, during the term of the Lease, or to the Vendor's
knowledge, any time prior to Closing, and except in
compliance with applicable Environmental Laws, no Release
of any Hazardous Materials has occurred on or from the
properties and assets of the Vendor during the term of the
Lease, or to Vendor' s knowledge, any time prior to
Closing, or has resulted from the operation of the
Business and the conduct of all other activities of the
Vendor. Except as disclosed in Schedule 4.01(x), or except
in compliance with applicable Environmental Laws, the
Vendor has not used any of the Purchased Assets, or
properties or assets leased or used by it in connection
with the Business, to produce, generate, store, handle,
transport or dispose of any Hazardous Materials and none
of the Leased Property or property used by the Vendor in
connection with the Business has been or is being used by
Vendor, or to Vendor's knowledge by any other person, as a
landfill or waste disposal site.
(iv) Without limiting the generality of the foregoing, except
as disclosed in Schedule 4.01(j), there are no underground
or surface storage tanks or urea formaldehyde foam
insulation, asbestos, polychlorinated biphenyls (PCBs) or
radioactive substances located on or in any of the
properties or assets owned, leased or used by the Vendor
in connection with the Business that have been placed at
such properties or assets during the Vendor's ownership or
operation thereof, or to the Vendor's knowledge, at any
time prior thereto.
(v) The Vendor has made available to the Purchaser true and
complete copies of all environmental audits, evaluations,
assessments, studies or tests relating to the Purchased
Assets of which it is aware.
(k) PROPRIETARY ASSETS. Schedule 4.01(k) sets out each Proprietary
Asset that is owned by or licensed to the Vendor and used in
connection with the Business or that is otherwise used or useful
in connection with the Business as presently conducted,
specifying for each such asset the owner(s) of such asset and, if
the owner is not the Vendor, the royalties, honoraria, fees or
other payments payable by the Vendor to any person by reason of
the ownership, use, license, sale or disposition of such
Proprietary Assets. The Vendor has delivered to the Purchaser a
complete copy of each agreement pursuant to which the Vendor uses
a Proprietary Asset that is now owned by the Vendor, including
all amendments, waivers and modifications thereto.
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(i) the Vendor has taken all measures and precautions in the
Ordinary Course of Business to protect the confidentiality
and value of each Proprietary Asset identified or required
to be identified in Schedule 4.01(k);
(ii) The Vendor is not infringing, and has not at any time
infringed or received any written notice or other written
communication of any actual, alleged, possible or
potential infringement of, any Proprietary Asset owned or
used by any other Person. To the knowledge of the Vendor,
no other Person is infringing, and no proprietary asset
owned or used by any other Person infringes or conflicts
with, any Proprietary Asset owned or used by the Vendor.
(iii) The Proprietary Assets identified in Schedule 4.01(k)
constitute all of the Proprietary Assets necessary to
enable the Vendor to conduct the Business in the manner in
which its business is currently being conducted,
including, without limitation, any database management,
network monitoring and internal software development.
Except as identified in Schedule 4.01(k), all Proprietary
Assets identified on Schedule 4.01(k) that are not owned
by the Vendor are used by the Vendor pursuant to a
royalty-free, fully paid up, perpetual license that is
transferable to the Purchaser.
(l) FINANCIAL STATEMENTS. The Audited Financial Statements and the
Unaudited Financial Statements set forth in Schedule 4.01(l) have
been, or will be, prepared in accordance with GAAP (subject to
usual year-end adjustments in the case of the Unaudited Financial
Statements) applied on a basis consistent with prior periods and
consistently applied throughout the periods indicated and fairly,
completely and accurately present, or will present when
completed, the financial position of the Vendor and the Business
and the results of its operations as of the dates and throughout
the periods indicated and there has been no material adverse
change in the financial position of the Vendor from that
reflected in the Audited Financial Statements. All material
financial transactions of the Vendor relating to the Business
have been accurately recorded in its books and records.
(m) ACCOUNTS RECEIVABLE. The Trade Accounts Receivables reflected on
the balance sheet forming part of the Audited Financial
Statements and all accounts receivable arising after the date of
such Audited Financial Statements are bona fide and collectible,
net of the accrual for bad debts reflected on the Vendor's
unaudited balance sheet or the underlying accounting books and
record as of October 31, 1999. The Trade Accounts Receivable
represent valid obligations arising from actual sales of goods or
performances of services in the Ordinary Course of Business. No
account debtor has any valid set-off, deduction or defense with
respect thereto and no account debtor has asserted any such
set-off, deduction or defense.
(n) INVENTORY. The inventory of the Vendor reflected on the balance
sheet forming part of the Audited Financial Statements was, and
the current inventory of the Vendor is, in useable and saleable
condition in the Ordinary Course of Business
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and, in the case of the inventory reflected on such balance
sheet, at an amount not less than the amounts carried therein.
The finished goods, work in process, raw materials and other
materials and supplies included in such inventory are recorded in
accordance with GAAP.
(o) CONTRACTS. Schedule 4.01(o) identifies each Assumed Contract, and
the Vendor has delivered to the Purchaser accurate and complete
copies of the same, including all amendments thereto. Except as
identified in Schedule 4.01(o), all Assumed Contracts are in
writing. Each Assumed Contract is valid and in full force and
effect, and is enforceable by the Vendor in accordance with its
terms.
(p) ABSENCE OF CHANGES. Except as set forth in Schedule 4.01(p), with
respect to the Business, the Vendor has not, since September 30,
1999:
(i) paid or satisfied any obligation or liability, absolute or
contingent, other than current liabilities or obligations
disclosed in the Audited Financial Statements and current
liabilities or obligations incurred since the date of such
Audited Financial Statements in the Ordinary Course of
Business;
(ii) incurred any obligation or liability (whether absolute,
accrued, contingent or otherwise and whether due or to
become due) other than in the Ordinary Course of Business;
(iii) assigned, transferred, pledged, mortgaged or granted any
security interest other than the Permitted Encumbrances
listed in Schedule 4.01(c) on the Purchased Assets;
(iv) waived or cancelled, written off or written down any
rights or claims or made any gift, other than in the
Ordinary Course of Business, consistent with past
practice;
(v) changed any accounting or tax practices;
(vi) sold or otherwise disposed of any fixed or capital assets
having a fair market value, in the case of any single sale
or disposition, in excess of $5,000 and, in the case of
all sales and dispositions, in excess of $20,000 in the
aggregate;
(vii) made any capital expenditures, in the case of any single
capital expenditure, in excess of $5,000 and, in the case
of all capital expenditures, in excess of $20,000 in the
aggregate;
(viii) failed to engage in standard distribution of its products
in the Ordinary Course of Business, other than normal
promotional activities and retail features, during the
twelve (12) month period prior to the date of the
Unaudited Financial Statements;
(ix) made any material change in the manner of its billings, or
the credit terms made available by it, to any of its
customers;
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(x) made or suffered any change or changes in the financial
condition, assets, liabilities or the Business which,
individually or in the aggregate, have materially
adversely affected or could materially adversely affect
the financial condition, assets, liabilities or the
Business;
(xi) suffered or incurred any damage, destruction or loss,
whether or not covered by insurance, which has materially
adversely affected or could materially adversely affect
the financial condition, assets or the Business;
(xii) made any increase in the compensation or other benefits
payable or to become payable to its employees, other than
general salary increases in the Ordinary Course of
Business, consistent with past practice, or any increase
in the compensation or other benefits payable or to become
payable to any officer or director or any increase in the
benefits provided under any of its pension plans or other
employee benefit plans;
(xiii) failed to replenish its inventories and supplies in a
usual and customary manner consistent with good business
practices prevailing in the industry in which the Business
operates; or
(xiv) authorized or agreed or otherwise become committed to do
any of the foregoing.
(q) AGREEMENTS AND COMMITMENTS. Except as set out in the Disclosure
Schedules, the Vendor is not a party to or bound by any:
(i) Assumed Contract that expires or may expire, if the same
is renewed or extended at the unilateral option of any
other Person, more than one year after the date hereof;
(ii) distributor, sales, advertising, agency or manufacturer's
representative contract;
(iii) Assumed Contract for the purchase of materials, supplies
or services that requires payment of more than $5,000, in
the case of any Assumed Contract, or, in the case of all
such Assumed Contracts, in excess of $25,000 in the
aggregate, except for purchases of inventories in the
Ordinary Course of Business;
(iv) Assumed Contract for the purchase or sale of any equipment
or fixed or capital assets having a fair market value in
excess of $10,000;
(v) contract for the sale of any material assets, other than
sales of inventory to customers in the Ordinary Course of
Business;
(vi) any leasing transaction of the type required to be
capitalized in accordance with GAAP and that constitutes
an Assumed Contract;
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(vii) management, consulting or similar Contract;
(viii) confidentiality, secrecy or non-disclosure contract
(whether the Vendor is a beneficiary or obligor
thereunder) relating to any Proprietary Asset or
confidential information or any non-competition or similar
contract;
(ix) license or royalty agreement relating to Proprietary
Assets;
(x) contract, agreement or commitment to make any gift of any
of its Purchased Assets;
(xi) lease, agreement in the nature of a lease or agreement to
lease whether as lessor or lessee, and whether in respect
of real property or personal property, with respect to the
Purchased Assets, except for any lease or agreement in the
nature of a lease relating to personal property where the
aggregate annual payments under such lease or agreement
and under any related service or maintenance or similar
contract do not exceed $5,000; or
(xii) Assumed Contract that was not made in the Ordinary Course
of Business, consistent with past practice.
(r) NO DEFAULT UNDER AGREEMENTS. The Vendor is not in default or
breach of any Assumed Contract or other contract, agreement,
lease or other instrument relating to the Business to which it is
a party or by which it may be bound (including the contracts,
agreements, leases and other instruments referred to the
Disclosure Schedules) and there exists no state of facts that
after notice or the passage of time, or both, would constitute
such a default or breach, and all such contracts, agreements,
leases and other instruments are now in good standing and the
Vendor is entitled to all benefits, rights and privileges
thereunder.
(s) NON-ARM'S LENGTH TRANSACTIONS. With respect to the Business,
except as disclosed in Schedule 4.01(s) and except for contracts
of employment, consulting agreements and loans to the Vendor, the
Vendor is not a party to any contract or agreement with any
officer, director, employee, member or any Person not dealing at
arm's length (within the meaning of the Code) or any Affiliate of
any of the foregoing.
(t) LITIGATION. Except as set forth in Schedule 4.01(t), there is no
pending Proceeding, and, to the best of the Vendor's knowledge,
no Person has threatened to commence any Proceeding:
(i) that involves the Vendor or that otherwise relates or
likely would affect the Business or the Purchased Assets
(whether or not the Vendor is named as a party thereto);
or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise
interfering with, any of the Transactions.
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To the Vendor's knowledge, no event has occurred, and no
claim, dispute or other condition or circumstance exists, that
might directly or indirectly give rise to or serve as a basis for
the commencement of any such Proceeding.
To the best of the Vendor's knowledge, no officer or
Employee of the Vendor is subject to any Order that prohibits
such officer or Employee from engaging in or continuing any
conduct, activity or practice relating to the Business. There is
no proposed Order that, if issued or otherwise put into effect,
(i) may be reasonably likely to have an adverse effect on the
Purchased Assets or the Business, or the condition, assets,
liabilities, operations, financial performance, net income or
prospects of either thereof (or on any aspect or portion thereof)
or on the ability of the Vendor to comply with or perform any
covenant or obligation under any of the Transaction Agreements;
or (ii) may have the effect of preventing, delaying, making
illegal or otherwise interfering with any of the Transactions.
(u) EMPLOYEE AND LABOR MATTERS. Schedule 4.01(u) sets forth, with
respect to each employee of the Vendor (an "Employee") (including
any Employee who is on a leave of absence or on layoff status):
(i) the name of such Employee and the date as of which such
Employee was originally hired by the Vendor;
(ii) such Employee's title, and a description of such
Employee's duties and responsibilities;
(iii) the aggregate dollar amount of the compensation (including
wages, salary, commissions, director's fees, fringe
benefits, bonuses, profit sharing payments and other
payments or benefits of any type) received by such
Employee with respect to services performed for the Vendor
in 1998;
(iv) such Employee's annualized compensation as of the date of
this Agreement;
(v) each Employee Benefit Plan in which such Employee
participates or is eligible to participate;
(vi) any Governmental Authorization that is held by such
Employee and that relates to or is useful in connection
with the Vendor's business; and
(vii) any accrued pension, retirement, vacation, insurance,
option or other form of benefit plan or obligation to the
Employees prior to the Closing Date.
Except as provided in Schedule 4.01(u), the Vendor is
current in all of its payments to officers, directors, Employees
and agents of the Vendor for any wages, salaries, commissions,
bonuses and other compensation for any services performed by them
or amounts required to be reimbursed to such officers, directors,
employees or agents in connection with their services.
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To the best of the Vendor's knowledge, each Employee has received
all appropriate Governmental Authorizations under U.S.
immigration laws to accept employment with the Vendor.
The Vendor is not a party to or bound by, and has never been a
party to or bound by, any union contract, collective bargaining
agreement or similar Contract in connection with the Purchased
Assets or otherwise with respect to the Business.
The employment of each of the Employees, other than those with
disclosed employment or consulting agreements, is terminable by
the Vendor "at will". The Vendor has delivered to the Purchaser
accurate and complete copies of all current employee manuals and
handbooks, disclosure materials, policy statements and other
materials relating to the employment of such Employees.
Except as disclosed on Disclosure Schedule 4.01(u), to the
knowledge of the Vendor, in connection with the Business: (i) no
Employee intends to terminate his employment with the Vendor
(except as contemplated hereby) or to not accept employment with
the Purchaser; (ii) no Employee has received an offer to join a
business that may be competitive with the Vendor's business; and
(iii) no Employee of the Vendor is a party to or is bound by any
confidentiality agreement, noncompetition agreement or other
Contract (with any Person) that may have an adverse effect on (A)
the performance by such Employee of any of his duties or
responsibilities as an employee of the Vendor or the Purchaser,
or (B) the Vendor's or the Purchaser's business or operations.
The Vendor is not engaged, and has never been engaged, in any
unfair labor practice of any nature. There has never been any
slowdown, work stoppage, labor dispute or union organizing
activity, or any similar activity or dispute, affecting the
Vendor or any of its employees. There is not now pending, and, to
the knowledge of the Vendor, no Person has threatened to
commence, any such slowdown, work stoppage, labor dispute or
union organizing activity or any similar activity or dispute. To
the Vendor's knowledge, no event has occurred, and no condition
or circumstance exists, that might directly or indirectly give
rise to or provide a basis for the commencement of any such
slowdown, work stoppage, labor dispute or union organizing
activity or any similar activity or dispute.
(v) EMPLOYEE PLANS; ERISA. The Employee Manual of the Vendor attached
hereto as Schedule 4.01(v) sets forth all of the Vendor's
Employee Benefit Plans.
(i) No Employee Benefit Plan:
(A) provides or provided any benefit guaranteed by the
Pension Benefit Guaranty Corporation;
(B) is or was a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA; or
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(C) is or was subject to the minimum funding standards
of Section 412 of the Code or Section 302 of ERISA
other than a defined contribution plan disclosed in
Schedule 4.01(v).
(ii) There is no Person that (by reason of common control or
otherwise) is or has at any time been treated together
with the Vendor as a single employer within the meaning of
Section 414 of the Code.
(iii) The Vendor has made available to the Purchaser copies of
its material Employee Benefit Plans and all documents
relating to such Plans.
To the Vendor's knowledge, each Employee Benefit Plan is
being operated and administered in full compliance with the
provisions thereof, and each such Plan has at all times been
operated and administered in full compliance with the provisions
thereof. Each contribution or other payment that is required to
have been accrued or made under or with respect to any such
Employee Benefit Plan has been duly accrued and made on a timely
basis.
To the Vendor's knowledge, each Employee Benefit Plan
complies and is being operated and administered in full
compliance with, and each such Plan has at all times complied and
been operated and administered in full compliance with, all
applicable reporting, disclosure and other requirements of ERISA
and the Code and all other applicable Legal Requirements. The
Vendor has never incurred any Liability to the Internal Revenue
Service nor any other Governmental Body with respect to any
Employee Benefit Plan; and no event has occurred, and no
condition or circumstance exists, that might (with or without
notice or lapse of time) give rise directly or indirectly to any
such Liability. Neither the Vendor nor any Person that is or was
an administrator or fiduciary of any Employee Benefit Plan, has
engaged in any transaction or has otherwise acted or failed to
act in a manner that has subjected or may subject the Vendor to
any Liability for breach of any fiduciary duty or any other duty.
(w) COMPLIANCE WITH LAWS. Except as set forth in Schedule 4.01(w),
with respect to the Purchased Assets and the Business:
(i) the Vendor is in full compliance with each Legal
Requirement that is applicable to it or to the conduct of
its business or the ownership or use of any of its assets
except to the extent the failure to so comply is not
reasonably likely to have a material adverse effect;
(ii) to the Vendor's Knowledge, no event has occurred, and no
condition or circumstance exists, that might (with or
without notice or lapse of time) constitute or result
directly or indirectly in a violation by the Vendor of, or
a failure on the part of the Vendor to comply with, any
Legal Requirement; and
(iii) the Vendor has not received, at any time, any written
notice or other communication from any Governmental Body
or any other Person regarding (i) any actual, alleged,
possible or potential violation of, or
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failure to comply with, any Legal Requirement; or (ii) any
actual, alleged, possible or potential obligation on the
part of the Vendor to undertake, or to bear all or any
portion of the cost of, any cleanup or any remedial,
corrective or response action of any nature.
To the knowledge of the Vendor, with respect to the
Purchased Assets and the Business, no Governmental Body has
proposed or is considering any Legal Requirement that, if adopted
or otherwise put into effect, (i) would be reasonably likely to
have an adverse effect on the Business, the Purchased Assets or
the Vendor's business, condition, assets, liabilities,
operations, financial performance, net income or prospects, or on
the ability of the Vendor to comply with or perform any covenant
or obligation under any of the Transaction Agreements; or (ii)
may have the effect of preventing, delaying, making illegal or
otherwise interfering with any of the Transactions.
(x) PERMITS AND REGISTRATIONS.
(i) Schedule 4.01(x) identifies
(A) each Governmental Authorization and Permit that is
held by the Vendor that relates to or is useful in
connection with the Purchased Assets or the Business; and
(B) each other Governmental Authorization and Permit that,
to the knowledge of the Vendor, is held by any of the
Vendor's Employees and relates to or is useful in
connection with the Purchased Assets or the Business.
(ii) The Vendor has delivered to the Purchaser complete copies
of all of the Governmental Authorizations and Permits
identified in Schedule 4.01(x), including all renewals
thereof and all amendments thereto. Each Governmental
Authorization and Permit identified or required to be
identified in Schedule 4.01(x) is valid and in full force
and effect.
(iii) The Governmental Authorizations and Permits identified in
Schedule 4.01(x) constitute all of the Governmental
Authorizations necessary (i) to enable the Vendor to
conduct the Business in the manner in which such business
is currently being conducted and (ii) to permit the Vendor
to own and use its assets in the manner in which they are
currently owned and used.
(y) TAX MATTERS.
(i) The Vendor has (A) timely filed all Tax Returns and
reports for Taxes, including information returns, that are
required to have been filed in connection with, relating
to, or arising out of the Business or the Purchased
Assets, (B) paid all Taxes that are shown to have come due
pursuant to such returns or reports; and (C) paid all
other Taxes not required to be reported on returns in
connection with, relating to, or arising out of, or
imposed on the property of the Business or the Purchased
Assets
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for which a notice of assessment or demand for payment has
been received or which have otherwise become due.
(ii) All such returns or reports were complete and accurate in
all material respects at the time of filing and do not
contain a disclosure statement under Section 6662 of the
Code.
(iii) There are no unpaid Taxes with respect to a Pre-Closing
Period that are or could give rise to a lien on the
Business or the Purchased Assets, except for current Taxes
not yet due and payable.
(iv) There are no pending audits or, to the Vendor's knowledge,
threatened audits or assessments relating to Taxes with
respect to the Business or the Purchased Assets. There is
no unassessed Tax deficiency proposed or threatened
against the Vendor relating to or affecting the Business
or the Purchased Assets, nor is any action or proceeding
pending, or to the Vendor's knowledge threatened for
assessment, reassessment or collection of Taxes.
(v) None of the Purchased Assets (i) is property that is
required to be treated as owned by another Person pursuant
to the "safe harbor lease" provisions of former Section
168(f)(8) of the Code, (ii) is "tax-exempt use property"
within the meaning of Section 168(h) of the Code or (iii)
directly or indirectly secures any debt the interest on
which is tax-exempt under Section 103(a) of the Code.
(vi) The Purchaser is not required to withhold tax from the
Purchase Price by reason of Section 1445 of the Code or
similar provision of law of any state or municipality.
(z) CUSTOMERS AND SUPPLIERS. Schedule 4.01(z) sets out the major
customers (being those customers accounting for more than 80% of
sales for the period January 1, 1999 to September 30, 1999) and
suppliers of the Business and there has been no termination or
cancellation of, and, except as set forth on Schedule 4.01(z) no
modification or change in, the business relationship of the
Vendor with any major customer or group of major customers. The
Vendor has no reason to believe that the benefits of any
relationship with any of the major customers or suppliers of the
Business will not continue after the Closing Date in
substantially the same manner as prior to the date of the
Agreement.
(aa) INSURANCE. Schedule 4.01(aa) sets out all insurance policies held
by the Vendor in respect of the Purchased Assets or the Business,
including the name of the insurer, the risks insured against and
the amount of coverage. All such policies are in full force and
effect as of the date hereof.
(bb) NO LIABILITIES. Other than the Assumed Liabilities, there are no
liabilities of the Vendor, whether or not accrued and whether or
not determined or determinable, in respect of which the Purchaser
may become liable on or after the completion of the Transactions.
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(cc) SOLVENCY. The Vendor represents and warrants to the Purchaser
that the Purchase Price represents reasonably equivalent value
for the Purchased Assets and the Assumed Liabilities, and that,
upon consummation of the Closing, after giving effect to the
consummation of all of the Transactions, including, without
limitation, receipt of the payments to be made to the Vendor as
contemplated in this Agreement, the Vendor will not (i) be
insolvent (either because its financial condition is such that
that sum of its debts is greater than the fair value of its
assets or because the present fair saleable value of its assets
will be less than the amount required to pay its probable
liability on its debts as they become absolute and matured), (ii)
have unreasonably small capital with which to engage in its
business or (iii) have incurred or planned to incur debts beyond
its ability to pay as they become absolute and matured.
(dd) FULL DISCLOSURE. None of the Transaction Agreements or any
document or certificate delivered pursuant to any thereof
contains or will contain any untrue statement of fact, and none
of the Transaction Agreements or any document or certificate
delivered pursuant to any thereof omits or will omit to state any
fact necessary to make any of the representations, warranties or
other statements or information contained therein not misleading.
4.02 BY THE VENDOR.
(a) The Vendor represents and acknowledges that it is a sophisticated
investor with knowledge and experience in business and financial
matters, knows, or has had the opportunity to acquire, all
information concerning the business, affairs, financial condition
and prospects of IMSC and the Purchaser, which it deems relevant
to make a fully informed decision regarding the consummation of
the transactions contemplated hereby and is able to bear the
economic risk and lack of liquidity inherent in holding the
Common Stock. Without limiting the foregoing, the Vendor
understands and acknowledges that none of the Purchaser, IMSC or
anyone acting on its behalf has made any representations or
warranties other than those contained herein respecting IMSC and
the Purchaser, the future conduct of the business of IMSC and the
Purchaser, and the Vendor has not relied upon any representations
or warranties other than those contained herein in the belief
that they were made on behalf of IMSC and the Purchaser.
(b) The Vendor agrees, acknowledges and confirms that it has been
advised and understands as follows:
(i) The Vendor is acquiring the shares of Common Stock to be
issued for its own account and without a view to any
distribution or resale thereof, other than a distribution
or resale that, in the opinion of counsel for the Vendor
(which opinion shall be satisfactory in form and substance
to IMSC), may be made without violating the registration
provisions of the Securities Act of 1933, as amended (the
"1933 Act") or any applicable blue sky laws. The Vendor
acknowledges that the shares of Common Stock are
"restricted securities" within the meaning of Rule 144
under the 1933 Act and have not been registered under the
1933 Act or any state securities
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laws and thereafter must be held indefinitely unless they
are subsequently registered under the 1933 Act and
applicable blue sky laws or an exemption from such
registration is available. Subject to the terms and
conditions of the Registration Rights Agreement dated the
date hereof by and between the Vendor and IMSC (the
"Registration Rights Agreement"), IMSC is under no
obligation to register the shares of Common Stock under
the 1933 Act or any state securities law or to take any
action that would make available an exemption from such
registration.
(ii) There shall be endorsed on the certificates evidencing the
shares of Common Stock delivered pursuant to Section 2.03
and 2.05 subsequent to Closing a legend substantially
similar to the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT") OR THE SECURITIES LAWS OF ANY OTHER
JURISDICTION AND ARE "RESTRICTED SECURITIES" AS DEFINED
BY RULE 144 UNDER THE 1933 ACT. THE SHARES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR DISTRIBUTED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
REGISTERING THE SHARES UNDER THE 1933 ACT AND THE
SECURITIES LAWS OF ANY STATE REQUIRING SUCH
REGISTRATION, OR IN LIEU THEREOF, AN OPINION OF
COUNSEL, WHICH OPINION IS SATISFACTORY TO THE ISSUER OF
THE SHARES, TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACTS. WITHOUT LIMITING THE
FOREGOING, THE SHARES MAY NOT BE SOLD WITHIN TWELVE
MONTHS AFTER THE DATE OF THIS CERTIFICATE WITHOUT AN
OPINION OF COUNSEL, WHICH OPINION IS SATISFACTORY TO
THE ISSUER, THAT SUCH SALE DOES NOT VIOLATE THE
CALIFORNIA CORPORATE SECURITIES LAW OF 1968, AS
AMENDED, OR THE RULES AND REGULATIONS THEREUNDER."
(iii) Except under certain limited circumstances, the above
restrictions on the transfer of the shares of Common Stock
will also apply to any and all shares of capital stock or
other securities issued or otherwise acquired with respect
to such shares, including, without limitation, shares and
securities issued or acquired as a result of any stock
dividend, stock split or exchange or any distribution of
shares or securities pursuant to any corporate
reorganization, reclassification or similar event.
(iv) IMSC and its transfer agent may refuse to effect a
transfer of any of the shares of Common Stock by the
Vendor or any of its successors, personal representatives
or assigns except in compliance with applicable securities
laws.
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4.03 BY THE PURCHASER AND IMSC. As a material inducement to the Vendor
to enter into this Agreement, each of the Purchaser and IMSC makes the following
representations and warranties:
(a) ORGANIZATION. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and has all necessary power and authority and has the
corporate power and capacity to enter into this Agreement and the
Transaction Agreements and to perform its obligations hereunder
and thereunder. IMSC is a corporation duly organized, validly
existing and in good standing under the laws of State of Nevada
and has all necessary power and authority to enter into this
Agreement and the Transaction Agreements and to perform its
obligations hereunder and thereunder.
(b) AUTHORIZATION AND EXECUTION. Each of the Purchaser and IMSC,
respectively, has the absolute and unrestricted right, power and
authority to enter into and to perform its obligations under this
Agreement and all other agreements, certificates and instruments
contemplated to be executed and delivered by the Purchaser and
IMSC, respectively, in connection with this Agreement, including,
without limitation, the Transaction Agreements to which either
the Purchaser or IMSC is or may become a party. The execution,
delivery and performance by each of the Purchaser and IMSC of
this Agreement and such other agreements, certificates and
instruments have been duly authorized by all necessary action on
the part of their respective boards of directors and officers.
Each of this Agreement and such other agreements, certificates
and instruments constitutes, or upon execution and delivery will
constitute, the legal, valid and binding obligations of the
Purchaser and IMSC, enforceable against the Purchase and IMSC,
respectively, in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency and other laws affecting
the rights of creditors generally and except that equitable
remedies may be granted only in the discretion of a court of
competent jurisdiction.
(c) NO CONTRAVENTION. Neither the entering into of this Agreement,
the purchase of the Purchased Assets nor the performance by the
Purchaser or IMSC of any of its other obligations under this
Agreement or the Transaction Agreements to which it is a party
will contravene, breach or result in any default under the
articles, by-laws, or other organizational documents of the
Purchaser or IMSC, as the case may be, or under any mortgage,
lease, agreement, other legally binding instrument, license,
permit, statute, regulation, order, judgment, decree or law to
which it is a party or by which it may be bound.
(d) CONSENTS AND APPROVALS. No authorization, consent or approval of,
or filing with or notice to, any governmental agency, regulatory
body, court or other Person is required in connection with the
execution, delivery or performance of this Agreement or the
Transaction Agreements to which the Purchaser or IMSC is a party
by the Purchase or IMSC or the purchase of any of the Purchased
Assets hereunder.
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(e) STATUS OF COMMON STOCK. The shares of Common Stock, when issued
pursuant to the terms of this Agreement, will be duly authorized,
validly existing and outstanding, fully paid and non-assessable.
(f) IMSC'S SEC FILINGS. IMSC's report on Form 10-SB, as amended and
filed on July 16, 1999, does not contain a misstatement of
material fact or fail to state a material fact required to be
stated therein or necessary to make the statements made therein
not misleading as of the date such filing was made other than (i)
an overstatement of goodwill and (ii) the failure to disclose
certain stock options. IMSC is presently responding to a comment
letter from the SEC with respect to such Form 10-SB, as amended,
and will file a further amended Form 10-SB in response to such
comments. Since July 16, 1999, the following constitute
undisclosed material facts:
(i) the working capital ratio of IMSC has improved from 1:1 at
March 31, 1999 to 1.1:1 at September 30, 1999.
(ii) shareholder's equity in IMSC has improved from Canadian
$3.9 million at March 31, 1999 to Canadian $12.2 million
at September 30, 1999.
(iii) The financial position of IMSC as at the date hereof is no
worse than September 30, 1999.
(iv) IMSC has, through its subsidiary International Menu
Solutions, Inc. ("IMSI"), issued special warrants for an
aggregate consideration of Canadian $7 million.
(v) IMSI purchased all of the issued and outstanding shares of
The Ultimate Cookie Co., Inc.
4.04 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and obligations of the Vendor and the Purchaser hereunder
and under the Transaction Agreements shall remain in full force and effect,
shall survive (without limitation) the Closing and shall continue until the
later of (a) December 31, 2001 to the extent that the Vendor elects to receive
the 2001 Final Payment pursuant to Section 2.05(c) or (b) December 31, 2002 to
the extent that the Vendor elects to receive the 2002 Final Payment pursuant to
Section 2.05(e).
ARTICLE 5
EMPLOYEES OF THE BUSINESS
5.01 PROFESSIONAL SERVICES AGREEMENT. As of the date hereof, the
Vendor and the Purchaser shall have executed that certain Professional Services
Agreement (the "Professional Services Agreement") providing for all of the
Vendor's Employees to remain the Employees of the Vendor after the Closing Date
up to and including December 31, 1999.
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ARTICLE 6
COVENANTS OF PARTIES
6.01 PURCHASER TO MAINTAIN BOOKS AND RECORDS OF VENDOR. The Purchaser
agrees that it will preserve the books and records of the Business and the
Purchased Assets received from the Vendor on the Closing Date for a period of
six (6) years from the Closing Date, or for such longer period as is required by
applicable law. The Purchaser agrees to permit the Vendor or its authorized
representatives reasonable access thereto in connection with the affairs of the
Vendor relating to matters contained in the books and records. The Vendor agrees
that the Purchaser is not responsible or liable to the Vendor for or as a result
of any accidental loss or destruction of or damage to any such books or records.
6.02 COVENANTS OF THE PURCHASER AND IMSC. During the period from the
Closing Date until the later of December 31, 2001 or December 31, 2002 dependent
on when the Purchase Price has been finally determined pursuant to Section 2.05,
each of the Purchaser and IMSC agree and covenant as follows:
(a) as of January 1, 2000, all Employees in the sales and finance
departments of the Vendor who have performed their work to the
satisfaction of the Purchaser from November 1, 1999 through
December 31, 1999, will be re-hired by the Purchaser, with the
exception of Vicki Huxtable;
(b) the integration of financial departments of IMSC and the
Purchaser shall be completed as the Purchaser and IMSC shall
determine in their sole and absolute discretion;
(c) the Purchaser shall maintain the research and development program
of the Vendor substantially as structured and operated by the
Vendor as of the Closing Date with certain variations as required
by the Purchaser for reasonable business purposes;
(d) if and to the extent that IMSC adopts procedures to streamline
its program development, the home meal replacement program
development procedures of the Purchaser will be streamlined with
those of IMSC;
(e) that Cliff Marquart will become the President of the Purchaser as
of the Closing Date with responsibility for (i) business
development in the United States, (ii) assisting Michael Steele
on selected new financing initiatives and United States
acquisitions as set forth in Section 6.02(g) below and (iii) for
the Purchaser's overall operations;
(f) the right of the Vendor to one designated person to have the
right to attend, as an observer, meetings of the board of
directors of IMSC, subject to execution of a customary
confidentiality agreement, and one seat on the management
advisory board during the period to and including the earlier of
December 31, 2001 or December 31, 2002 dependent on when the
Purchase Price has been finally determined pursuant to Section
2.05;
(g) that IMSC will use its best efforts to make available to the
Purchaser an aggregate amount of $15,000,000 ("Acquisition
Capital") representing the total cost for all
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operating business purchases including consideration in cash,
stock or in kind. The cost of the Acquisition Capital will be 15%
per annum. Such amount will permit the Purchaser, in the sole and
absolute discretion of IMSC, to pursue operating business
acquisition opportunities in the United States that are
synergistic with the Purchaser's product lines, management and
internal management support and will assist the Purchaser in
fully utilizing the Leased Property. Such amounts shall be
advanced from time to time as acquisitions are identified and
approved; provided, however, that the Purchaser shall not be
permitted to make any acquisition without the prior written
consent of the board of directors of the IMSC; and
(h) that, subject to all securities regulations and Legal
Requirements, IMSC and the Purchaser will each provide quarterly
and annual audited financial statements to the Vendor within
sixty (60) days of the end of each quarter and within ninety (90)
days of the end of each year, respectively. The obligation of
IMSC and Purchaser under this Section 6.02(h) shall expire upon
the receipt by the Vendor of the Final Payment.
6.03 COVENANTS OF VENDOR. The Vendor covenants and agrees not to make
any disposition of all or any portion of the Common Stock received under this
Agreement or any other Transaction Agreements unless and until:
(a) there is then in effect a Registration Statement under the 1933
Act covering such proposed disposition and such disposition is
made in accordance with such Registration Statement; or
(b) the Vendor shall have notified the Purchaser and IMSC of the
proposed disposition and shall have furnished the Purchaser and
IMSC with a detailed statement of the circumstances surrounding
the proposed disposition, and if reasonably requested by IMSC,
the Vendor shall have furnished the Purchaser and IMSC with an
opinion of counsel, reasonably satisfactory to the Purchaser and
IMSC that such disposition will not require registration of such
shares under the 1933 Act. It is agreed that neither the
Purchaser nor IMSC will require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual
circumstances.
6.04 INSURANCE. On the request and at the expense of the Purchaser,
the Vendor will use its reasonable efforts promptly after the Closing Date to
cause the insurance policies of the Vendor to be endorsed to provide that the
Purchaser is an additional named insured on each of such policies.
The Purchaser shall have the right to have the Policies assigned to the
Purchaser at January 1, 2000 so long as arrangements reasonably acceptable to
the Vendor are established to insure that its coverage for claims arising from
incidents, acts or omissions prior to January 1, 2000 is not adversely affected.
6.05 CHANGE OF VENDOR'S NAME. The Vendor agrees to deliver to the
Purchaser no later than November 30, 1999, a copy of a certificate of amendment
changing the Vendor's name to a name that does not include "Huxtable's" or any
similar name, certified by the Secretary of
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State of the State of Delaware.
ARTICLE 7
CLOSING
7.01 PLACE AND TIME OF CLOSING. The Closing shall take place at the
offices of Locke, Liddell & Sapp at 2600 Chase Tower, Houston, Texas, as soon as
practicable after all of the obligations set forth in Section 8 have been
satisfied (or waived in accordance therewith), or on such other date or at such
other place or time as the Purchaser and the Vendor may mutually agree.
7.02 EFFECTIVENESS. The transactions contemplated by this Agreement to
be taken at the Closing shall be effective for accounting purposes as of the
opening of business on November 1, 1999 and all references herein to the Closing
Date shall be as of the close of business on the Closing Date.
7.03 CLOSING OBLIGATIONS OF THE VENDOR. Unless not required by the
Purchaser, at or prior to the Closing the Vendor shall deliver to the Purchaser
and IMSC:
(a) possession of all of the books and records related to the
Business, which will remain at the Leased Property;
(b) possession of all of the Purchased Assets, which insofar as they
are tangible will remain at the Leased Property;
(c) Disclosure Schedule;
(d) evidence of payment in full of the secured indebtedness of the
Vendor on the Closing Date from the proceeds of the Initial Cash
Payment or otherwise;
(e) all documents of title relating to the Purchased Assets;
(f) each of the Consents, filings and notices identified in Schedule
4.01(e) or otherwise required to effect the Transactions;
(g) originals or copies of all Assumed Contracts;
(h) each of the agreements and documents contemplated to be delivered
by or entered into by the Vendor at the Closing in connection
with or pursuant to this Agreement, including each of the
Transaction Agreements, duly executed by the Vendor, in form and
substance satisfactory to the Purchaser and Purchaser's counsel;
(i) resolutions (in form satisfactory to the Purchaser) of the
Vendor's managers and its members, as applicable, approving the
Transactions and the consummation of the Transactions, and the
execution and delivery of this Agreement and the Transaction
Agreements;
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(j) officer's certificate in form and substance satisfactory to the
Purchaser and Purchaser's counsel;
(k) such other documents as the Purchaser may request in good faith
for the purpose of (i) evidencing the accuracy of any
representation or warranty made by the Vendor, (ii) evidencing
the compliance by the Vendor with, or the performance by the
Vendor of, any covenant or obligation set forth in this
Agreement, (iii) evidencing the satisfaction of any condition set
forth in this Section 7, or (iv) otherwise facilitating the
consummation or performance of any of the Transactions.
7.04 CLOSING OBLIGATIONS OF THE PURCHASER. Unless not required by the
Vendor, at or prior to the Closing the Purchaser shall deliver to the Vendor or,
in the case of the Escrow Funds, the Escrow Agent:
(a) the Initial Cash Payment;
(b) the Escrow Funds;
(c) each of the agreements and documents contemplated to be delivered
or entered into by the Purchaser and/or IMSC, as the case may be,
at the Closing pursuant to or in connection with this Agreement,
including each of the Transaction Agreements, duly executed by
the Purchaser and/or IMSC party thereto in form and substance
satisfactory to Vendor and Vendor's counsel;
(d) officer's certificate in form and substance satisfactory to the
Vendor and Vendor's counsel;
(e) resolutions (in form satisfactory to the Vendor) of the
Purchaser's board of directors approving the Transactions and the
consummation of the Transactions, and the execution and delivery
of this Agreement and the Transaction Agreements;
(f) such other documents as the Vendor may request in good faith for
the purpose of (i) evidencing the accuracy of any representation
or warranty made by the Purchaser and IMSC, (ii) evidencing the
compliance by the Purchaser and IMSC with, or the performance by
the Purchaser and IMSC of, any covenant or obligation set forth
in this Agreement, (iii) evidencing the satisfaction of any
condition set forth in this Section 7, or (iv) otherwise
facilitating the consummation or performance of any of the
Transactions.
7.05 PASSAGE OF TITLE; RISK OF LOSS. Legal and equitable title and
risk of loss with respect to all of the Purchased Assets shall pass to the
Purchaser on transfer of such assets at the Closing.
7.06 INSTRUMENTS OF CONVEYANCE. At the Closing, the Vendor shall (at
its own expense) execute and deliver to the Purchaser such bills of sale,
endorsements, assignments and other good and sufficient instruments of transfer,
conveyance and assignment (in each case in a form reasonably satisfactory the
Purchaser) and shall take such other actions as may be necessary
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or as the Purchaser may reasonably require in order to transfer title to the
Purchased Assets to the Purchaser on Closing. Simultaneously therewith, the
Vendor shall take all steps necessary to put the Purchaser in possession and
operating control of the Purchased Assets.
7.07 ACCOUNTS RECEIVABLE. The Vendor agrees the Purchaser shall have
the right after the Closing to endorse all payments received by the Purchaser in
respect of any of the Trade Accounts Receivable in the name of the Purchaser and
to deposit the same into the Purchaser's bank accounts. The Vendor shall deliver
at the Closing such resolutions or other documents as the Purchaser may
reasonably request in order to permit the implementation of the provisions of
this Section.
7.08 FURTHER ASSURANCES, ETC. In addition to the Trade Accounts
Receivable as set forth in Section 7.07, the Vendor shall, at any time and from
time to time after the Closing, and upon the request of the Purchaser, (i) do,
execute, acknowledge and deliver, and cause to be done, executed, acknowledged
or delivered, all such further acts, deeds, transfers, conveyances, assignments,
powers of attorney or assurances as may be reasonably required to transfer,
assign, convey and grant to the Purchaser all of the Purchased Assets in
accordance with the terms hereof, and (ii) take such other actions as the
Purchaser may reasonably request in order to carry out the intent of this
Agreement. The Vendor shall take any and all reasonable actions that may be
necessary to prevent any Person from having recourse against any of the
Purchased Assets or against the Purchaser as transferee thereof with respect to
any Liabilities that are not assumed.
7.09 BULK SALES. The parties acknowledge that neither of them plans to
comply with the requirements of any applicable bulk sales laws. Notwithstanding
the foregoing, the Vendor agrees that the Purchaser has not waived any right to
indemnification that it may have against the Vendor with respect to any Damages
as a result of claims against the Purchased Assets resulting from failure to
comply with any applicable bulk sales laws.
7.10 POWER OF ATTORNEY. The Vendor hereby irrevocably constitutes and
appoints the Purchaser, effective as of the Closing, as such party's true and
lawful attorney, with full power of substitution, in such party's name and
stead, but on behalf and for the benefit of the Purchaser, to demand and receive
any and all of the Purchased Assets and Assumed Liabilities, and to give
receipts and releases for and in respect of the same, and any part thereof, and
from time to time to prosecute in its name, or otherwise, for the benefit of the
Purchaser, any and all proceedings at law, in equity or otherwise, which the
Purchaser may deem proper for the collection or reduction to possession of any
of the business, properties or assets comprising the Purchased Assets and
Assumed Liabilities or for the collection and enforcement of any claim or right
of any kind hereby assigned, granted, transferred, or set over. Notwithstanding
the foregoing, the Vendor shall have no obligation to reimburse the Purchaser
for costs incurred in connection with exercising this power of attorney unless
the Vendor has been given a reasonable opportunity to take actions to accomplish
the same purpose; provided, this sentence shall not be construed as limiting the
Vendor's indemnification obligations to the Purchaser, as set forth in
Section 9.
ARTICLE 8
[INTENTIONALLY OMITTED]
42
<PAGE> 43
ARTICLE 9
INDEMNIFICATION
9.01 INDEMNIFICATION BY VENDOR. The Vendor shall hold harmless and
indemnify each of the Purchaser's Indemnitees from and against, and shall
compensate and reimburse each of the Purchaser's Indemnitees for, any Damages
that are directly or indirectly suffered or incurred by any of the Purchaser's
Indemnitees or to which any of the Purchaser's Indemnitees may otherwise become
subject at any time (regardless of whether or not such Damages relate to any
third party claim) and which arise directly or indirectly from or as a direct or
indirect result of, or are directly or indirectly connected with:
(a) any Breach of any representation or warranty made by the Vendor
in this Agreement or any of the Transaction Agreements; provided
that no Indemnitee shall have any right to indemnification with
respect to any such Breach if the Purchaser or IMSC knew of such
Breach on or prior to the Closing and failed to advise the Vendor
of such Breach;
(b) any Breach of any covenant or obligation of the Vendor under this
Agreement or any of the Transaction Agreements;
(c) any Liability to which any of the Indemnitees may become subject
and that arises directly or indirectly from or relates directly
or indirectly to (i) any product provided, or any service
performed, by or on behalf of the Vendor on or at any time prior
to the Closing Date, (ii) any severance, termination or similar
benefits afforded to the Vendor's Employees, including, without
limitation, any such Liability to the Vendor's Employees who are
not hired by the Purchaser; (iii) any pension, retirement,
insurance, option or other form of benefit plan of the Vendor or
relating to the Vendor's Employees relating to periods prior to
the Closing Date not included in the Assumed Liabilities; (iv)
any employment agreement between the Vendor and its Employees;
(v) the presence on or at any time prior to the Closing Date of
any Hazardous Material introduced by Vendor or allowed to be
introduced by Vendor, at, on, in, under or from, any site owned,
leased, occupied or controlled by the Vendor; or (vi) the
generation, manufacture, production, transportation, importation,
use, treatment, refinement, processing, handling, storage,
discharge, release or disposal of any Hazardous Material (whether
lawfully or unlawfully) by or on behalf of the Vendor on or at
any time prior to the Closing Date;
(d) any Liability to which any of the Indemnitees may become subject
and that arises directly or indirectly from or relates directly
or indirectly to claims against the Purchased Assets resulting
from failure to comply with any applicable bulk sales laws with
respect to the sale of the Business;
(e) any payment received by the Vendor to the extent that any portion
of said payment is in satisfaction of an obligation that is, in
accordance with the terms of this Agreement or any of the
Transaction Agreements, properly payable to Purchaser; and
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<PAGE> 44
(f) all Liabilities and all other obligations of any nature
whatsoever retained, undertaken or assumed by the Vendor under or
in connection with this Agreement or in any of the Transaction
Agreements.
9.02 INDEMNIFICATION BY PURCHASER. Each of the Purchaser and IMSC
shall hold harmless and indemnify the Vendor's Indemnitees from and against, and
shall compensate and reimburse the Vendor's Indemnitees for, any Damages which
are directly or indirectly suffered or incurred by the Vendor's Indemnitees or
to which the Vendor's Indemnitees may otherwise become subject at any time
(regardless of whether or not such Damages relate to any third party claim) and
which arise directly or indirectly from or as a direct or indirect result of, or
are directly or indirectly connected with:
(a) any Breach of any representation or warranty made by the
Purchaser and/or IMSC in this Agreement or any of the Transaction
Agreements; provided, that no Vendor's Indemnitee shall have any
right to indemnification with respect to any such Breach if the
Vendor knew of such Breach on or prior to the Closing and failed
to advise the Purchaser of such Breach;
(b) any Breach of any covenant or obligation of the Purchaser and/or
IMSC under this Agreement or any of the Transaction Agreements;
(c) any Breach by the Purchaser of its obligations under any Assumed
Contract or the Assumed Liabilities, provided such Breach occurs
after the Closing Date; or
(d) any Liability to which the Vendor may become subject and that
arises directly or indirectly from or relates directly or
indirectly to the Purchased Assets or Assumed Liabilities.
9.03 LIMITATIONS ON AMOUNT.
(a) No party shall have any liability (for indemnification
obligations or otherwise) until the total of all Damages with
respect to such matters exceeds $25,000 and then only for the
amount by which such Damages exceeds $25,000. It is understood
and agreed that the foregoing basket claim amount will be
calculated on an aggregate basis, will not apply to a
claim-by-claim basis and does not apply to the payment of amounts
from the Escrow Funds pursuant to Section 2.04(c).
(b) Subject to Section 9.01(f), the obligations of the Vendor to
provide indemnity to the Purchaser's Indemnitees hereunder shall
be solely paid from and shall not exceed the total Earnout
Payments unpaid to the Vendor at the time that the Purchaser's
Indemnitee brings an indemnification claim or gives to the Vendor
notice of a potential claim.
(c) In the event that the Purchaser or IMSC has notified the Vendor
in writing of any claim or notice of a potential claim for which
it is entitled to seek indemnity hereunder, the Purchaser shall
be entitled to withhold from future Earnout Payments and pay into
trust with an unrelated mutually agreed third-party escrow agent,
or if the Vendor and the Purchaser cannot agree, Montreal Trust,
(pursuant to a mutually agreed escrow agreement) an amount in
cash equal to the Purchaser's reasonable estimate of the
potential Damages or Losses for which it
44
<PAGE> 45
may be entitled to obtain indemnification hereunder. In the event
that any amount is withheld from any future Earnout Payment which
is to be made in shares of Common Stock as determined in
accordance with Section 2.05, such amount shall nonetheless be
withheld in cash, and any payments therefrom to the Purchaser or
IMSC, as the case may be, or remittances to the Vendor therefrom,
shall be made in cash. The cash held in escrow shall be invested
and reinvested as directed by the Vendor and shall be released
from escrow only upon the joint instruction of the Vendor and the
Purchaser or pursuant to the order of a court or arbitrator.
(d) All indemnification payments to be made by the Vendor shall be
deducted from Earnout Payments received as part of the Purchase
Price. The Initial Cash Payment and, except to the extent
contemplated by Section 2.04(c), the Escrow Funds shall not be
subject to any indemnity or other claims of Purchaser's
Indemnitees.
(e) The Purchaser's obligation to provide indemnification to the
Vendor hereunder shall not exceed the amount of the Initial Cash
Payment.
(f) Except in cases of fraud, each of the Vendor, the Purchaser and
IMSC acknowledges that its sole and exclusive remedy after the
Closing with respect to any and all Damages or Losses relating to
this Agreement and any Transactions contemplated herein shall be
pursuant to the indemnification provisions set forth in this
Article 9, and in furtherance of the foregoing, each of the
Vendor, the Purchaser and IMSC hereby waives, from and after the
Closing, any and all rights, claims and causes of action it may
have against any other party or its Indemnitees (except in cases
of fraud or the indemnification provisions set forth in this
Article 9).
9.04 INTEREST. Any party that is required to indemnify any other
Person pursuant to this Article 9 with respect to any Damages shall also be
required to pay such other Person interest on the amount of such Damages (for
the period commencing as of the date on which such Damages were paid by such
other Person and ending on the date on which the applicable indemnification
payment is made by such party) at the rate of interest provided by applicable
law.
9.05 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Proceeding (whether against the
Purchaser, the Vendor, any other Indemnitee or any other Person) with respect to
which a party hereto may become obligated to indemnify, hold harmless,
compensate or reimburse another party or any Indemnitee pursuant hereto, the
party to be indemnified (or, in the case of an Indemnitee or other Person being
indemnified by the Vendor, the Purchaser) (in either case, the "Indemnified
Party") shall, within thirty (30) days following the date on which the
Indemnified Party first becomes aware of the assertion or commencement of such
claim or Proceeding, notify the party or the parties providing the
indemnification hereunder (the "Indemnifying Party") of such claim or
Proceeding. The Indemnifying Party shall assume the defense of such claim or
Proceeding, at the sole expense of the Indemnifying Party and shall proceed as
follows:
(a) the Indemnifying Party shall proceed to defend such claim or
Proceeding in a diligent manner with counsel reasonably
satisfactory to the Indemnified Party;
45
<PAGE> 46
(b) the Indemnified Party shall make available to the Indemnifying
Party any non-privileged documents and materials in the
possession of the Indemnified Party that may be necessary to the
defense of such claim or Proceeding;
(c) the Indemnifying Party shall keep the Indemnified Party informed
of all material developments and events relating to such claim or
Proceeding;
(d) the Indemnified Party shall have the right to participate in the
defense of such claim or Proceeding at its sole expense; and
(e) the Indemnifying Party shall not settle, adjust or compromise
such claim or Proceeding without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably
withheld.
If the Indemnifying Party does not assume the defense of such claim or
Proceeding in a timely manner, the Indemnified Party may proceed with
the defense of any such claim or Proceeding on its own, in which case
the following shall apply:
(i) all reasonable expenses relating to the defense of such
claim or Proceeding incurred by the Indemnified Party
shall be borne and paid exclusively by the Indemnifying
Party;
(ii) the Indemnifying Party shall make available to the
Indemnified Party any non-privileged documents and
materials in the possession or control of the Indemnifying
Party that may be necessary to the defense of such claim
or Proceeding; and
(iii) the Indemnified Party shall keep the Indemnifying Party
informed of all material developments and events relating
to such claim or Proceeding.
ARTICLE 10
GENERAL
10.01 CONFIDENTIALITY. On and at all times after the date of this
Agreement:
(a) except to the extent required by law, or following consultation
with the other party, neither party nor any of its
Representatives shall issue or disseminate any press release or
other publicity or otherwise make any disclosure of any nature
(to any of their suppliers, customers, landlords, creditors,
employees, or any other person other than Vendor's members)
concerning any of the Transactions, and the parties shall keep
the existence and terms of this Agreement and the other
Transaction Agreements strictly confidential;
(b) the Vendor shall keep strictly confidential, and shall not use,
or disclose to any other Person, any non-public document or other
information that relates directly or indirectly to the Business,
the Purchaser or any Affiliate thereof, including, without
limitation, personnel information, secret processes, know-how,
customer lists and their technical or business information
included in the Purchased Assets; and
46
<PAGE> 47
(c) neither party nor any of its Representatives shall make any
negative, disparaging, disruptive or damaging statements,
comments or remarks to any third party with respect to the other
party, the Purchased Assets or the Business, either as conducted
by the Vendor or as conducted by the Purchaser.
10.02 PUBLIC NOTICES. The Purchaser may make such disclosure with
respect to the closing of the Transactions as it may reasonably determine is
appropriate and shall use reasonable efforts to give prior oral or written
notice to the Vendor, and if prior notice is not possible, to give notice
immediately following the making of such disclosure.
10.03 EXPENSES. Each of the Vendor and the Purchaser shall be
responsible for the expenses (including fees and expenses of legal advisers,
accountants and other professional advisers) incurred by them, respectively, in
connection with the negotiation and settlement of this Agreement and the
completion of the Transactions.
10.04 ENUREMENT AND ASSIGNMENT. This Agreement shall be binding upon
the Vendor and its successors and assigns (if any), IMSC and its successors and
assigns (if any), and the Purchaser and its successors and assigns (if any).
This Agreement shall inure to the benefit of the Vendor, IMSC, the Purchaser,
the parties' Indemnitees, and the respective successors and assigns (if any) of
the foregoing. The Purchaser may freely assign any or all of its rights under
this Agreement (including its indemnification rights under Section 9), in whole
or in part, to any other Person, including, without limitation, any Affiliate or
Subsidiary thereof, without obtaining the consent or approval of any other party
hereto or of any other Person.
10.05 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law. .
10.06 ENTIRE AGREEMENT. This Agreement and the Transaction Agreements
(including Schedules and Exhibits thereto) set forth the entire understanding of
the parties relating to the subject matter thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter thereof.
10.07 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on
the part of any Person in exercising any power, right, privilege
or remedy under this Agreement, shall operate as a waiver of such
power, right, privilege or remedy; and no single or partial
exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other
power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under
this Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of such Person;
and
47
<PAGE> 48
any such waiver shall not be applicable or have any effect except
in the specific instance in which it is given.
10.08 AMENDMENT. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of the Purchaser and the Vendor.
10.09 TIME OF ESSENCE. Time shall be of the essence of this Agreement.
10.10 NOTICES.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be delivered in
person, transmitted by telecopy or similar means of recorded
electronic communication or sent by registered mail, charges
prepaid, addressed as follows:
if to the Purchaser:
International Menu Solutions USA, Inc.
c/o International Menu Solutions Inc.
350 Creditstone Drive
Concord, Ontario, Canada L4K 3Z2
Fax No. (416) 614-6870
Attention: Michael A. Steele, President
with a copy to:
McCarter Grespan Robson Beynon
675 Riverbend Drive
Kitchener, Ontario, Canada N2K 3S3
Fax No. (519) 742-1841
Attention: Thomas D. Beynon
if to the Vendor:
Huxtable's Foods, L.L.C.
c/o Yellowstone Capital, Inc.
1100 Louisiana, Suite 5005
Houston, Texas 77002
Attention: Omar A. Sawaf.
Telecopier No.: (713) 650-0055
and
48
<PAGE> 49
c/o Austin Ventures
Norwood Tower, 13th Floor
114 West 7th St.
Austin, Texas 78701
Attention: Blaine Wesner
Telecopier No.: (512) 485-1995
with a copy to:
Locke Liddell & Sapp LLP
2600 Chase Tower
600 Travis
Houston, Texas 77002
Attention: Gene G. Lewis
Telecopier No.: (713) 223-3717
Any such notice or other communication shall be deemed to have been given and
received on the day on which it was delivered or transmitted (or, if such day is
not a Business Day, on the next following Business Day) or, if mailed, on the
third Business Day following the date of mailing; provided, however, that if at
the time of mailing or within three Business Days thereafter there is or occurs
a labor dispute or other event that might reasonably be expected to disrupt the
delivery of documents by mail, any notice or other communication hereunder shall
be delivered or transmitted by means of recorded electronic communication.
Any party may at any time change its address for service from time to time by
giving notice to the other parties in accordance with this Section 10.10.
10.11 FURTHER ASSURANCES. Each of the parties shall promptly do, make,
execute, deliver, or cause to be done, made, executed or delivered, all such
further acts, documents and things as the other party hereto may reasonably
require from time to time for the purpose of giving effect to this Agreement and
shall use reasonable efforts and take all such steps as may be reasonably within
its power to implement to their full extent the provisions of this Agreement.
10.12 GOVERNING LAW, VENUE.
(a) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of
laws).
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement
may be brought or otherwise commenced in any state or federal
court located in the County of Los Angeles, California. Each
party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in
the County of Los Angeles (and each appellate court
located in the State of California) in connection with any
such legal proceeding;
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<PAGE> 50
(ii) agrees that each state and federal court located in the
County of Los Angeles, California shall be deemed to be a
convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any
state or federal court located in the County of Los
Angeles, California, any claim that such party is not
subject personally to the jurisdiction of such court, that
such legal proceeding has been brought in an inconvenient
forum, that the venue of such proceeding is improper or
that this Agreement or the subject matter of this
Agreement may not be enforced in or by such court.
10.13 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties agree that:
(a) in the event of any Breach or threatened Breach by the such party
of any covenant, obligation or other provision set forth in this
Agreement, the non-breaching party shall be entitled (in addition
to any other remedy that may be available to it) to (i) a decree
or order of specific performance or mandamus to enforce the
observance and performance of such covenant, obligation or other
provision, and (ii) an injunction restraining such Breach or
threatened Breach; and
(b) no party shall be required to provide any bond or other security
in connection with any such decree, order or injunction or in
connection with any related action or Proceeding.
10.14 COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and all of which taken together shall constitute one and the same agreement.
10.15 FACSIMILE. This Agreement may be transmitted by facsimile or
other electronic transmission and the reproduction of signatures will be deemed
to be original and legally binding.
10.16 ADJUSTMENTS. In the event of any stock splits, stock dividends,
combinations or similar actions with respect to the Common Stock, any values in
this Agreement expressed as dollars per share of Common Stock, including those
in Section 2.05(a) and 2.05(h), shall be appropriately adjusted.
50
<PAGE> 51
IN WITNESS WHEREOF the parties hereto have executed this agreement.
INTERNATIONAL MENU SOLUTIONS
USA, INC.
By:
------------------------
Name:
----------------------
Title:
---------------------
INTERNATIONAL MENU SOLUTIONS
CORPORATION
By:
------------------------
Name:
----------------------
Title:
---------------------
HUXTABLE'S FOODS, L.L.C.
By:
------------------------
Name:
----------------------
Title:
---------------------
51
<PAGE> 1
THIS INDENTURE made as of the 1st day of March, 1999.
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT.
B E T W E E N:
1249462 ONTARIO LIMITED,
hereinafter called the "Landlord"
OF THE FIRST PART
- and -
INTERNATIONAL MENU SOLUTIONS INC.,
hereinafter called the "Tenant"
OF THE SECOND PART
- and -
N/A,
hereinafter called the "Indemnifier"
OF THE THIRD PART
WHEREAS the Landlord is the owner of certain lands situated in the
City of Vaughan, in the Province of Ontario, and being municipally known as 350
Creditstone Road, Vaughan, Ontario (the "Lands");
AND WHEREAS that in consideration of the rents, covenants and
agreements hereinafter contained on the part of the Tenant to be paid, observed
and performed, the Landlord has demised and leased and by these presents does
demise and lease unto the Tenant the Leased Premises.
THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS
IN THIS LEASE:
(a) "building" means the building in which the Leased Premises are
situated;
(b) "common facilities" means (a) those areas, facilities, utilities,
improvements, equipment and installations in the complex that, from
time to time, are not designated or intended by the Landlord to be
leased to tenants of the complex and (b) those areas, facilities,
utilities, improvements, equipment and installations which serve or
are for the benefit of the complex and are designated from time to
time by the Landlord as part of the common facilities. Common
facilities include, without limitation, the parking areas, all
entrances and exits thereto, driveways, pedestrian sidewalks,
fences, trees, flowers and shrubbery, security systems and general
signs which are designated from time to time by the Landlord and
which are provided and made available for the general use of the
tenants of the complex and their officers, agents, employees and
customers, all whether in existence now or constructed and provided
subsequent to the date hereof;
(c) "complex" means all of the buildings and appurtenant lands and
facilities, including common facilities, and services of which the
premises herein demised form part and situate on the Lands;
<PAGE> 2
2
(d) "Leased Premises" means those premises known as Suite 202, 350
Creditstone Road, Vaughan, Ontario, comprising the square feet of
Gross Floor Area set out in Section 2(e), more or less, outside
measurement (and without deduction for columns and the like) as more
particularly described in Schedule "A" hereto, such area being
determined by the Landlord acting reasonably;
(e) "proportionate share" means that ratio of any cost for which the
Tenant is required to pay its proportionate share having as
numerator the area of the Leased Premises and as denominator the
aggregate rentable area of the buildings forming part of the
complex, as determined by the Landlord acting reasonably; Provided,
should the Leased Premises form part of a building, then, in the
context of costs and expenses relative to such building, the term
"proportionate share" shall mean that ratio which has as numerator
the area of the Leased Premises and as denominator the aggregate
rentable area of such building, as determined by the Landlord acting
reasonably;
(f) "Term" means the term demised by this Lease, as set out in paragraph
4.
2. BASIC TERMS
The basic terms of this Lease, which are hereinafter more fully
detailed, are summarized as follows:
Refer to
Section
-------
(a) Leased Premises: Suite 202 1
350 Creditstone Road
Vaughan, Ontario
(b) Term: THREE (3)YEARS 4
(c) (i) Commencement Date: 4
Suite 202: March 1, 1999
(ii) Expiry Date: February 28, 2002
(d) (i) Basic Rent for Suite 202:
Lease Years 1 & 2 $27,229.56 per annum
$2,269.13 per month
($6.75 per sq. ft. of the
Gross Floor Area of the
Leased Premises per annum)
Lease Year 3 $29,246.52 per annum
$2,437.21 per month
($7.25 per sq. ft. of the
Gross Floor Area of the
Leased Premises per annum)
(ii) Basic Rent for Suite 202 Reception:
Lease Years 1 & 2 $1,345.08 per annum
$112.09 per month
($1.25 per sq. ft. of the
Gross Floor Area of the
Leased Premises per annum)
<PAGE> 3
3
Lease Year 3 $1,883.04 per annum
$156.92 per month
($1.75 per sq. ft. of the
Gross Floor Area of the
Leased Premises per annum)
(e) Gross Floor Area of the Leased Premises: 2
Suite 202: 4,034 square feet
Suite 202 Reception: 1,076 square feet (470 square feet on
the 1st floor and 606
square feet on the
2nd floor)
(f) Deposit: 32
<TABLE>
Suite 202
---------
<S> <C>
(i) Prepaid Rent: Office: $2,437.21
(Last Month)Reception: $ 156.92
Additional Rent $1,809.79
(ii) G.S.T. $ 308.27
---------
Total: $4.712.19
---------
TOTAL $4.712.19
=========
</TABLE>
(g) Use of the Leased Premises: 7(a)
GENERAL OFFICES
(h) Name of Business to be carried on
in the Leased Premises: 7(c)
INTERNATIONAL MENU SOLUTIONS INC.
(i) Address for Service of Notice on Tenant and/or
Indemnifier: 20
INTERNATIONAL MENU SOLUTIONS INC.
Suite 202
350 Creditstone Road
Vaughan, Ontario
(j) Address for Service of Notice on Landlord: 20
1249462 ONTARIO LIMITED
1 Royal Gate Boulevard
Woodbridge, Ontario
L4L 8Z7
Attention: President
(k) Special Provisions, if any: See Schedule "B"
<PAGE> 4
4
Schedules
Plan of Leased Premises: Schedule "A"
Special Provisions Schedule "B"
3. INSPECTION
The Tenant acknowledges having inspected the Leased Premises and
accepts same "as-is" on this date.
4. TERM
The term of the Lease ("Term") shall be the period described as Term
in Section 2(b), the first day of which (the "Commencement Date") shall be the
date described as the Commencement Date in Section 2(c)(i)(A).
5. BASIC RENT AND ADDITIONAL RENT
(a) Commencing on the Commencement Date, the Tenant shall pay a fixed
minimum annual rent ("Basic Rent") in the amount described as Basic
Rent in Section 2(d), to be paid in equal monthly instalments in
advance on the first day of each month throughout the Term. For any
broken month at the beginning or end of the Term, the Basic Rent
shall be pro-rated on a per diem basis.
Upon the Landlord's architect determining within six (6) months of
the Commencement Date the Gross Floor Area of the Leased Premises,
all rent and other monies payable by the Tenant pursuant to this
Offer and the Lease shall be adjusted accordingly, which adjustment
will be retroactive if actual measurement does not occur until after
the Commencement Date.
(b) All other amounts payable by the Tenant to the Landlord pursuant
hereto or under the Lease or for any other reason whatsoever
("Additional Rent") shall be deemed to be rent and shall be payable
in advance and collectible in the same manner as rent hereunder and
under the Lease. The Tenant shall pay all Basic Rent and Additional
Rent to the Landlord without any deduction, set-off or abatement
whatsoever.
(c) The Tenant agrees to deliver to the Landlord upon execution of the
Lease and hereafter at the beginning of each lease year during the
Term a series of twelve (12) monthly post-dated cheques for the
ensuing lease year, in amounts conforming with the monthly Basic
Rent payment and any Additional Rent estimated by the Landlord in
advance plus applicable GST. Following the end of each fiscal year,
the Landlord shall adjust the amount of the estimated monthly
payments upwards or downwards to reflect the actual Additional Rent
for the preceding year and shall retroactively adjust the Additional
Rent for the preceding year with any excess of estimated Additional
Rent over the actual Additional Rent being remitted to the Tenant
and any shortfall therefrom being paid by the Tenant to the
Landlord.
6. TENANT'S PAYMENTS AND OBLIGATIONS
The Lease shall be absolutely net and carefree to the Landlord save
as set out herein and, commencing on the Commencement Date and thereafter
throughout the Term, the Tenant shall be responsible for and shall pay for:
(a) all obligations and costs whatsoever in respect of the Leased
Premises and the Tenant's business therein including, without
limiting the generality of the foregoing:
(i) all costs and all obligations in respect of all utilities
supplied to or consumed in the Leased Premises, including
costs of consumption determined by separate meters installed
by the Landlord acting reasonably at the Tenant's expense and,
to the extent that the cost of same is not determined by
separate meters, then as allocated by the Landlord, acting
reasonably;
<PAGE> 5
5
(ii) all costs and all obligations of and in respect of heating,
ventilating and air conditioning of the Leased Premises
subject to section 13 (d), to be the Tenant's proportionate
share (as hereinafter defined) thereof or; at the Landlord's
option, such other allocation as determined by the Landlord,
acting reasonably;
(iii) all business taxes and other taxes as assessed and billed in
respect of the Tenant's business and assets and all taxes
attributable to the operation of the business in the Leased
Premises; and
(iv) all taxes, rates, duties, fees or assessments (other than
income taxes, wealth taxes and large corporation taxes) levied
upon the gross or net rentals or other amounts received by the
Landlord from the Tenant, whether referred to as a business
transfer tax, goods and services tax, value-added tax,
national sales tax or by any other name, and any such costs,
charges and expenses suffered by the Landlord may be collected
in the same manner as rent with all the rights of distress and
otherwise or reserved to the Landlord, in respect of rent
arrears.
(b) (i) all realty taxes and all other assessments and duties levied,
rated, charged or assessed from time to time in respect of the
Leased Premises or if levied, rated, charged or assessed in
respect of the Building then the proportionate share (as
hereinafter defined) thereof and the proportionate share (as
hereinafter defined) of all realty taxes and all other
assessments and duties levied, rated, charged or assessed from
time to time in respect of the common areas and including the
Landlord's capital taxes and any commercial concentration
taxes, if applicable; and
(ii) the proportionate share (as hereinafter defined) of all costs
and expenses, without duplication, but subject to Section
13(d), of maintaining, repairing, operating, insuring and
managing the Building, including the costs of obtaining the
information required to apportion costs, and all common areas
including, but not limited to, insurance, utilities and repair
and replacement of all fixtures, equipment and facilities as
they may relate to or are attributed to by the Landlord to the
building and the common areas and excluding costs incurred in
connection with the correcting of defaults in or inadequacy of
the initial design or construction of the building;
unrecovered expenses resulting from the gross negligence of
the Landlord, its agents, servants or employees; costs for
which the Landlord is otherwise reimbursed by Tenant; and
capital expenditures and major maintenance and replacement of
essential building systems and costs of base building
upgrades, and a management fee of fifteen (15.0%) percent of
gross amounts received or receivable by the Landlord in
respect of the Project for all Additional Rents but excluding
such gross amounts as are received or receivable by the
Landlord in respect of the Project pursuant to Section
6(b)(i), all as defined as "Operating Costs" in the Lease.
(c) The Landlord estimates the additional rent for the Premises for
calendar 1999 to be $4.25 per square foot, detailed as to:
<TABLE>
<S> <C>
Taxes $2.50
Maintenance $1.03
Insurance $0.12
Utilities and Other $0.60
-----
Total $4.25
=====
</TABLE>
For the purposes of this Lease, the Tenant's proportionate share
shall mean a fraction which has as its numerator the Gross Floor Area of the
Leased Premises and as its denominator the total Gross Floor Area of the
rentable premises within the Building, grossed up for the purposes of section
6(a)(ii) and 6(b) as if there were no vacancies, as amended from time to time as
more fully described in the Lease.
<PAGE> 6
6
7. USE OF THE LEASED PREMISES
(a) The Tenant shall not use or permit the Leased Premises to be used
for any purpose other than that described as Use of the Leased
Premises in section 2(g).
(b) At all times throughout the Term, the Tenant shall continuously and
actively conduct its business in the whole of the Leased Premises in
a first class and reputable manner during normal business hours as
established by the Landlord in the municipality in which the Project
is located in compliance with the provisions of this Lease and the
requirements of all applicable laws and regulations and the Tenant
shall keep, operate and maintain the Leased Premises and the
building and every part thereof in a clean and sanitary condition
and in accordance with all laws, directions, rules and regulations
of any government authority having jurisdiction in respect of same.
(c) The Tenant covenants that the business to be conducted on the Leased
Premises shall be known by the name set out as Name of Business on
the Leased Premises in Section 1(h) hereof and by no other name
whatsoever without the Landlord's prior written consent, which shall
not be unreasonably withheld.
(d) The Tenant shall not erect or permit any signs visible from the
common areas of the Building or from the exterior of the Leased
Premises which are not in keeping with a class A office building,
and in any event, without the Landlord's prior written consent,
which shall not be unreasonably withheld. The Landlord acknowledges
that a building bulkhead sign as well as a sign at the lot corner is
requested by the Tenant and accepted by the Landlord, subject to
Landlord's approval of the format of such sign.
(e) INTENTIONALLY DELETED
(f) Except to the extent that same are the Landlord's responsibility
pursuant to the terms hereof, the Tenant covenants to maintain,
repair and make necessary replacements to the Leased Premises,
including all contents thereof and all services, facilities and
equipment located in or primarily serving the Leased Premises, all
in good order and first class condition in keeping with the
standards of a first-class building, subject to section 13 (d).
(g) If the Leased Premises shall become vacant or not be used for the
purpose aforesaid, and remain so for a period of thirty (30) days,
or if the Leased Premises shall be used for any purpose other than
that for which the same are hereby leased, this Lease shall, at the
option of the Landlord, forthwith on written notice to the Tenant,
cease and determine and become null and void, and thereupon the
instalments of rent accruing and due during the next ensuing three
(3) months shall immediately become due and payable to the Landlord.
(h) The Tenant shall not perform acts or carry on any practices which
may injure the complex and shall keep the interior of the Leased
Premises reasonably clean and free from rubbish and dirt and shall
store all trash and garbage within the Leased Premises and arrange
for the regular removal of such trash and garbage at such times and
during such hours as the Landlord may designate. The Tenant shall
not burn any trash or garbage in or about the Leased Premises or
anywhere else within the confines of the complex. The Tenant shall
not keep or display merchandise on or otherwise obstruct the common
facilities adjacent to the Leased Premises.
(i) The Tenant hereby covenants to the Landlord that after the
Commencement Date that the Tenant, its employees, agents, other
representatives, customers or contractors shall not permit any
unlawful use, storage, manufacturing or disposal of materials or
substances deemed to be hazardous or dangerous as defined under
federal, provincial or municipal environmental, health or safety
laws, policies, guidelines or standards. In the event the nature of
the Tenant's business calls for the use of any such hazardous
materials or substances during the term of this Lease or any renewal
period thereof, the Tenant and its principals shall be held
responsible and liable for the clean up work, remedial actions or
expenditures (including the cost of any environmental site
assessment the Landlord may reasonably require) required to the
Leased Premises in the event the levels of
<PAGE> 7
7
concentration of the hazardous materials or substances in the
building or ground are found to exceed established governmental
decommissioning guidelines in effect during the Term. The
obligations of the Tenant as described herein shall survive the
expiration of this Lease.
(j) The Tenant shall not use, exercise or carry on or permit or suffer
to be used, exercised or carried on, in or upon the Leased Premises
or any part thereof, any noxious, noisome or offensive art, trade,
business, occupation or calling, or keep, sell, use or handle and
dispose of goods or things which are objectionable, or by which the
Leased Premises shall be injured, and shall not cause, permit or
suffer anything to be done or continued to be done in or upon the
Leased Premises or any part thereof which may be or become a
nuisance or annoyance, or which may void or render voidable any
insurance upon the building or part thereof. The Tenant shall be
responsible for the removal and disposal of all of its hazardous
waste, if any, from the Leased Premises, shall pay all costs
associated with such removal and disposal, and shall comply with all
governmental and regulatory body requirements relating to same. The
obligations of the Tenant as described herein shall survive the
expiration of this Lease.
8. INSURANCE
(a) The Tenant covenants with the Landlord that throughout the term of
this Lease, it shall take out and maintain at its sole cost and
expense, in the names of the Tenant and the Landlord as their
respective interests may appear: (i) insurance covering all property
of the Tenant located within the Building, including leasehold
improvements and the Tenant's inventory, stock-in-trade, trade
fixtures, furniture and moveable equipment and everything in general
which the Tenant is obliged to repair or replace by the terms of
this Lease on a replacement cost basis which insurance shall include
the Landlord as a named insured as the Landlord's interest may
appear, provided that any proceeds receivable in the event of loss
shall be payable to the Landlord (but the Landlord agrees to make
available such proceeds towards the repair or replacement of the
insured property if this Lease is not terminated pursuant to any
other provision hereof), in an amount of not less than the full
replacement cost, with coverage against at least the perils of fire
and standard extended coverage, including sprinkler leakages (where
applicable), earthquake and flood; (ii) broad form boiler and
machinery insurance on a blanket repair and replacement basis; (iii)
business interruption insurance to an extent sufficient to allow the
Tenant to meet its ongoing obligations to the Landlord and to
protect the Tenant against loss of revenues; (iv) public liability
and property damage insurance, including personal injury liability,
contractual liability, non-owned automobile liability, employees'
liability and owners' and contractors protective insurance coverage,
written on a comprehensive basis with inclusive limits of not less
than TWO MILLION ($2,000,000.00) DOLLARS; (v) tenant's legal
liability insurance for the actual cash value of the Leased
Premises; (vi) automobile liability insurance with ONE MILLION
($1,000,000.00) DOLLARS inclusive limits; (vii) plate glass
insurance; and (viii) any other form of insurance as the Landlord
reasonably requires.
(b) All insurance required to be obtained by the Tenant hereunder shall
be on terms and with insurers satisfactory to the Landlord acting
reasonably and the amounts referred to herein are subject to
increase as the Landlord may from time to time reasonably demand.
The Tenant shall promptly furnish to the Landlord certified copies
of such insurance policies or certificates of insurance or other
evidence satisfactory to the Landlord of such insurance or any
renewals thereof upon request by the Landlord. In the event of the
failure of the Tenant to so insure or to furnish the Landlord with
satisfactory evidence of such insurance or of the renewal thereof
the Landlord may from time to time effect such insurance on behalf
of the Tenant, and any premium paid by the Landlord shall be payable
forthwith by the Tenant upon demand as additional rent.
9. RIGHT TO USE COMMON FACILITIES
Subject to the reasonable rules and regulations in this Lease and to
such other and further reasonable rules and regulations as the Landlord may make
from time to time pertaining to the use of the common facilities, the Tenant
shall have for itself and its officers, agents and employees and for the use of
its customers the non-exclusive
<PAGE> 8
8
right to use, in common with all others entitled thereto, the common facilities
of the complex for their proper and intended purposes during normal business
hours.
10. UTILITIES
The Tenant shall pay all charges, costs and rates for all utilities
supplied to the Leased Premises, including heating, gas, electricity and water,
and for all meters, fittings, machines, apparatus and other things used in
connection with the supply and installation of such utilities, and for all work
and services performed by anyone in connection therewith, and shall be
responsible for paying any deposits required by any utility supplier; in the
event that any utility is not separately metered, the Tenant shall pay it's
share of such cost on such basis as the Landlord may determine.
11. TENANT'S ALTERATIONS
The Tenant shall not make any interior alterations which affect the
structure of the Leased Premises or the building, including alterations for the
purpose of installing any interior or exterior lighting or plumbing fixtures, or
exterior decorations or painting, without the previous consent of the Landlord,
such consent not to be unreasonably withheld. The Landlord may require that
prior to its issuing its consent that the Tenant submit complete plans for any
proposed alterations. All fixtures, improvements, installations and alterations
heretofore or hereafter made, erected or installed by the Tenant or by the
Landlord on behalf of the Tenant to the Leased Premises shall, at the
termination of this Lease, be and become the Landlord's property without
compensation therefor to the Tenant, and shall remain upon and be surrendered
with the Leased Premises as part thereof without disturbance, manipulation or
injury at the termination of the term. Notwithstanding anything contained in
this paragraph:
(a) The Tenant may install its usual trade fixtures in the usual manner
provided such installation does not damage the structure of the
Leased Premises or the building.
(b) Provided that the Tenant has paid the rent hereby reserved and
performed the covenants herein contained and on its part to be
performed, the Tenant shall have the right, at the expiration of
this Lease, to remove what is commonly regarded as strictly trade
fixtures, but the Tenant shall make good any damage or injury caused
to the Leased Premises that shall have resulted from such
installation and removal.
(c) The Tenant, subject to Landlord's approval which shall not be
unreasonably withheld or delayed, shall be entitled to erect signs
in or upon the Leased Premises as it may deem appropriate but
provided that the locations, size and quantity or quality of same
comply with all local municipal bylaws together with any other
authority having jurisdiction over the Leased Premises, such signs
shall remain the property of the Tenant and may be removed at its
option, provided all damage caused by such erection or removal, if
any, shall be repaired properly at the Tenant's expense.
(d) The Landlord shall have the right at the expiration of the Lease to
require the Tenant to remove all fixtures, improvements,
installations and alterations heretofore or hereafter made, erected
or installed by the Tenant or by the Landlord on behalf of the
Tenant to the Leased Premises all at the Tenant's cost and the
Tenant shall make good any damage or injury caused to the Leased
Premises that shall have resulted from such installation and
removal.
12. TENANT'S COVENANTS AND AGREEMENTS
The Tenant covenants and agrees with the Landlord as follows:
(a) All loading and unloading of merchandise, supplies, materials,
garbage, refuse and other chattels shall be made only through or by
means of such doorways as the Landlord shall reasonably designate in
writing from time to time.
<PAGE> 9
9
(b) The Tenant shall not register this Lease without the consent of the
Landlord. However, upon the request of either the Landlord or the
Tenant, the other shall join the execution of a memorandum or
so-called short form of this Lease for the purposes of registration.
The form of the document shall be subject to the approval of the
Landlord's solicitors and shall be registered at the Tenant's cost.
(c) The Landlord shall not be liable or responsible in any way for any
injury of any nature whatsoever that may be suffered or sustained by
the Tenant or any employee, agent or customer of the Tenant or any
other person who may be upon the Leased Premises, or for any loss of
or damage or injury to any property belonging to the Tenant or its
employees or to any other person while such property is on the
Leased Premises and in particular, but without limiting the
generality of the foregoing, the Landlord shall not be liable for
any damage or damages of any nature whatsoever to persons or
property caused by the failure by reason of breakdown or other
cause, to supply adequate drainage, snow or ice removal, or by the
interruption of any public utility or service or by steam, water,
rain, snow or other substances leaking into, issuing or flowing into
any part of the Leased Premises or from the water, stream, sprinkler
or drainage pipes or plumbing works of the same or from any other
place or quarter or for any damage caused by anything done or
omitted by any tenant provided that the breakdown or other cause is
remedied in a timely fashion.
The Tenant shall not be entitled to any abatement of rent in respect
of any such condition, failure or interruption of service, and the
same shall not constitute an eviction;
(d) To indemnify and save harmless the Landlord and its directors,
officers, employees, agents, subsidiaries and other affiliates from
all fines, suits, claims, demand and actions of any kind or nature
to which the Landlord shall or may become liable for or suffer:
(i) in connection with any matter referred to in clause (c) of
this paragraph 12 unless attributable to their gross
negligence; or
(ii) by reason of any breach, violation or non-performance by the
Tenant of any covenant, representation, warranty, term or
provision of this Lease; or
(iii) by reason of any injury occasioned to or suffered by any
person or persons or any property resulting from any wrongful
act, neglect or default on the part of the Tenant or any
employee, agent or customer of the Tenant.
(e) In the event the Tenant shall fail to pay any taxes, rates or
charges payable by it under this Lease and which shall constitute a
lien or charge upon the Leased Premises or upon the complex, the
Landlord, after the expiration often (10) days' notice to the
Tenant, within which such default shall not have been cured, may pay
all or any of the same and all of such payments so made shall
constitute rent payable forthwith by the Tenant. The Tenant hereby
waives its right to appeal any such taxes, rates or charges unless
the Landlord otherwise agrees, acting reasonably.
(f) If the Tenant does or permits to be done or omitted upon the Leased
Premises anything which shall cause an increase in the rate of any
insurance upon the building or any part thereof, the Landlord may,
at its option, compel the Tenant to restore the Leased Premises to
the condition they were in prior to such act or permit the Tenant to
continue to do such act, in which case the Tenant shall pay the
Landlord the amount by which the insurance premiums in respect of
the building or any part thereof shall have been so increased. It is
agreed that if any insurance policy upon the building or any part
thereof shall be cancelled or the coverage thereunder reduced in any
way by the insurer, or if such action is threatened, by reason of
the use and occupation of the Leased Premises or any part thereof by
the Tenant or by any assignee, sub-tenant or licensee of the Tenant,
or by anyone permitted by the Tenant to be upon the Leased Premises,
the Tenant shall forthwith remedy the condition giving rise to such
cancellation or reduction of coverage or threatened cancellation or
reduction of coverage.
(g) If the Tenant wishes to install any electrical or other equipment
which may overload the electrical or other service facilities, the
Tenant shall at its own expense make whatever changes are necessary
to comply with the reasonable and lawful requirements of the
insurance underwriters and
<PAGE> 10
10
governmental authorities having jurisdiction, but no changes shall
be made by the Tenant until the Tenant first submits to the Landlord
plans and specifications for the proposed work and obtains the
Landlord's written approval to make the same, such approval not to
be unreasonably withheld.
(h) The Tenant will observe such reasonable rules and regulations as the
Landlord may make pertaining to the operation, reputation, safety,
care or cleanliness of the complex and the Leased Premises, the
operation and maintenance of the building and equipment, the use of
common facilities, display of signs visible outside any premises and
other matters affecting the operation of the complex and the
establishing and maintaining of a suitable image to customers. The
Landlord shall have the right from time to time to change such rules
and regulations and shall not be responsible to the Tenant for the
non-observance or violation of any such rules and regulations by any
other tenant or any person.
(i) The Tenant shall pay to the Landlord in the manner specified herein,
without any deduction, set-off or abatement, all rent hereby
reserved and all other amounts which are collectible by the Landlord
as rent, and in the event the Tenant shall fail to pay any such
amount when due and payable hereunder such amount shall bear
interest at the rate of 1.5% per month (18% per annum) until paid.
The Tenant shall observe and perform all terms and provisions of
this Lease on its part to be observed and performed and shall not do
or suffer to be done anything contrary to any term or provision
hereof.
(j) The Tenant shall, at the Tenant's sole cost and expense, comply with
all laws, orders, notices, rules and regulations of all municipal,
provincial, federal and other applicable governmental authorities,
now in force or which hereafter may be in force, pertaining to the
Leased Premises and the business carried on within, and will provide
the Landlord with notice of any work order, deficiency notice,
compliance order, spill or discharge of a contaminant pertaining or
relating to the Leased Premises and the business canned on within
and will indemnify and save harmless the Landlord from each and
every demand, action, cause of action and expense, including
solicitors' fees, caused by failure so to do. Landlord agrees, at
its cost, to assist Tenant in such manner as is reasonable to
satisfy any such work orders or deficiency notices which would
initially be required to be satisfied in order for any potential
tenant to obtain an occupancy permit for the Leased Premises.
13. LANDLORD'S COVENANTS AND AGREEMENTS
The Landlord covenants and agrees with the Tenant as follows:
(a) That if the Tenant pays the rent hereby reserved and performs the
covenants herein on its part contained, it shall and may peaceably
possess and enjoy the Leased Premises for the term hereby granted
without any interruption or disturbance from the Landlord or any
other person or persons lawfully claiming by, from or under it,
provided that the Landlord and its agent shall have the right to
enter upon the Leased Premises as reasonable times to show such
premises to prospective purchasers, encumbrancers, tenants or
assignees, the Landlord shall have the right within the three (3)
months prior to the termination of the Lease, to place upon the
Leased Premises (but not at the entrance of the Leased Premises) a
notice of reasonable dimensions and reasonably placed so as not to
interfere with the business of the Tenant, stating that the Leased
Premises are for sale or to let, and the Tenant agrees that it will
not remove such notice or permit the same to be removed.
(b) To enforce whatever guarantee and warranties, if any, given to the
Landlord in respect of the roof and outside walls, foundations and
steel assembly of the building.
(c) To repair and/or replace the paved areas provided the necessity for
same does not arise due to the unreasonable use thereof by the
Tenant, its agents employees or invitees, but the cost of same shall
be added to the Landlord's cost as provided for herein, and shall be
recoverable as additional rent.
(d) That the Tenant is not responsible for structural maintenance or
repairs of the Leased Premises, unless such repair or replacement is
caused by the negligence of the Tenant, including the heating, air
conditioning, electrical wiring, roofing and plumbing.
<PAGE> 11
11
14. DAMAGE TO LEASED PREMISES
(a) If and whenever the Leased Premises shall be destroyed, demolished
or damaged by fire or other cause to such an extent that the same
shall not be capable with due diligence of being repaired, restored
or rebuilt within a period of one hundred and twenty (120) days
after the happening of such destruction, demolition or damage, then
either the Landlord or the Tenant may terminate this Lease upon
thirty (30) days' written notice to the other given within
forty-five (45) days of the date of such destruction, demolition or
damage, and in such event the Tenant shall thereupon immediately
surrender the Leased Premises and this Lease to the Landlord and
rent shall be apportioned to the date of such damage, demolition or
destruction.
(b) If the Leased Premises are destroyed, demolished or damages by fire
or other cause and notice to terminate this Lease shall not have
been given as provided under subparagraph (a) of this paragraph 14,
the Landlord shall repair the Leased Premises, excluding the
Tenant's fixtures, with all reasonable speed, and (i) if the
destruction, demolition or damage is such as to render the Leased
Premises wholly unfit for occupancy, all rent under this Lease shall
cease from the time of the occurrence thereof until the substantial
completion of repairs to the Leased Premises by the Landlord; (ii)
if the destruction, demolition or damage is such that the Leased
Premises can be partially used by the Tenant all rent hereunder
shall be payable in accordance with the terms hereof, provided that
rent payable during the whole or any part of the period during which
the Leased Premises may be only partially used by the Tenant, shall
abate according to the nature and extent of the destruction,
demolition or damage from the time of the occurrence of such
destruction, demolition or damage until the substantial completion
of repairs to the Leased Premises by the Landlord; and (iii) upon
the substantial completion of repairs to the Leased Premises by the
Landlord all rent under this Lease shall recommence within fifteen
(15) days, or upon the opening of the Leased Premises for business,
whichever is the earlier. For greater certainty it is acknowledged
and agreed that the Landlord's work herein shall be funded only by
insurance proceeds, and the Landlord's work shall accordingly be
delayed until its claims under such insurance have been accepted and
it has received the insurer's authorization of the payment of such
proceeds to it.
(c) Any question as to the extent of damage to or destruction of the
Leased Premises or the building shall be determined by the
Landlord's architect whose decision shall be available to Tenant
within fifteen (15) days of the date of the damage and which shall
be final and binding and no appeal shall lie therefrom.
15. RE-ENTRY BY LANDLORD
(a) Proviso for re-entry by the Landlord on non-payment of rent or
non-performance of covenants, subject to the provisions of this
Lease.
(b) If the Tenant shall fail to pay any instalment of rent or other sums
payable as rent under this Lease when due and shall allow such
default to continue for seven (7) days after notice of such default
or if the Tenant shall fail to perform any of the other covenants,
conditions or agreements in this Lease on the Tenant's part to be
observed, kept or performed, and shall allow any such default to
continue for seven (7) days (or such longer period as is reasonably
necessary to remedy the default, provided that the correction of the
default is commenced within such seven (7) day period and diligently
proceeded with) following the giving by the Landlord to the Tenant
of written notice of such default or if the Tenant shall without the
Landlord's prior written consent fail to move into or take
possession of the Leased Premises and open for business as provided
in this Lease, then the term of this Lease may at the option of the
Landlord and without notice to the Tenant be terminated and the term
and estate hereby vested in the Tenant any and all other rights of
the Tenant hereunder shall thereupon immediately cease and expire as
fully and with like effect as if the entire term of the Lease had
elapsed.
<PAGE> 12
12
(c) If the Tenant shall default in the performance of any covenant
(other than any covenant to pay rent) on its part to be performed
under this Lease, the Landlord may, if such default shall continue
for seven (7) days following the giving by the Landlord to the
Tenant of written notice of such default perform the same for the
account of the Tenant, and may enter upon the Leased Premises for
that purpose and shall not be liable to the Tenant for any loss or
damage to the Tenant's merchandise or business caused by acts of the
Landlord in so remedying the default or neglect of the Tenant. If
the Landlord at any time is compelled or elects to pay any sum of
money or do any act which would require the payment of any sum of
money by reason of the failure of the Tenant to comply with any
provisions of this Lease or if the Landlord is compelled or elects
to incur any expense, including legal fees, by reason of any default
of the Tenant under this Lease, the sum or sums, including legal
fees so paid by the Landlord with all interest, costs and damages
being deemed to be additional rent hereunder and shall be paid by
the Tenant to the Landlord forthwith upon demand and upon
presentation of proof of payment.
(d) If the Landlord shall re-enter or if this Lease shall be terminated
as aforesaid:
(i) rent shall immediately become due and be paid up to the time
of such re-entry or termination, together with reasonable
expenses of the Landlord as set forth in clause (iv) of this
subparagraph (d);
(ii) the Landlord may re-let the Leased Premises or any part
thereof, either in the name of the Tenant or otherwise, for a
term or terms which may at the Landlord's option be less than
or exceed the period which would otherwise have constituted
the balance of the term of this Lease and may grant reasonable
concessions in connection therewith;
(iii) the Landlord, at its option and in addition to any other
remedy it may have, may require the Tenant, or the legal
representative of the Tenant, to pay the Landlord as
liquidated damages, monthly on the first day of each month
following such re-entry or termination until the expiration of
the period which would otherwise have constituted the balance
of the terms of this Lease, any deficiency between: (a) the
average of the amounts paid or payable by the Tenant as rent
and additional rent for each month during the period of twelve
(12) months immediately preceding such re-entry or termination
or for each month during the expired term hereof if less than
twelve (12) months; and (b) the amount, if any, of the rent
collected on account of the Lease or Leases of the Leased
Premises, for each month of the period which would otherwise
have constituted the balance of the term of this Lease; and
(iv) there shall be paid forthwith by the Tenant to the Landlord
such reasonable expenses as the Landlord may have incurred in
connection with re-letting, including legal costs, solicitors'
fees and brokerage, and the expenses of keeping the Leased
Premises in good order or of preparing the same for
re-letting.
(e) In the event of a breach or threatened breach by the Tenant of any
of the covenants or provisions of this Lease, the Landlord shall
have the right to invoke any remedy allowed at law or in equity as
if re-entry and other remedies were not provided for in this Lease.
Mention in this Lease of any particular remedy shall not preclude
the Landlord from any other remedy available to it at law or equity.
All rights and remedies granted to the Landlord by the terms of this
Lease may be enforced successively, concurrently and/or cumulatively
by it.
16. RIGHT TO DISTRESS
The Tenant hereby covenants and agrees with the Landlord that in
consideration of these presents, and of the leasing and letting by the Landlord
to the Tenant of the Leased Premises for the term hereby created (and it is upon
that express understanding that these presents are entered into) that
notwithstanding anything contained herein or contained in the Commercial
Tenancies Act (Ontario) or any other statute which may hereafter be passed to
take the place of the said Act, or to amend the same, none of the goods or
chattels of the Tenant at any time during
<PAGE> 13
13
the continuance of the term hereby created on the Leased Premises shall be
exempt from levy by distress for rent in arrears by the Tenant as provided for
by any section or sections of the said Act above-named, or any amendment or
amendments thereto, and that upon any claim being made for such exemption by the
Tenant or on distress being made by the Landlord this covenant and agreement may
be pleaded as an estoppel against the Tenant in any action brought to test the
right to the levying upon any such goods as are named as exempted in said
section or sections or amendment or amendments thereto, the Tenant waiving, as
it hereby does, all and every benefit that could or might have accrued to it
under and by virtue of the said section or sections of the said Act or any
amendment or amendments thereto for the above covenant.
17. BANKRUPTCY OR INSOLVENCY OF TENANT
(a) If the Tenant shall be adjudicated a bankrupt or adjudged to be
insolvent, or a receiver or trustee of the Tenant's property and
affairs shall be appointed or if the Tenant shall make an assignment
for the benefit of creditors in bankruptcy or applies for the
appointment of a receiver or if any execution or attachment shall be
issued against the Tenant or any of the Tenant's property whereupon
the Leased Premises or any portion thereof shall be taken or
occupied or attempted to be taken or occupied by someone other than
the Tenant and such execution, petition or attachment shall not be
set aside, vacated, discharged, disputed by legal proceedings or
bonded within seven (7) days after the issuance of same or if the
Tenant attempts to make a bulk sale or move the bulk of its fixtures
out of the Leased Premises then, in any of such events, the then
current month's rent and rent for the next three (3) ensuing months
shall immediately become due and be paid and this Lease may at the
option of the Landlord be cancelled and terminated, whether or not
the term has commenced or whether or not any rent has been prepaid.
For the purpose of this Lease accelerated rent shall include all
amounts payable by the Tenant as rent and additional rent and shall
be calculated on the basis of the average of the amounts thereof so
paid by or payable by the Tenant for each month during the period of
twelve (12) months immediately preceding such termination or during
the expired term of this Lease if less than twelve (12) months. If
this Lease shall be so cancelled and terminated, neither the Tenant
nor any person claiming through or under the Tenant by virtue of any
statute or order of any Court shall be entitled to possession or to
remain in possession of the Leased Premises but shall forthwith quit
and surrender the Leased Premises, and the Landlord, in addition to
other rights and remedies the Landlord has by virtue of any other
provisions of this Lease or of any statute or rule of law, may
retain on account of liquidated damages any rent, security, deposit
or moneys received by it from the Tenant or other on behalf of the
Tenant.
(b) In the event of termination of this Lease under subparagraph (a) of
this paragraph 17, the Landlord shall be entitled to recover
forthwith from the Tenant as liquidated damages an amount equal to
the amount by which:
(i) an amount equal to the product obtained by multiplying the
average of the amounts paid or payable by the Tenant as rent
and additional rent for each month during the period of twelve
(12) months immediately preceding such termination or during
the expired term of this Lease, if less than twelve (12)
months, multiplied by the number of months then constituting
the unexpired portion of the term in respect of which rent
shall not have been paid, exceeds
(ii) the amount of the rental value of the Leased Premises at the
time of termination for the term equal to the unexpired
portion of the term both of such amounts discounted at the
rate of 5% per annum to present worth.
(c) In determining the rental value of the Leased Premises for the
purpose of subparagraph (b) of this paragraph 17, the rental
realized by any re-letting, if such re-letting be accomplished by
the Landlord within a reasonable time after termination of this
Lease, shall be deemed prima facia to be the rental value.
<PAGE> 14
14
18. TRANSFER OF LEASE
(a) The Tenant, without the previous written consent of the Landlord,
which consent may not be unreasonably withheld, shall not assign
this Lease or sublet or part with possession of the Leased Premises
or any part thereof. The Tenant hereby waives its right to the
benefit of any present or future Act of the Legislature of Ontario
which would allow the Tenant to assign this Lease or sublet the
Leased Premises without the Landlord's consent. The Tenant shall not
grant any concession or enter into any licence or franchise to use
the Leased Premises or any part thereof.
(b) Notwithstanding anything contained herein or contained in the
Commercial Tenancies Act (Ontario) or any other statute which may
hereafter be passed to take the place of the said Act, or to amend
the same, the Landlord shall not be deemed to be unreasonable in
withholding its consent in the event that the proposed material or
substantial change in the use of the Leased Premises to now which is
more injurious, as decided upon by the Landlord acting reasonably,
than that of the Tenant, in which event it may arbitrarily withhold
such consent, and in any event may arbitrarily withhold such consent
unless and until the proposed assignee or sublessee shall have
agreed in writing with the Landlord to assume and perform each of
the covenants and obligations of the Tenant in this Lease insofar as
the same pertain to the portion of the Leased Premises being
assigned or subletted.
(c) Notwithstanding any consent to assignment or sublease, the Tenant
shall remain fully liable under this Lease and shall not be released
from performing any of its covenants, obligations or agreements in
this Lease and shall continue to be bound by this Lease.
(d) If there is a permitted transfer of this Lease, either by assignment
or sublet, the Landlord may collect the rents from the assignee,
sub-tenant or occupant, all of the foregoing being hereinafter
collectively referred to as the "Transferee", and to apply the net
amount collected to the rent required to be paid pursuant to this
Lease, and no acceptance by the Landlord of any payment by the
Transferee shall be deemed a waiver of this covenant, or the
acceptance of the Transferee as tenant, or a release of the Tenant
from the further performance by the Tenant of the covenants,
obligations and agreements on the part of the Tenant herein
contained. Any document or consent evidencing such transfer of this
Lease, if permitted or consented to by the Landlord, shall be
subject to the Landlord's solicitors, acting reasonably, and all
legal costs with respect thereto shall be paid by the Tenant to the
Landlord forthwith upon demand as additional rent.
(e) If the Tenant intends to effect a transfer as aforesaid, either by
assignment or sublet, then and so often as such event shall occur,
the Tenant shall give prior written notice to the Landlord of such
intent, specifying therein the proposed Transferee providing such
information with respect thereto, including without limitation,
information concerning the principals thereof, and as to any credit,
financial or business information relating to the proposed
Transferee as the Landlord or a mortgagee requires, and the Landlord
shall, within thirty (30) days after receipt of all information
which is required by it, notify the Tenant in writing either that it
consents or does not consent in accordance with the provisions and
qualifications of this paragraph 18.
(f) If the party originally entering into this Lease as Tenant, or any
party who subsequently becomes the Tenant by way of assignment or
sublease or otherwise as provided for in this Lease, is a
corporation then:
(i) the Tenant and the Indemnifier shall, upon request, provide
the Landlord with such information as to the Tenant's or the
Indemnifier's financial standing and corporate organization as
the Landlord reasonably requires, including the most recent
financial statements of the Tenant and the Indemnifier.
(ii) The Tenant and the Indemnifier shall each provide to the
Landlord financial statements prepared by an independent
chartered accountant within two (2) weeks of request for same
by the Landlord.
<PAGE> 15
15
19. LANDLORD'S ADDITIONAL RIGHTS TO TERMINATE AND RE-LET
(a) In the event of the sale by the Landlord of the complex and to the
extent that such purchaser shall have assumed the covenants and
obligations of the Landlord hereunder, by written agreement made in
favour of the Tenant, the Landlord shall, without further written
agreement, be freed and relieved of liability upon such covenants
and obligations. The Tenant shall from time to time at the request
of the Landlord certify or acknowledge to any mortgagee, purchaser,
lessee or assignee, as to the status and validity of this Lease and
the state of the Landlord and Tenant's account hereunder.
(b) If the Leased Premises are expropriated or condemned by any
competent authority and upon payment by the Landlord to the Tenant
of a pro rata share of the proceeds that Landlord has or will
receive in respect of such expropriation or condemnation which are
attributable to the Tenant's leasehold improvements:
(i) the Landlord shall have the right to terminate this Lease by
giving ninety (90) clear days' notice in writing to the
Tenant; or
(ii) the Landlord may require the Tenant to vacate the Leased
Premises within thirty (30) days from payment by the Landlord
to the Tenant of a bonus equal to three months' rent, but
payment of the said bonus shall be accompanied or preceded by
written notice from the Landlord to the Tenant advising of the
Landlord's intent to exercise this option.
(c) The Tenant agrees to permit the Landlord during the last three
months of the term of this Lease to display "For Rent" or "For Sale"
signs or both at the Leased Premises (but not at the entrance of the
Leased Premises) and to show the Leased Premises to prospective new
tenants or purchasers and to permit anyone having written authority
of the Landlord to view the Leased Premises at reasonable hours.
20. NOTICES
Any written notice provided for in this Lease shall be effectually
given to the Landlord by registered mail addressed to or by delivery to the
Landlord at the following address:
1249462 ONTARIO LIMITED
1 Royal Gate Boulevard
Woodbridge, Ontario
L4L 8Z7
Attention: President
and to the Tenant by registered mail addressed to or by delivery to the Tenant
at the Leased Premises and every such notice shall be deemed to have been given
upon the day it was so mailed or delivered. Provided any notice as aforesaid may
be transmitted by facsimile transmission provided the original thereof is as
well sent by ordinary mail, postage prepaid, and in such event shall be deemed
to have been received on that date of transmission.
21. SUBORDINATION
Subject to the terms of Section 3 of Schedule "B" attached hereto,
this Lease and all rights of the Tenant hereunder are subject and subordinate to
all mortgages, or deeds of trust or liens which may now or at any time hereafter
effect the Leased Premises in whole or in part or the complex in whole or in
part and whether or not any such mortgages or deeds of trust or liens shall
affect only the Leased Premises or the complex then this Lease and the rights of
the Tenant hereunder will be subject and subordinate to all advances made or to
be made under the security of such mortgages, deeds of trust or liens. The
Tenant covenants and agrees at any time upon notice for the Landlord to attorn
to and become a tenant of any mortgagee or trustee under any such mortgage or
deed of trust upon the same terms and conditions as are in this Lease. In
confirmation of such subordination and agreement to attorn, the Tenant shall
execute promptly upon request by the Landlord any certificates, instruments of
postponement or attornment or other instruments which may from time to time be
requested to give effect thereto.
<PAGE> 16
16
22. CONTINUATION OF LEASE
In the event that the Tenant remains in possession of the Leased
Premises after the expiration of the term without objection by the Landlord and
without written agreement otherwise providing, the Tenant shall be deemed to be
a tenant from month to month, and subject otherwise to the provisions of this
Lease insofar as the same are applicable, except that the basic rent will be
automatically increased by twenty (20%) percent. PROVIDED that if without the
consent or approval of the Landlord or the acceptance of rent by the Landlord,
the Tenant shall continue to occupy the Leased Premises, the Landlord may cause
it to vacate without notice and with no recourse to legal proceedings and may
forcibly eject the Tenant and its belongings and in exercising the foregoing
right to the landlord shall not be liable to the Tenant for damages or injuries
to persons howsoever caused, and the Tenant covenants and agrees with the
Landlord to indemnify and save the Landlord harmless from all claims and demands
of every nature and kind arising from or connected with such ejection.
23. NON-WAIVER
The waiver or acquiescence of the Landlord in default by the Tenant
under any paragraph, subparagraph, clause or subclause of this Lease shall not
be deemed to be a waiver of such paragraph, subparagraph, clause or subclause or
any subsequent or other default hereunder.
24. WORK
(a) All work performed by the Tenant and the Landlord upon the Leased
Premises shall be done in a good and workmanlike manner and with
first class materials, shall accord with all applicable laws,
orders, regulations and requirements of all government and other
authorities having jurisdiction, shall be done in compliance with
such reasonable rules and regulations as the Landlord or its agents
or contractors may make, shall be done in such manner as not to
interfere reasonably with any work being done by the Landlord upon
the Leased Premises or in other portions of the complex, shall be
subject to the reasonable supervision of the Landlord or its agents
or contractors.
(b) The Tenant shall pay promptly all sums due for materials and work
supplied or done in connection with its work upon the Leased
Premises so as to minimize the possibility of mechanics' liens or
other similar liens being registered or claimed against any of the
land of the Landlord with respect thereto. If at any time a lien in
respect of materials, work or services supplied to or for the Tenant
or its contractors in respect of the Leased Premises shall be
registered against any of the lands of the Landlord, or notice
thereof shall be given to the Landlord, or to a mortgagee or
purchaser of any of the lands of the Landlord, or an action shall be
commenced in respect of any such lien, or a certificate of action is
registered, the Tenant shall forthwith have such registration
vacated and such action discontinued. Unless such registration is
vacated and such notice withdrawn or such action discontinued within
fourteen (14) days of such registration, notice or commencement of
action, as the case may be, the Landlord may:
(i) terminate this Lease by written notice to the Tenant; or
(ii) pay, in the name of the Tenant, the amount of the lien, and
costs into court, whereupon the Tenant shall forthwith pay to
the Landlord the amount so paid by the Landlord plus all costs
incurred by the Landlord in connection therewith.
(c) The Tenant shall furnish to the Landlord all certificates, approvals
and evidences of payment with respect to work done and installations
made upon the Leased Premises that may be required by any relevant
authority or may be reasonably required by the Landlord.
(d) In the event of any dispute between the Landlord and the Tenant as
to whether the provisions of subparagraphs (a), (b) and (c) of this
paragraph 24 have been met, the certificate of the Landlord's
architect shall be conclusive.
<PAGE> 17
17
(e) If an excavation shall be made upon the lands adjacent to the Leased
Premises or the building, or shall be authorized to be made, the
Tenant shall afford to the person making or authorized to make such
excavation, licence to enter upon the Leased Premises for the
purposes of doing such work as the Landlord shall deem necessary to
preserve any wall of the Leased Premises or the building from injury
or damage and to support the same by proper foundations, without any
claim for damages or indemnification against the Landlord or
diminution or abatement of rent.
25. RIGHTS OF ENTRY
(a) The Landlord and any person authorized by the Landlord shall have
the right to use, install, maintain and/or repair pipes, wires,
ducts or other installations in, under, over or through the Leased
Premises for or in connection with the supply of any services to the
Leased Premises, the building or any other premises or building in
the complex. Such services shall include, without limiting the
generality of the foregoing, gas, electricity, water, sanitation,
heat, ventilation and air-conditioning.
(b) When necessary by reason of accident or other cause or in order to
make any repairs, alterations, improvements or additions in or
relating to the Leased Premises or the building or to other portions
of the complex, the Landlord may cause such reasonable and temporary
obstruction of common facilities as may be necessary and may
interrupt or suspend the supply to the Leased Premises and the
building of electricity, water and other services where necessary
until such repairs, alterations, improvements or additions shall
have been completed. There shall be no abatement in rent because of
any such obstruction, interruption or suspension provided that such
repairs, alterations, improvements or additions are made as
expeditiously as is reasonably possible.
(c) The Landlord or its agents shall have the right to enter upon the
Leased Premises at all reasonable times to view the state of repair,
condition and use thereof and to make such decorations, repairs,
alterations, improvements or additions as it may deem advisable and
the Landlord or its agents shall be allowed to take all material
into and upon the Leased Premises that may be required therefor
without the same constituting an eviction of the Tenant in whole or
in part. The rent shall not abate while such decorations, repairs,
alterations, improvements or additions are being made by reason of
loss or interruption of the business of the Tenant because of the
prosecution of any such work, provided that the same are made as
expeditiously as is reasonably possible.
(d) The Landlord shall not be liable to the Tenant for any interference
or inconvenience caused by additional construction permitted under
this Lease, provided such additional construction is carried out as
expeditiously as is reasonably possible.
26. LANDLORD'S AND TENANT'S WORK
N/A
27. RENEWAL
If the Tenant duly and regularly pays the rent and performs all of
the covenants contained in this Lease on the part of the Tenant, then the
Landlord will, upon the expiration of the term, grant to the Tenant a renewal of
this Lease for one (1) further term of three (3) years as hereinabove set forth,
PROVIDED that in order to exercise this renewal option, the Tenant shall be
required to give to the Landlord written notice thereof delivered not less than
three (3) months before the expiration of the term. Any renewal pursuant to this
provision shall be on the same terms and conditions contained herein, except
there shall be no further right of renewal and that the rent payable by the
Tenant shall be fair market rental for similar premises at that time, and
failing agreement, rent is to be set in accordance with the Arbitration Act
(Ontario); provided that in no event shall the rent be less than that provided
for in this Lease for the last year of the original term.
<PAGE> 18
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28. SUCCESSORS AND ASSIGNS
It is hereby expressly agreed that these presents and all rights,
advantages, privileges, powers and things hereby secured to the parties hereto
shall be fully secured to, binding upon and exercisable by the respective
successors and assigns, and all parties claiming by, through or under them or
any of them and that all covenants, liabilities and obligations entered into by
or imposed hereunder upon the parties hereto shall be equally binding upon the
respective successors and assigns and wherever in these presents reference is
made to "person" or "persons" such expression shall be construed to include
individuals, firms, syndicates, companies, corporations and trustees and where
the context may require, the singular shall include the plural and the masculine
shall include the feminine and neuter. If any paragraph, subparagraph, clause or
subclause in this Lease shall be judicially held invalid or unenforceable the
remainder of this Lease shall be interpreted as if such paragraph, subparagraph,
clause or subclause had not been included.
The covenants by the Tenant and the Indemnifier, if more than one
person, firm or corporation, are hereby declared to be joint and several. The
word "Tenant" or Indemnifier" (as the case may be) is deemed to be taken to mean
each and every person or party mentioned as Tenant or Indemnifier herein (as the
case may be), whether one or more, and if there is more than on Tenant or
Indemnifier, any notice required under this Lease may be given by or to any one
of them, and has the same force and effect as if given by or to all of them.
29. INDEMNIFIER
N/A
30. DUE AUTHORIZATION
The Landlord and the Tenant covenant that each of them has all
requisite power and possesses all licences, franchises, permits, consents and
other rights and authorizations necessary to enable each of them to enter into
this Lease contemplated hereby. The Tenant covenants, represents and warrants
that it is not a party to any agreement which would restrict or covenant which
would prevent the Tenant from opening the Leased Premises for business and
operating same throughout the term for the purposes set out herein.
31. SEVERABILITY
If any term, covenant or condition of this Lease or the application
thereof to any person or circumstance is to any extent held or rendered invalid,
unenforceable or illegal, the remainder of this Lease or the application of such
term, covenant or condition to persons or circumstances other than those with
respect to which it is held invalid, unenforceable or illegal, is not affected
thereby and continues to be applicable and enforceable to the fullest extent
permitted by law.
32. POST-DATED CHEOUES AND DEPOSIT
Provided further that upon the execution of this Lease, the Tenant
will deliver to the Landlord a series of twelve (12) post-dated cheques payable
to the Landlord or according to the Landlord's direction, covering the monthly
instalments of rent falling due in the first year of the term created hereunder
and thereafter on or before each anniversary of the commencement date of this
Lease, the Tenant will forward to the Landlord, or its nominee, a further series
of twelve (12) post-dated cheques in respect of rent falling due in the next
ensuing year, payable to the Landlord or according to the Landlord's direction.
The Tenant hereby deposits with the Landlord the amount set out as "Deposit" in
Section 2(f), which shall be held by the Landlord without interest and applied
as hereinbefore stated.
<PAGE> 19
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33. FORCE MAJEURE
Notwithstanding anything contained in this Lease, neither party
shall be deemed in default with respect to the performance of any of the terms,
covenants and conditions of this Lease, if such default is due to any strike,
lock-out, civil commotion, warlike operation, invasion, rebellion, hostilities,
military or usurped power, sabotage, government regulations or controls,
inability to obtain any material or service, an act of God or other cause beyond
the control of such party.
34. ALL REMEDIES AVAILABLE
The Tenant covenants and agrees that all remedies available to the
Landlord if the Tenant fails to pay rent or any instalment thereof (whether such
remedies are provided by the terms of this Lease or otherwise) shall also be
available to the Landlord if the Tenant fails to pay any other amount it is
required to pay under the terms of this Lease.
35. NO OTHER RELATIONSHIP
It is understood and agreed that neither the provisions of this
Lease nor any acts of the parties hereto shall be deemed to create any
relationship between the parties hereto other than the relationship of landlord
and tenant.
36. TIME OF THE ESSENCE
Time shall be of the essence of this Lease except as specified
herein.
37. AMENDMENT
This Lease may not be modified or amended except by an instrument in
writing signed by the parties hereto or by their successors and assigns.
38. ENTIRE AGREEMENT
This Lease constitutes the entire agreement between the Landlord and
the Tenant and neither party is bound by any representation, warranty, promise,
agreement or inducement not embodied herein.
39. GOVERNING LAW
This Lease shall be governed by and construed according to the laws
of the Province of Ontario.
IN WITNESS WHEREOF the parties hereto have hereunto executed this
agreement.
LANDLORD: 1249462 ONTARIO LIMITED
Per: /s/ Vic De Zen
----------------------------------------
Vic De Zen
President
I have the authority to bind the corporation.
<PAGE> 20
20
TENANT: INTERNATIONAL MENU SOLUTIONS INC.
Per: /s/ Michael A. Steele
----------------------------------------
Michael A. Steele
President
I have the authority to bind the corporation.
<PAGE> 21
SCHEDULE "A"
SUITE 202
[GRAPHIC OMITTED]
<PAGE> 22
SCHEDULE "B"
SPECIAL PROVISIONS
In the event that the Landlord proposes to rent Suite 203 to a third
party, then the Landlord shall give the first right of refusal to the
Tenant to lease such premises on the same terms and conditions as
contained in this Lease other than the rent which shall be at the greater
of the rent provided for herein and the rent in the offer submitted to the
Landlord by a prospective tenant with respect to Suite 203 as is
acceptable to Landlord for such premises, exercisable on notice within
five (5) business days of receipt from the Landlord of the offer for such
space from the other prospective tenant. This right of first refusal shall
expire once Landlord has leased Suite 203. If the Tenant does not exercise
such right of first refusal and the Landlord leases the reception area and
Suite 203 to another tenant, the Landlord will provide Tenant with thirty
(30) days written notice to relocate its reception area to the second
floor of the building. Additionally, the Landlord shall require the new
tenant to locate its reception area on its second floor premises unless
both parties shall mutually agree on a sharing arrangement for the first
floor reception area. The rent payable hereunder shall be adjusted to
reflect any reduction in the gross floor area of the Tenant's areas.
3. The Landlord shall use its best efforts to obtain a written
Non-Disturbance Agreement under seal from any mortgagee or other
encumbrancer of the complex who has, or may in the future have, priority
to the Tenant's leasehold interest in the Leased Premises. Such
Non-Disturbance Agreement shall provide that notwithstanding the exercise
of any rights by any such mortgagee or other encumbrancer, so long as the
Tenant is not then in default, the Tenant shall be entitled to remain
undisturbed in its possession of the Leased Premises, subject to the terms
and conditions of the Lease. The Tenant will not be required to
subordinate or postpone this Lease nor to attorn to any mortgagee or
encumbrancer unless the Landlord has obtained such Non-Disturbance
Agreement.
4. (a) If the Landlord receives a bona fide offer to purchase the Lands or
any part thereof, including,without limitation, the Leased Premises
(the "Available Space") from a third party (the "Third PartyOffer"),
which the Landlord desires to accept; then the Landlord shall first
give the Tenant written notice of the Third Party Offer detailing
the terms and conditions contained in the Third Party Offer, and
such notice shall constitute an offer to purchase the Available
Space by the Tenant upon the exact terms and conditions contained in
the Third Party Offer. The Tenant may elect, by giving written
notice (the "Tenant's Notice") to the Landlord within ten (10)
business days after receipt of the Landlord's notice, to purchase
the Available Space on the terms and conditions set out in the Third
Party Offer. The Tenant shall execute an agreement for purchase and
sale for the Available Space, incorporating the terms and conditions
set out in the Third Party Offer in form acceptable to the Landlord.
(b) If the Tenant does not elect to purchase the Available Space and
deliver the Tenant's notice within the time and in the manner set
out in paragraph (a) or fails to execute the agreement for purchase
and sale, then the Tenant's rights contained in this Section shall
no longer be available to the Tenant unless the agreement of
purchase and sale resulting from the Third Party Offer is not
completed, in which case the Tenant's right of first refusal
pursuant to this Section shall apply to any further bona fide arm's
length Third Party Offer received by the Landlord. Subject to the
foregoing sentence, the Tenant's rights contained in this Section
shall apply on one (1) occasion only with respect to the Available
Space which is subject to the Third Party Offer and shall afterwards
be of no effect, whether or not the Tenant elects to purchase the
Available Space offered to be sold to the Tenant pursuant to the
term of this Section. However, for further clarity, the Tenant's
rights in this Section shall remain in full force and effect with
respect to any Lands (or part thereof) other than the Available
Space which was subject to a completed agreement of purchase and
sale.
5. The Landlord shall within a reasonable time frame after the Commencement
Date effect the following, all at the Landlord's cost:
i. Replacement of damaged ceiling tiles as the Landlord reasonably
determines is proper;
ii. Cleaning of interior and exterior windows;
iii. Removal of large tree at ground floor main entrance to Suite
202/203;
v. Refinish stucco wall at main entrance in color as
scheduled from Landlord's samples;
vi. Landscaping of perimeter of the building with annuals and shrubs;
vii. Repair or replacement of interlocking stone at entrance;
viii. Repair of cracked tiles/floor at entrance to Suite 202/203; and
ix. Removal of door and frame leading to industrial space and
replacement with drywall.
<PAGE> 1
STANDARD INDUSTRIAL LEASE -- NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
AIR [LOGO]
1. Parties. This Lease, dated, for reference purposes only, August 16, 1994, is
made by and between RREEF WEST-VI, INC., a Delaware corporation (herein called
"Lessor") and HUXTABLE'S COMESTIBLES, INC., a California corporation (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 herein, that
certain real property situated in the County of Los Angeles State of California
commonly known as 2100 East 49th Street, Vernon, California 90058. and described
as approximately 54,000 square feet of industrial space as further described in
Exhibit A.
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 ten (10) years commencing on
November 1, 1994 and ending on October 31, 2004 unless sooner terminated
pursuant to any provision hereof.
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 $23,206.00, in advance, on the first of each month of the term hereof. REFER
TO ADDENDUM 1, PARAGRAPH 4
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
$35,000.00 as security for 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
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration 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. *See
Exhibit E and Exhibit F
6.Use.
6.1 Use. The Premises shall be used and occupied only for food processing
or any other use which is reasonably comparable and for no other purpose. REFER
TO ADDENDUM 1, PARAGRAPH 5
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 violation of this warranty within six months from the date
that the Lease term commences, the [ILLEGIBLE] action 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 [ILLEGIBLE] 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 violation 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 an 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, 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, then 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 complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shaft 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 covenants 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 Lessee's Obligations. Lessee shall keep in good order, condition and
repair the Premises and every part thereof, structural and non structural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), foundations, ceilings, roofs (interior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping, driveways, parking lots, fences and signs located on the Premises
and sidewalks and parkways adjacent to the Premises
7.2 Surrender. 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 when received, ordinary wear and tear excepted, clean and free of debris
Lessee shall repair any damage to the Premises occasioned
Initials [ILLEGIBLE]
-----------
<PAGE> 2
by the installation or removal of Lessee's 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 Lessor's Rights. If Lessee fails to perform Lessee's obligations under
this Paragraph 7, or under any other paragraph of this Lease, Lessor may at its
option (but shall not be required to) enter upon the Premises after ten (10)
days' prior written notice, to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the maximum rate then allowable by law
shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment.
7.4 Lessor's Obligations. Except for the obligations of Lessor under
Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warranty), Paragraph 9
relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises nor the building located thereon nor the equipment therein, whether
structural or non structural, all of which obligations are intended to be that
of the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit of
any statute now or hereinafter 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.
7.5 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 no 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 7.5
the term "Utility Installation" shall mean 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 government 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 Leasee 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 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
7.5(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 expiration of the term.
Notwithstanding the provisions of this Paragraph 7.5(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.
8. Insurance Indemnity.
8.1 Insuring Party. As used in this Paragraph 8, the term "Insuring party"
shall mean the party who has the obligation to obtain the Property insurance
required hereunder. The insuring party shall be designated in Paragraph 46
hereof. In the event Lessor is the insuring party, Lessor shall also maintain
the liability insurance described in paragraph 8.2 hereof, in addition to, and
not in lieu of, the insurance required to be maintained by Lessee under said
paragraph 8.2, but Lessor shall not be required to name Lessee as an additional
insured on such policy. Whether the insuring party is the Lessor or the Lessee,
Lessee shall, as additional rent for the Premises, pay the cost of all insurance
required hereunder, except for that portion of the cost attributable to Lessor's
liability insurance coverage in excess of $1,000,000 per occurrence. If Lessor
is the insuring party Lessee shall, within ten (10) days following demand by
Lessor, reimburse Lessor for the cost of the insurance so obtained.
8.2 Liability insurance. 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 Lessor and Lessee against any
liability arising out of the ownership, use, occupancy o maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $1,000,000, per occurrence. The
policy shall insure 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.
8.3 Property Insurance.
(a) The insuring party 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, in the amount of the full replacement value thereof, as the same
may exist from time to time, but in no event less than the total amount required
by lenders having liens on the Premises, 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), and
special extended perils ("all risk" as such term is used in the insurance
industry). Said insurance shall provide for payment of loss thereunder to Lessor
or to the holders of mortgages or deeds of trust on the Premises. The insuring
party shall, in addition, 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. A stipulated value or agreed amount endorsement
deleting the coinsurance provision of the policy shall be procured with said
insurance as well as an automatic increase in insurance endorsement causing the
increase in annual property insurance coverage by 2% per quarter. If the
insuring party shall fail to procure and maintain said insurance the other party
may, but shall not be required to, procure and maintain the same, but at the
expense of Lessee. If such insurance coverage has a deductible clause, the
deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be
liable for such deductible amount.
(b) If the Premises are part of a larger building, or if the
Premises are part of a group of buildings owned by Lessor which are adjacent to
the Premises, then Lessee shall pay for any increase in the property insurance
of such other building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(c) if the Lessor is the insuring party the Lessor will not insure
Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements. REFER TO ADDENDUM 1, PARAGRAPH 8
8.4 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". The insuring party
shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such shall be cancellable or
subject to reduction of coverage or other modification except after thirty (30)
days' prior written notice to Lessor. If Lessee is the insuring party Lessee
shall, at least thirty (30) 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. If Lessee
does or permits to be done anything which shall increase the cost of the
insurance policies referred to in Paragraph 8.3, then Lessee shall forthwith
upon Lessor's demand reimburse Lessor for any additional premiums attributable
to any act or omission or operation of Lessee causing such increase in the cost
of insurance. If Lessor is the insuring party, and if the insurance policies
maintained hereunder cover other improvements in addition to the Premises,
Lessor shall deliver to Lessee a written statement setting forth the amount of
any such insurance cost increase and showing in reasonable detail the manner in
which it has been computed.
8.5 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of 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 is contained in this
Lease.
8.6 REFER TO ADDENDUM 1, PARAGRAPH 6
8.7 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
apart, 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
NET -2- Initials: [ILLEGIBLE]
------------
<PAGE> 3
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost at repair is less than
50% of the then replacement cost of the Premises. "Premises Building Partial
Damage" shall herein mean damage or destruction lathe building of which the
Premises are a part to the extent that the cost of repair is less than 50% of
the then replacement cost of such building as a whole.
(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 then replacement cost of the Premises. "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 to repair is 50% or more of
the then replacement cost of such building as a whole.
(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 Lease there
[ILLEGIBLE] damage which is an Insured Loss and which falls Into the
classification at Premises Partial Damage or Premises Building Partial Damage,
then Lessor shall, at Lessor's expense, repair such damage, but not Lessee's
fixtures, equipment or tenant improvements unless the same have become a part of
the Premises pursuant to Paragraph 7.5 hereof as soon as reasonably possible and
this Lease shall continue in full force and effect. Notwithstanding the above,
if the Lessee is the insuring party, and if the insurance proceeds received by
Lessor are not sufficient to effect such repair, Lessor shall give notice to
Lessee of the amount required in addition to the insurance proceeds to effect
such repair. Lessee shall contribute the required amount to Lessor within ten
days after Lessee has received notice from Lessor of the shortage in the
insurance. When Lessee shall contribute such amount to Lessor, Lessor shall make
such repairs as soon as reasonably possible and this Lease shall continue in
full force and effect. Lessee shall in no event have any right to reimbursement
for any such amounts so contributed.
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 classification
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, Lessee shall have the
right within ten (10) days after the receipt at such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force end 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 cancelled and 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
any 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 election to do so within 30 days alter 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 day 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 election 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.
(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 [ILLEGIBLE] 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 alter such obligations shall accure, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election 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 01 this Lease.
10. Real Property Taxes.
REFER TO ADDENDUM 1, PARAGRAPH 8 & 7.
10.2 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 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 in the
Premises or in the real property of which the Premises are apart, 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 or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a 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.
10.3 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 sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 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.
DELETED IN ITS ENTIRETY. REFER TO ADDENDUM 1, PARAGRAPH 3.
<PAGE> 4
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 attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 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.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and 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. Section 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. 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
renovation and alteration 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, [ILLEGIBLE}
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 obligation;
provided, however, that if the nature of Lessors obligation is such that more
than thirty (30) days are required for performance then 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
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in lull force and effect as to the
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 shell occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold [ILLEGIBLE] 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 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.
DELETED IN ITS ENTIRETY.
16. Estoppel Certificate.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, 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 modification 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 encumbrancer of the Premises.
(b) At Lessors option, Lessees failure to deliver such statement
within such time shall be a material breach of this Lease or shall be
Initials: /s/ [ILLEGIBLE]
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<PAGE> 5
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 desires 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 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 is 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 this 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 at 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 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.
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 no further effect during said month to month tenancy.
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 of 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 of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required 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 lessees, 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 grant 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 network 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.
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 and 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 word "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.
Initials: [ILLEGIBLE]
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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 of 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 has become 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 of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice hereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 39 days after the date that
Lessor gives notice to Lessee of such default 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 Lessee
three or more notices of default under paragraph 13.1(b), 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 preservation 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 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 the 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 party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. If Lessee is a corporation, trust or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on 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. Insuring Party. The insuring party under this lease shall be the Lessor.
47. Addendum. Attached hereto is an addendum or addenda containing paragraphs
one (1) through 14 which constitutes a part of this Lease.
48. Outside Storage. No material is to be stored outside the building at any
time. The prohibition against outside storage includes, but is not limited to,
equipment, materials, inoperative vehicles, campers, trailers, boats, barrels,
pallets and trash (other than in containers provided by commercial trash
collectors which are picked up on a regularly scheduled basis).
49. Refer to Addendum 1, Exhibit A, Exhibit B, Exhibit C, Exhibit D, Exhibit E
and Exhibit F.
50. Limiations of Lessor's Liability. Redress for any claims against Lessor
under this Lease shall only be made against Lessor to the extent of Lessor's
interest in the property to which the leased premises are a part. The
obligations of Lessor under this Lease shall not be personally binding on, nor
shall any resort be had to the private properties of, any of its trustees or
board of directors and officers, as the case may be, its investment manager, the
general partners thereof, or any beneficiaries, stockholders, employees or
agents of Lessor.
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, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT OF 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 RECOMMENDATION 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 RELY SOLELY UPON THE ADVICE OF THEIR
OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR: LESSEE:
RREEF WEST-VI, INC., HUXTABLE'S COMESTIBLES, INC.,
a Delaware corporation a California corporation
BY: RREEF MANAGEMENT COMPANY ADDRESS:
a California corporation
1630 South Sunkist Street, Suite A 2100 East 49th Street
Anaheim, California 92806 Vernon, California 90058
BY: /s/ Greg Gilroy BY: /s/ Fred R. Epstein
---------------------------------- -------------------------
Greg Gilroy Fred R. Epstein
TITLE: District Manager TITLE: Vice President
DATED: 10-18-94 DATED: 10-14-94
---------------------------------- -------------------------
BY: /s/ Doug Mejia
----------------------------------
Doug Mejia
TITLE: Director of Properties
DATED: 10/19/94
----------------------------------
BY: /s/ Michael D. Roos
----------------------------------
Michael D. Roos
TITLE: Portfolio Manager
DATED: 10/19/94
----------------------------------
<PAGE> 7
ADDENDUM 1
To that Lease dated August 16, 1994, between RREEF WEST-VI, INC., a Delaware
corporation ("Lessor") and HUXTABLE'S COMESTIBLES, INC., a California
corporation ("Lessee"), for the Premises commonly known as 2100 East 49th
Street, Vernon, California 90058.
1. COMMON AREA MAINTENANCE
(A) The Premises are a part of the industrial park ("Park") more
particularly described on Exhibit A attached hereto. Lessor shall be responsible
for all landscape maintenance and repair or replacement in the Park including
but not limited to all plantings and planting sprinkler systems including those
contained in the Premises.
(B) Lessor shall also provide cleaning, sweeping service and replacement
and repairs as necessary to all parking areas and roadways in the Park including
those in the Premises. The cost of such maintenance, services, and repairs shall
be designated as for the maintenance, repair and operations of the common area
as hereinabove indicated.
(C) On the first day of each month, beginning when the Term commences,
Lessee shall pay to Lessor an amount estimated by Lessor to be Lessee's
proportionate share of common area expenses. Lessee's proportionate share of
common area expenses shall be that percentage of the total common area expenses
equal to the ratio the square footage of the Premises bears to the total number
of leasable square footage in the Park. Common area expenses that cover a period
not within the term of this Lease shall be prorated, and Lessee will not pay for
said expenses which do not apply to the term.
(D) All expenses to supervise and administer said common areas, parking
lots, sidewalks, driveways, and other areas used in common by the Lessee or
occupants of the Park shall include such fees as may be paid to a third party in
connection with same and shall in any event include a fee to Lessor to supervise
and administer same in an amount equal to ten percent (10%) of the total common
area expenses.
2. HAZARDOUS MATERIALS
(A) Lessee agrees that Lessee, its agents and contractors, licensees, or
invitees shall not handle, use, manufacture, store or dispose of any flammables,
explosives, radioactive materials, hazardous wastes or materials, toxic wastes
or materials, or other similar substances, petroleum products or derivatives
(collectively "Hazardous Materials") on, under, or about the Premises, without
Landlord's prior written consent (which consent may be given or withheld in
Lessor's sole discretion), provided that Lessee may handle, store, use or
dispose of products containing small quantities of Hazardous Materials, which
products are of a type customarily found in offices and households (such as
aerosol cans containing insecticides, toner for copies, paints, paint remover,
and the like), provided further that Lessee shall handle, store, use and dispose
of any such Hazardous Materials in a safe and lawful manner and shall not allow
such Hazardous Materials to contaminate the Premises or the environment.
(B) Without limiting the above, Lessee shall reimburse, defend, indemnify
and hold Lessor harmless from and against any and all claims, losses,
liabilities, damages, costs and expenses, including without limitation, loss of
rental income, loss due to business interruption, and attorneys fees and costs,
arising out of or in any way connected with the use, manufacture, storage, or
disposal of Hazardous Materials by Lessee, its agents or contractors on, under
or about the Premises including, without limitation, the costs of any required
or necessary investigation, repair, cleanup or detoxification and the
preparation of any closure or other required plans in connection herewith,
whether voluntary or compelled by governmental authority. The indemnity
obligations of Lessee under this clause shall survive any termination of the
Lease.
(C) Notwithstanding anything set forth in this Lease, Lessee shall only
be responsible for contamination of Hazardous Materials or any cleanup resulting
directly therefrom, resulting directly from matters occurring or Hazardous
Materials deposited (other than by contractors,
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agents or representatives controlled by Lessor) during the Lease term, and any
other period of time during which Lessee is in actual or constructive occupancy
of the Premises. Lessee shall take reasonable precautions to prevent the
contamination of the Premise with Hazardous Materials by third parties.
(D) It shall not be unreasonable for Lessor to withhold its consent to
any proposed Assignment or Sublease if (i) the proposed Assignee's or
Sublessee's anticipated use of the premises involves the generation, storage,
use, treatment or disposal of Hazardous Materials; (ii) the proposed Assignee or
Sublessee has been required by any prior landlord, lender, or governmental
authority to take remedial action in connection with Hazardous Materials
contaminating a property if the contamination resulted from such Assignee's or
Sublessee's actions or use of the property in question; or (iii) the proposed
Assignee or Sublessee is subject to an enforcement order issued by any
governmental authority in connection with the use, disposal, or storage of a
hazardous material.
3. ASSIGNMENT AND SUBLETTING
(A) Lessee shall not have the right to assign or pledge this Lease or to
sublet the whole or any part of the Premises whether voluntarily or by operation
of law, or permit the use or occupancy of the Premises by anyone other than
Lessee, and shall not make, suffer or permit such assignment, subleasing or
occupancy without the prior written consent of Lessor, and said restrictions
shall be binding upon any and all assignees of the Lease and subtenants of the
Premises. In the event Lessee desires to sublet, or to permit such occupancy of,
the Premises, or any portion thereof, or assign this Lease, Lessee shall give
written notice thereof to Lessor at least sixty (60) days but no more than
ninety (90) days prior to the proposed commencement date of such subletting or
assignment, which notice shall set forth the name of the proposed subtenant or
assignee, the relevant terms of any sublease or assignment and copies of
financial reports and other relevant financial information of the proposed
subtenant or assignee.
(B) Notwithstanding any assignment or subletting, permitted or otherwise,
Lessee shall at all times remain directly, primarily and fully responsible and
liable for the payment of the rent and other charges specified in this Lease and
for compliance with all of its other obligations under the terms, provisions and
covenants of this Lease. As a condition to Lessor's prior written consent as
provided for in this Paragraph, the sublessee or sublessees, the assignee or
assignees, shall agree in writing to comply with and be bound by all of the
terms, covenants, conditions, provisions and agreements of this Lease, and
Lessee shall deliver to Lessor promptly, after execution, an executed copy of
each sublease or assignment, and an agreement of said compliance by each
sublessee or assignee.
(C) In addition to Lessor's right to approve of any subtenant or
assignee, Lessor shall have the option, in its sold discretion, in the event of
any proposed subletting or assignment, to terminate this Lease, or in the case
of a proposed subletting of less than the entire Premises, to recapture the
portion of the Premises to be sublet, as of the date the subletting or
assignment is to be effective. The option shall be exercised, if at all, by
Lessor giving Lessee written notice within forty-five (45) days following
Lessor's receipt of Lessee's written notice as required above. If this Lease
shall be terminated with respect to the entire Premises pursuant to this
Paragraph, the term of this Lease shall end on the date stated in Lessee's
notice as the effective date of the sublease or assignment as if that date had
been originally fixed in this Lease for the expiration of the term. If Lessor
recaptures under this Paragraph only a portion of the Premises, the rent and
other charges to be paid from time to time during the unexpired term of the
Lease shall adjust proportionately based on the proportion by which the
approximate square footage of the remaining portion of the Premises bears to the
approximate square footage of the Premises as of the date immediately prior to
such recapture. If Lessor, upon receiving written notice from Lessee or Lessee's
intent to assign the Lease or to sublet all of a portion of the Premises, does
not exercise its right to terminate the Lease, Lessor will not unreasonably
withhold its consent to Lessee's request.
(D) Any purported sale, assignment, mortgage, transfer of this Lease or
subletting which does not comply with the provisions of this Paragraph 3,
Addendum 1 to the Lease, shall be void.
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4. RENT SCHEDULE
(A) Base Rent for the period November 1, 1994 through October 31, 1995
shall be $23,206.00 per month.
(B) (1) On the first anniversary of the Commencement Date and on each
anniversary date thereafter, in the event that the Base Index (the term "Base
Index" herein means the Consumer Price Index ("CPI") for the second month
preceding the month in which the Commencement Date falls - e.g., the CPI for
March if the Commencement Date falls in May) shall be less than the CPI for the
second month preceding any anniversary of the Commencement Date, then Lessee
shall pay as additional rent an amount equal to the Annual Rent multiplied by a
fraction which has as its numerator the CPI for such second month preceding such
anniversary and which has as its denominator the Base Index. For the purposes of
the Lease, the term "Consumer Price Index" means the Consumer Price Index of the
Bureau of Labor Statistics of the U.S. Department of Labor for all Urban
Consumers, Los Angeles, Anaheim, Riverside, California (1982-84 = 100), "All
Items". One-twelfth of said amount shall be payable by Lessee in each month of
said Lease Year with the Monthly Installment of Rent.
(2) As used in this paragraph, the term "Lease Year" shall mean a
12-month period commencing on the Commencement Date or any anniversary thereof
except that the final Lease year shall be the period commencing on the last
anniversary of the Commencement Date during the Term and ending on the
Termination Date. If the final Lease Year is less than 12 months, all amounts
shall be appropriately prorated based upon a 365-day-year.
(3) If the manner in which such Consumer Price Index as determined
by the Bureau of Labor Statistics shall be substantially revised, an adjustment
shall be made in such revised index which would produce results equivalent, as
nearly as possible, to those which would have been obtained if the Consumer
Price Index has not been so revised. If the Consumer Price Index shall become
unavailable to the public because publication is discontinued, or otherwise,
Lessor will substitute therefor a comparable index based upon changes in the
cost of living or purchasing power of the consumer dollar published by any other
governmental agency or, if no such index shall be available, then a comparable
index published by a major bank or other financial institution or by a
university or a recognized financial publication shall be used.
(4) Notwithstanding anything contained in this paragraph, the
additional rent payable by Lessee in any Lease Year pursuant to this paragraph
shall in no event be less than three percent (3%) nor more than six percent (6%)
of the sum of the base rent and additional rent due in the prior Lease Year.
5. USE
Lessee shall comply with all governmental laws, ordinances and regulations
applicable to the use of the Premises and its occupancy and shall promptly
comply with all governmental orders and direction for the correction, prevention
and abatement of any violations in or upon, or in connection with, the Premises,
all at Lessee's sole expense.
6. INDEMNIFICATION
Lessor shall not be liable and Lessee hereby waives all claims against Lessor
for any damage to any property or any injury to any person in or about the
Premises or the Building by or from any cause whatsoever, (including without
limiting the foregoing, rain or water leakage of any character from the roof,
windows, walls, basement, pipes, plumbing works or appliances, the Building not
being in good condition or repair, gas, fire, oil, electricity or theft); except
that Lessor will indemnify and hold Lessee harmless from such claims to the
extent caused by the negligent or willful act of Lessor, or its agents,
employees or contractors. Lessee shall defend, indemnify and save Lessor
harmless from and against any and all claims, actions, lawsuits, damages,
liability, and expense (including, without limitation, attorneys' fees) arising
from: (a) the act, neglect, fault, or omission to meet the standards imposed by
any duty with respect to the loss, damage, or injury by Lessee, its agents,
servants, employees, contractors, customers or invitees; (b) the conduct or
management of any work or thing whatsoever done by the Lessee in or about the
Premises or from transactions of the Lessee concerning the Premises; (c)
Lessee's failure to comply with any and all governmental laws, ordinances and
regulations applicable to
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the use of the Premises and its occupancy; or (d) any breach or default on the
part of the Lessee in the performance of any covenant or agreement on the part
of the Lessee to be performed pursuant to the Lease. The provisions of this
paragraph shall survive the termination of this Lease with respect to any claims
or liability occurring prior to such termination.
7. PAYMENT OF TAXES
"10.1 PAYMENT OF TAXES" of the Lease shall be omitted in its entirety and in its
place shall be substituted the following:
Lessor agrees to pay before they become delinquent the real property tax, as
defined in paragraph 10.2, applicable to the Premises during the term of this
Lease. Lessee shall thereafter reimburse to Lessor upon demand, as additional
rent, the amount paid by Lessor for the real property tax as defined in
paragraph 10.2, applicable to the Premises. If any such taxes, paid by Lessor
shall cover any period of the time prior to or after the expiration of the term
hereof, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year during which this Lease shall be
in effect. If Lessor shall fail to pay any such taxes, Lessee shall have the
right to pay the same, in which case Lessor shall reimburse Lessee for any
penalty or late charge that may be assessed by the taxing authority, upon
receipt by Lessor of satisfactory evidence that such penalty or late charge was
properly assessed by the taxing authority and actually paid by Lessee.
8. REAL PROPERTY TAX AND INSURANCE IMPOUNDS
Notwithstanding the provisions of Paragraphs 8.4 and 10.1 of the Lease, Lessee's
Share of Real Property Tax and Insurance expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Real Property
Tax and Insurance expenses and the same shall be payable monthly or quarterly,
as Lessor shall designate, during each twelve-month period of the Lease term, on
the same day as the Base Rent is due hereunder. In the event that Lessee pays
Lessor's estimate of Lessee's Share of Real Property Tax and Insurance expenses
as aforesaid, Lessor shall deliver to Lessee within sixty (60) days after the
expiration of each calendar year a reasonably detailed statement showing
Lessee's Share of the actual Real Property Tax and Insurance expenses incurred
during the preceding year. If Lessee's payments under this paragraph during said
preceding year exceed Lessee's Share as indicated on said statement, Lessee
shall be entitled to credit the amount of such overpayment against Lessee's
share of Real Property Tax and Insurance expenses next falling due. If Lessee's
payments under this paragraph during said preceding year were less than Lessee's
Share as indicated on said statement, Lessee shall pay to Lessor the amount of
the deficiency within ten (10) days after delivery by Lessor to Lessee of said
statement.
9. PARKING
During the term of this Lease and any agreed upon extension thereof, Lessee, its
authorized representatives and its invitees shall have the nonexclusive right to
use the parking facilities located at the Park, jointly and in common with all
others entitled to the use thereof. Lessee agrees not to overburden the parking
facilities located at the Park and agrees to cooperate with Lessor and other
Lessees at the Park in the use of said parking facilities. Lessor reserves the
right, in the exercise of its sole and absolute discretion to determine whether
Lessor's parking facilities at the Park are becoming overcrowded and, in such
event, to allocate parking spaces among the various Lessees in said Park or to
designate a specific area or areas within which Lessee, its authorized
representatives and its invitees must park. Lessee expressly agrees and
understands that all parking spaces are not reserved and that Lessor in the
exercise of its sole and absolute discretion may designate the area or areas of
the parking facilities located at the Park where said non-exclusive parking
spaces are to be located. Lessor shall have the right at any time to make
changes to the location of driveways, entrances, exits, parking spaces, parking
areas, or the direction of the flow of traffic.
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10. INCORPORATION
Except as modified within this Addendum 1, all other terms and conditions of the
Lease between the parties above described, as attached hereto, shall continue in
full force and effect.
11. CORPORATE AUTHORITY
If Lessee is a corporation, Lessee represents and warrants that this Lease and
the undersigned's execution of this Lease has been duly authorized and approved
by the corporation's Board of Directors. The undersigned officers and
representatives of the corporation executing this Lease on behalf of the
corporation represent and warrant that they are officers of the corporation with
authority to execute this Lease on behalf of the corporation.
12. LESSOR'S FIXTURES
(A) As of the Commencement date of the Lease, the Premises contains
certain fixtures and equipment that are the property of Lessor. The specific
fixtures and equipment are referred to in that certain Bill of Sale, by and
between Lessor and Puritan Foods Corporation, a California corporation, a true
and copy of which is attached hereto as Exhibit "D" to the Lease. The fixtures
and equipment listed in the Bill of Sale will hereinafter be referred to as
"Lessor's Fixtures".
(B) The Rent provided for in Paragraph 4 of the Lease, includes the use
of all Lessor's Fixtures. Notwithstanding any other provision of the Lease to
the contrary, on the last day of the term hereof, or on any sooner termination,
Lessee shall not be entitled to remove any of Lessor's Fixtures from the
Premises. The same are and shall at all times herein remain the property of
Lessor.
(C) During that term of the Lease, Lessee shall maintain, at its sole
cost and expense, a refrigeration inspection contract with a reputable and
licensed refrigeration company, which will provide monthly inspections and
servicing of Lessor's Fixtures. Lessee shall maintain Lessor's Fixtures in good
condition and repair during the term of the Lease.
(D) Lessee accepts the Premises and Lessor's Fixtures in "AS IS"
condition. Lessee acknowledges that neither Lessor nor its agents or
representatives have made any representations or warranty to Lessee as to the
suitability of the Premises for the conduct of Lessee's business or as to the
operating condition or useable life expectancy of Lessor's Fixtures.
(E) Notwithstanding any other provision of this Lease to the contrary,
Lessee shall insure Lessor's Fixtures against all risk of loss and damage, in an
amount of the full replacement value thereof, at its sole cost and expense, said
insurance to be provided by an insurance carrier acceptable to Lessor in the
exercise of its reasonable discretion. Adequate proof of insurance of Lessor's
Fixtures must be provided to Lessor upon execution of this Lease by Lessee.
(F) It is expressly agreed and understood by Lessee that if, during the
term of the Lease, any of the Lessor's Fixtures are not capable of being
repaired, that it shall be the sole responsibility of Lessee, at its sole cost
and expense, to replace the same.
13. FUNDING FOR PERMANENT IMPROVEMENTS
(A) Lessee shall, provided the Lease is in full force and effect, and
Lessee is not in default under any of the terms, covenants or conditions of the
Lease at the time of notification or at any time thereafter through the date of
completion of the construction of any desired permanent improvements to the
Premises, have the right to obtain from Lessor the total sum of Three Hundred
Thousand and No/100 Dollars ($300,000.00) solely to pay for the construction of
any desired permanent improvements to the Premises. Any and all permanent
improvements to the Premises constructed with funds obtained by Lessee pursuant
to the provisions of this Paragraph 13, Addendum 1 to the Lease, shall be and at
all times remain the sole and separate property of Lessor. Any permanent
improvements to the Premises desired by Lessee shall be first approved by Lessor
and constructed in full compliance with the provisions of Paragraph 7.5 of the
Lease. Notwithstanding any other provision of the Lease to the contrary, on the
last day of the term hereof, or on any sooner termination of the Lease, Lessee
shall not be entitled to remove any permanent improvements to the Premises
constructed by Lessee with funds obtained from Lessor pursuant to the provisions
of this Paragraph 13, Addendum 1 to the Lease.
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(B) The funds may be obtained by Lessee in no more than two (2) separate
transactions. Any and all money obtained by Lessee shall be fully amortized over
the then remaining term of the Lease at a rate of five (5) points over the then
current prime lending rate as set by the Federal Reserve Bank of San Francisco
effective as of the date the funds are provided to Lessee by Lessor in the form
of a normal business check. The fund shall be fully amortized and payable to
Lessor on the first (1st) day of each calendar month, during the remaining term
of the Lease, as rent for the Premises. Each time that Lessee obtains funds from
this account, Lessor and Lessee shall promptly execute a new lease for the
Premises, said new lease to be prepared by Lessor, to reflect the required
additional rent for the Premises. The contemplated new lease(s) for the Premises
shall contain the same terms, covenants and conditions as this lease, save and
except for the term of the lease and the rent shall be adjusted and the
provisions of this Paragraph 13, Addendum 1 to the Lease shall be modified to
reflect any monies previously obtained by Lessee.
(C) Any and all amounts obtained from this account by Lessee shall be
deemed rent for the Premises and shall be reflected as such in the contemplated
new lease(s) for the Premises.
(D) Notwithstanding any other provision of this Paragraph 13, Addendum 1
to the Lease to the contrary, if any, Lessee may at any time during the initial
eighteen (18) months of the term of the Lease, TIME BEING OF THE ESSENCE, pay
more to Lessor than the sum due for any given month on any and all amounts that
are obtained by Lessee from Lessor pursuant to the provisions of this Paragraph
13, Addendum 1 to the Lease. Each payment shall be credited first on the
interest then due and the remaining on the principal sum, and interest shall
thereupon cease upon the amount so credited on the said principal sum. Lessor
shall prepare a separate amortization schedule each time Lessee obtains funds
pursuant to the provisions of this Paragraph 13, Addendum 1 to the Lease so as
to reflect the exact amount of each payment and the principal and interest
component of each payment.
(E) Assuming that Lessee obtains funds from this account and thereafter
prepays all or a portion thereof during the initial eighteen (18) months of the
term of the Lease, Lessor and Lessee shall promptly execute a new lease for the
Premises, said new lease to commence as of the first (1st) day of the nineteenth
month of the term of this Lease to reflect the new rent for the Premises. The
contemplated new lease for the Premises shall contain the same terms, covenants
and conditions as this Lease save and except for the term of the Lease shall be
adjusted and the rent shall be adjusted assuming that Lessee obtains funds from
this account and elects to prepay all or a portion of said funds to Lessor
during the initial eighteen (18) months of the term of the Lease.
(F) In no event will Lessee be entitled to obtain any funds pursuant to
the provisions of this Paragraph 13, Addendum 1 to the Lease, unless no later
than (10) days after Lessee's initial request to obtain funds pursuant to his
Paragraph 13, Addendum 1 to the Lease, Lessee provides to Lessor reviewed
financial statements prepared by a certified public accountant with no less than
ten (10) years of experience as such, which reviewed financial statements must
be current (no more than sixty (60) days old) which certifies at a minimum of
the following two (2) items:
(1) "Tangible Assets" which for purposes of this Paragraph 13,
Addendum 1 to the Lease, shall be determined by subtracting from the Lessee's
total assets the intangible assets of Lessee; and
(2) "Senior Secured Debt" which for purposes of this Paragraph 13,
Addendum 1 to the Lease, shall be any secured debt recorded prior to or
determined to be senior to the then contemplated funds to be obtained by Lessee.
(G) Lessee's "Tangible Assets" and Lessee's "Senior Secured Debt" shall
be determined using generally accepted accounting principles, consistently
applied.
(H) Lessee shall have a continuing obligation to promptly notify Lessor,
in writing, if after submission of its reviewed financial statements to Lessor,
but prior to Lessor actually providing funds to Lessee, either Lessee's Senior
Secured Debt increases by any amount or its overall financial position
materially weakens.
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(I) If, in the exercise of Lessor's sole and absolute discretion, a five
(5) to one (1) ratio exists between Lessee's Tangible Assets and Lessee's Senior
Secured Debt, as certified on the Lessee's reviewed financial statements, then
Lessee may obtain up to Three Hundred Thousand and No/100 Dollars ($300,000.00)
as more fully provided for hereinabove for the sole purpose of constructing
permanent improvements to the Premises. In no event, irrespective of the ratio
between Tangible Assets and Senior Secured Debt, will Lessee be entitled to
obtain any funds pursuant to the provisions of this Paragraph 13, Addendum 1 to
the Lease, unless its Tangible Assets are at least the amount of Five Hundred
Thousand and No/100 Dollars ($500,000.00), after deduction of the Senior Secured
Debt.
(J) By way of example only, if Lessee's Tangible Assets equals One
Million and No/100 Dollars ($1,000,000.00) and Lessee's Secured Senior Debt
equals $-0-, then Lessee would be entitled to request up to Two Hundred Thousand
and No/100 Dollars ($200,000.00) at that time.
(1) By way of further example only, if Lessee's Tangible Assets
equals One Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00) and
Lessee's Secured Senior Debt equals $-0-, then Lessee would be entitled to
request up to Three Hundred Thousand and No/100 Dollars ($300,000.00) at that
time.
(K) Assuming that Lessee satisfies the requirements hereinabove to obtain
funds from this account, and further assuming that Lessee has fully complied
with the provisions of Paragraph 7.5 of the Lease, Lessor shall advance said
funds to Lessee in the following time frame:
(1) If the amount requested is less than One Hundred Thousand and
No/100 Dollars ($100,000.00), then Lessor shall advance said funds to Lessee
within sixty (60) days after it has been determined by Lessor, in the exercise
of its sole and absolute discretion, that Lessee has satisfied the requirements
set forth hereinabove to entitle it to obtain funds from this account, but in no
event shall Lessor be required to advance any funds to Lessee prior to the
substantial completion of the contemplated permanent improvements to the
premises; and
(2) If the amount requested is more than One Hundred Thousand and
No/100 Dollars ($100,000.00), but less than Two Hundred Thousand and No/100
Dollars ($200,000.00), then Lessor shall advance One Hundred Thousand and No/100
Dollars ($100,000.00) within sixty (60) days after Lessor determines in the
exercise of its sole and absolute discretion, that Lessee has satisfied the
requirements set forth hereinabove to entitle it to obtain funds from this
account, and Lessor shall advance the balance of said funds to Lessee within
ninety (90) days from the date that Lessor determines in the exercise of its
sole and absolute discretion, that Lessee has satisfied the requirements set
forth hereinabove to entitle it to obtain funds from this account, but in no
event shall Lessor be required to advance any funds to Lessee prior to the
substantial completion of the contemplated permanent improvements to the
Premises; and
(3) If the amount requested is more than Two Hundred Thousand and
No/100 Dollars ($200,000.00), then Lessor shall advance One Hundred Thousand and
No/100 Dollars ($100,000.00) within sixty (60) days after Lessor determines the
exercise of its sole and absolute discretion, that Lessee has satisfied the
requirements set forth hereinabove to entitle it to obtain funds from this
account, and Lessor shall advance another One Hundred Thousand and No/100
Dollars ($ 100,000.00) to Lessee ninety (90) days from the date that Lessor
determines, in the exercise of its sole and absolute discretion, that Lessee has
satisfied the requirements set forth hereinabove to entitle it to obtain funds
from this account and Lessor shall advance the balance of said funds within one
hundred twenty (120) days from the date that Lessor determines in the exercise
of its sole and absolute discretion, that Lessee has satisfied the requirements
set forth hereinabove to entitle it to obtain funds from this account, but in no
event shall Lessor be required to advance any funds to Lessee prior to the
substantial completion of the contemplated permanent improvements to the
Premises.
(L) All funds advanced by Lessor to Lessee pursuant to the provisions of
this Paragraph 13, Addendum 1 to the Lease, which have not been prepaid to
Lessor by Lessee during the initial eighteen (18) months of the term of this
Lease, TIME BEING OF THE ESSENCE, shall be secured by a U.C.C. 1 Blanket
Security Interest in favor of Lessor in any and all assets
GG FE
[INITIAL HERE]
<PAGE> 14
of Lessee, including by way of example and not limitation, all personal
property, equipment, fixtures, accounts, inventory, instruments and general
intangibles of Lessee.
(M) It is expressly agreed and understood that if Lessee elects to attempt
to obtain funds from this account, then Lessee shall provide Lessor with advance
written notice and such notice may not be given to Lessor later than November 1,
1995. TIME IS OF THE ESSENCE. The written notice shall be given in the manner
provided in the Lease for the giving of notices to Lessor. In the event Lessee
does not attempts to exercise its right to obtain funds from this account during
the period commencing November 1, 1994 through and including November 1, 1995,
or if it attempt to do so, but fails to qualify to obtain funds from this
account in the manner set forth hereinabove, Lessee's ability to obtain funds
from this account shall automatically terminate and shall be of no further force
or effect whatsoever.
(N) Lessee shall maintain any permanent improvements to the Premises
constructed pursuant to the provisions of this Paragraph 13, Addendum 1 to the
Lease, in good condition and repair during the term of the Lease. Pursuant to
the provisions of the Paragraph 8 of Lease and Paragraph 8, Addendum 1 to the
Lease, Lessor shall obtain and keep in force during the term and this Lease, a
policy or policies of insurance to insure the permanent improvements against all
risk of loss and damage, in the amount of the full replacement value thereof, at
Lessee's sole cost and expense.
14. PERSONAL GUARANTIES
As of October 14, 1994, the date that Lessee executed this Lease, Lessee was
unable to provide to Lessor the Security Deposit provided for in Paragraph 5 of
the Lease, in the amount of Thirty-Five Thousand and No/100 Dollars
($35,000.00). In consideration for Fred Epstein's agreement to execute the
Continuing Lease Guarantee (Individual) attached to the Lease as Exhibit E
(hereinafter "Epstein Guaranty"), and Vickie Huxtable's agreement to execute the
Continuing Lease Guarantee (Individual) attached to the Lease as Exhibit F
(hereinafter "Huxtable Guaranty"), Lessor has agreed to execute this Lease and
all Exhibits thereto without benefit of receipt from Lessee of the Security
Deposit provided for in Paragraph 5 of the Lease. At such point in time that
Lessor receives from Lessee the Security Deposit required by Paragraph 5 of the
Lease, in the amount of Thirty-Five Thousand and No/100 Dollars ($35,000.00),
and so long as Lessee is not then in default under any of the terms, covenants
or conditions of the Lease, then both the Epstein Guaranty and the Huxtable
Guaranty shall terminate and be of no further force or effect.
GG FE
[INITIAL HERE]
<PAGE> 15
EXHIBIT A
SITE PLAN
Exhibit A to that Lease dated August 16, 1994, between RREEF WEST-VI, INC., a
Delaware corporation ("Lessor") and HUXTABLE'S COMESTIBLES. INC., a California
corporation ("Lessee"), for the Premises commonly known as 2100 East 49th
Street, Vernon, California 90058 and described as approximately 54,000 square
feet of industrial space.
VERNON INDUSTRIAL PARK
This site plan is intended only to show the general layout of the property or a
part thereof. Lessor reserves the right to alter, vary, add to or omit in whole
or in part any structure and/or improvements, and/or common areas and/or land
area shown on this site plan. All measurements and distances are approximate.
This plan is not to be scaled.
[SITE PLAN OMITTED]
GG FE
[INITIAL HERE]
<PAGE> 16
If Lessee is in default under any of the terms, covenants or conditions of the
Lease at the time that it provides to Lessor the Security Deposit required by
Paragraph 5 of the Lease, in the amount of Thirty-Five Thousand and No/100
Dollars ($35,000.00). then both the Epstein Guaranty and the Huxtable Guaranty
shall continue in full force and effect until such time that all defaults under
the Lease are cured by lessee, at which time both the Epstein Guaranty and the
Huxtable Guaranty shall terminate and be of no further force or effect.
LESSOR: LESSEE:
RREEF WEST-VI, INC., HUXTABLE'S COMESTIBLES, INC.,
a Delaware corporation a California corporation
BY: RREEF MANAGEMENT COMPANY
a California corporation
1630 South Sunkist Street, Suite A 2100 East 49th Street
Anaheim, California 92806 Vernon, California 90058
BY: /s/ Greg Gilroy BY: /s/ Fred R. Epstein
---------------------------------- -------------------------
Greg Gilroy Fred R. Epstein
TITLE: District Manager TITLE: Vice President
DATED: 10-18-94 DATED: 10-14-94
---------------------------------- -------------------------
BY: /s/ Doug Mejia
----------------------------------
Doug Mejia
TITLE: Director of Properties
DATED: 10/19/94
----------------------------------
BY: /s/ Michael D. Roos
----------------------------------
Michael D. Roos
TITLE: Portfolio Manager
DATED: 10/19/94
----------------------------------
<PAGE> 17
EXHIBIT B
IMPROVEMENTS
Exhibit B to that Lease dated August 16, 1994, between RREEF WEST-VI, INC.. a
Delaware corporation ("Lessor") and HUXTABLE'S COMESTIBLES, INC., a California
corporation ("Lessee"), for the Premises commonly known as 2100 East 49th
Street, Vernon, California 90058.
The undersigned, as Lessor and Lessee respectively, are executing simultaneously
with this Exhibit, a written Lease.
Lessee shall accept Premises in "as is" condition.
LESSOR: LESSEE:
RREEF WEST-VI, INC., HUXTABLE'S COMESTIBLES, INC.,
a Delaware corporation a California corporation
BY: RREEF MANAGEMENT COMPANY
a California corporation
1630 South Sunkist Street, Suite A 2100 East 49th Street
Anaheim, California 92806 Vernon, California 90058
BY: /s/ Greg Gilroy BY: /s/ Fred R. Epstein
---------------------------------- -------------------------
Greg Gilroy Fred R. Epstein
TITLE: District Manager TITLE: Vice President
DATED: 10-18-94 DATED: 10-14-94
---------------------------------- -------------------------
BY: /s/ Doug Mejia
----------------------------------
Doug Mejia
TITLE: Director of Properties
DATED: 10/19/94
----------------------------------
BY: /s/ Michael D. Roos
----------------------------------
Michael D. Roos
TITLE: Portfolio Manager
DATED: 10/19/94
----------------------------------
<PAGE> 18
EXHIBIT C
Exhibit C To that Lease dated August 16, 1994, between RREEF WEST-VI, INC., a
Delaware corporation ("Lessor") and HUXTABLE'S COMESTIBLES, INC., a California
corporation ("Lessee"), for the Premises commonly known as 2100 East 49th
Street, Vernon, California 90058.
RULES AND REGULATIONS
Lessee hereby agrees to the following:
A. REFUSE. All garbage and refuse shall be kept in the container supplied by
Lessee and placed at the location prepared for refuse collection, in the
manner and at the times and places specified by Lessor.
B. PARKING. Lessee shall be entitled to park in common with other tenants of
Lessor. Lessee agrees not to overburden the parking facilities and agrees
to cooperate with Lessor and other tenants in the use of parking
facilities. Lessor reserves the right in the absolute discretion to
determine whether parking facilities are becoming crowded and, in such
event, to allocate parking spaces among Lessee or to designate areas
within which Lessee must park.
C. SIGN CRITERIA. No sign, placard, picture, advertisement, name or notice
shall be inscribed, displayed or printed or affixed on or to any part of
the outside or inside of the Building without the written consent of
Lessor first obtained and Lessor shall have the right to remove any such
sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Lessee. Lessee shall be entitled to signage which
complies with governmental regulations and similar to that allowed other
tenants in the Park, subject to Lessor's approval.
D. No aerial shall be erected on the roof or exterior walls of the Premises,
or on the grounds, without in each instance, the written consent of the
Lessor. Any aerial so installed without such written consent shall be
subject to removal without notice at any time.
E. No loud speakers, televisions, phonographs, radios, or other devices shall
be used in a manner so as to be heard or seen outside of the Premises
without the prior written consent of the Lessor.
F. The outside areas immediately adjoining the Premises shall be kept clean
and free from dirt and rubbish by the Lessee to the satisfaction of the
Lessor and Lessee shall not place or permit any obstruction or materials
in such areas. No exterior storage shall be allowed without permission in
writing from Lessor.
G. The plumbing facilities shall not be used for any other purpose than that
which they are constructed, and no foreign substance of any kind shall be
thrown therein, and the expense of any breakage, stoppage or damage
resulting from a violation of this provision shall be borne by Lessee, who
shall, or whose employees, agents, or invitees, have caused it.
H. Lessee shall not burn any trash or garbage of any kind in or about the
Premises, or the park.
I. Lessor reserves the right from time to time to amend or supplement the
foregoing rules and regulations, and to adopt and promulgate additional
reasonable rules and regulations applicable to the Premises. Notice of
such rules and regulations and amendments and supplements thereto, if any,
shall be given to the Lessee.
GG FE
[INITIAL HERE]
<PAGE> 19
EXHIBIT D
BILL OF SALE
Exhibit D To that Lease dated August 16, 1994, between RREEF WEST-VI, INC., a
Delaware corporation ("Lessor") and HUXTABLE'S COMESTIBLES, INC., a California
corporation ("Lessee"), for the Premises commonly known as 2100 East 49th
Street, Vernon, California 90058.
GG FE
[INITIAL HERE]
<PAGE> 20
BILL OF SALE
Puritan Foods Corporation, a California corporation, ("Puritan")
located at 3400 Central Avenue, Suite 325, County of Riverside, State of
California, in consideration of Eighty-Eight Thousand Five Hundred and NO/l00
Dollars ($88,500.00) paid to Puritan by RREEF West-VI, Inc., a Delaware
corporation ("RREEF") located at 1630 South Sunkist Street, Suite A, City of
Anaheim, County of Orange, State of California, the receipt of which is
acknowledged, sells, to RREEF, the following described goods, currently located
at 2100 East 49th Street, Vernon, California (the "Premises"):
1. All insulated, panelized walls and drop ceilings in freezer, coolers
and processing rooms and related floor tracks, T-bars, braces, etc.;
2. All electrical panels, lines, outlets and related electrical equipment
installed throughout plant associated with refrigeration and freezer equipment;
3. All insulated floors, raised floors, gutter style floor drains,
circular floor drains and related pipes, conduit and steel reinforcement bars;
4. Two (2) rubber bumper doors (processing room);
5. Dry pendent sprinkler system in freezer, coolers and dry storage area;
6. Wet pendent sprinkler system in processing room and dock office;
7. Two (2) power sliding doors (freezer and cooler);
8. Complete refrigeration system consisting of following main units and
all related equipment (motors, fans, valves, thermometers, etc.);
9. Three (3) Krack Model KPSC-24-25L5 condensing units;
10. Five (5) Krack Model SM24-759EDL evaporator units;
11. One (1) Krack Model KPDS-26-10/10 H2 dual condensing unit;
12. Four (4) Krack Model BTRC-316-DXFA evaporator units;
13. One (1) Krack Model KPDS-56-30 dual condensing unit;
14. One (1) Krack Model KPO-16-8112 condensing unit;
15. Two (2) Krack Model SS-354-300 EDL evaporator units;
16. All refrigeration piping and insulation;
17. Boiler;
18. Air Compressor; and
19. All pallet racks in freezer and coolers.
Puritan warrants, covenants and represents that it is the lawful owner and
has good and marketable title to the above described goods and that the above
described goods are free and clear from any mortgage, pledge, lien, security,
interest, or encumbrance of any type or nature. Puritan further covenants that
it has the right to sell the above described goods and will warrant and defend
the right against the lawful claims and demands of all persons.
1 of 3
<PAGE> 21
RREEF acknowledges that the above described goods are accepted AS-IS, with
any and all defects in their present condition. RREEF further acknowledges that
Puritan does not warrant or guarantee the above described goods presently
located at the Premises either as to merchantability or as being fit for any
particular purpose.
This Bill of Sale shall be effective as to the transfer of all property
listed hereinabove as of October 14, 1994. RREEF shall maintain possession of
the original executed Bill of Sale.
This Bill of Sale is executed at VERNON, California, on October 14, 1994.
PURITAN FOODS CORPORATION,
a California corporation
By: /s/ Richard D. Shippee
------------------------
RICHARD D SHIPPEE
Title: President
RREEF WEST-VI, INC.,
a Delaware corporation
By: RREEF MANAGEMENT COMPANY,
a California corporation
By: /s/ Greg Gilroy
------------------------
GREG GILROY
Title: District Manager
NOTARY
STATE OF CALIFORNIA
COUNTY OF Los Angeles
On 10/14, 1994, before me, Jennifer D. Hitechew appeared, Richard D. Shippee
personally known to me (or provide to me the basis of satisfactory evidence) to
be the person whose name is subscribed to the within instrument and acknowledged
to me that he executed the same in his authorized capacity, and that by his
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Jennifer D. Hitechew
- - ------------------------
Notary's Signature
-------------------------------------
[SEAL] JENNIFER D. HITECHEW
Comm. # 971053
NOTARY PUBLIC - CALIFORNIA
Los Angeles County
My Comm. Expires Aug. 9, 1996
-------------------------------------
FOR NOTARY SEAL OR STAMP
2 of 3
<PAGE> 22
NOTARY
STATE OF CALIFORNIA
COUNTY OF Los Angeles
On 10/14, 1994, before me, Jennifer D. Hitechew appeared, Greg Gilroy,
personally known to me (or provide to me the basis of satisfactory evidence) to
be the person whose name is subscribed to the within instrument and acknowledged
to me that he executed the same in his authorized capacity, and that by his
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Jennifer D. Hitechew
- - ------------------------
Notary's Signature
-------------------------------------
[SEAL] JENNIFER D. HITECHEW
Comm. # 971053
NOTARY PUBLIC - CALIFORNIA
Los Angeles County
My Comm. Expires Aug. 9, 1996
-------------------------------------
FOR NOTARY SEAL OR STAMP
3 of 3
<PAGE> 23
EXHIBIT E
CONTINUING LEASE GUARANTEE
(Individual)
In consideration of the making of the Lease Agreement and for the purpose of
inducing Lessor to enter into and make the Lease, the undersigned hereby
unconditionally guarantees the full and prompt payment of rent and all other
sums required to be paid by Lessee under the Lease ("Guaranteed Payments") and
the full and faithful performance of all terms, conditions, covenants,
obligations and agreements contained in the Lease on the Lessee's part to be
performed ("Guaranteed Obligations") and the undersigned further promises to pay
all of Lessor's costs and expenses (including reasonable attorney's fees)
incurred in endeavoring to collect the Guaranteed Payments or to enforce the
Guaranteed Obligations or incurred in enforcing this Guarantee as well as all
damages which Lessor may suffer in consequence of any default or breach under
the Lease or this Guaranty.
1. Lessor may at any time and from time to time, without notice to the
undersigned, take any or all of the following actions without affecting or
impairing the liability and obligations of the undersigned on this Guaranty:
a. grant an extension or extensions of time of payment of any Guaranteed
Payment or time for performance of any Guaranteed Obligation;
b. grant an indulgence or indulgences in any Guaranteed Payment or in the
performance of any Guaranteed Obligation;
c. modify or amend the Lease or any term thereof, or any obligation of
Lessee arising thereunder;
d. consent to any Assignment or Assignments, Sublease or Subleases and
successive Assignments or Subleases by Lessee's assigns or sublessees or a
change or different use of the leased Premises;
e. consent to an Extension or Extensions of the term of the Lease;
f. accept other guarantors; and/or
g. release any person primarily or secondarily liable.
The liability of the undersigned under this Guaranty shall in no way be affected
or impaired by any failure or delay in enforcing any Guaranteed Payment or
Guaranteed Obligation or this Guaranty or any security therefor or in exercising
any right or power in respect thereto or by any compromise, waiver, settlement,
change, subordination, modification or disposition of any Guaranteed Payment or
Guaranteed Obligation or any security therefore. In order to hold the
undersigned liable hereunder, there shall be no obligation on the part of
Lessor, at any time, to resort for payment to Lessee or any other Guaranty or to
any security or other rights and remedies, and Lessor shall have the right to
enforce this Guaranty irrespective of whether or not other proceedings or steps
are pending or being taken seeking resort to or realization upon or from any of
the foregoing.
2. The undersigned waives all diligence in collection or in protection of any
security, presentment, protest, demand, notice of dishonor or default, notice of
acceptance of this Guaranty, notice of any extensions granted or other action
taken in reliance hereon and all demands and notices of any kind in connection
with this Guaranty or any Guaranteed Payment or Guaranteed Obligation.
3. The undersigned hereby acknowledges full and complete notice and knowledge of
all of the terms, conditions, covenants, obligations and agreements of the
Lease.
GG FE
[INITIAL HERE]
<PAGE> 24
4. The payment by the undersigned of any amount pursuant to this Guaranty shall
not in any way entitle the undersigned to any right, title or interest (whether
by subrogation or otherwise) of the Lessee under the Lease or to any security
being held for any Guaranteed Payment or Guaranteed Obligation.
5. This Guaranty shall be continuing, absolute and unconditional and remain in
full force and effect until all Guaranteed Payments are made, all Guaranteed
Obligations are performed, and all obligations of the undersigned under this
Guaranty are fulfilled.
6. This Guaranty shall also bind the heirs, personal representatives and assigns
of the undersigned and inure to the benefit of Lessor, its successors and
assigns. This Guaranty shall be construed according to the laws of California,
in which state it shall be performed by the undersigned.
7. If this Guaranty is executed by more than one person, all singular nouns and
verbs herein relating to the undersigned shall include the plural number and the
obligations of the several guarantors shall be joint and several.
8. The Lessor and the undersigned intend and believe that each provision of this
Guaranty comports with all applicable law. However, if any provision of this
Guaranty is found by a court to be invalid for any reason, the parties intend
that the remainder of this Guaranty shall continue in full force and effect and
the invalid provision shall be construed as if it were not contained herein.
9. Notwithstanding any other provision of the Lease or this Guaranty to the
contrary, Lessor has agreed to execute the Lease and all Exhibits thereto
without benefit of receipt from Lessee of the Security Deposit provided for in
Paragraph 5 of the Lease. In consideration of Lessor agreeing to execute the
Lease and all Exhibits thereto without benefit of receipt from Lessee of the
Security Deposit provided for in Paragraph 5 of the Lease, Fred Epstein has
agreed to execute this Guaranty. At such point in time that Lessor receives from
Lessee the Security Deposit required by Paragraph 5 of the Lease, in the amount
of Thirty-Five Thousand and No/100 Dollars ($35,000.00), and so long as Lessee
is not then in default under any of the terms, covenants and conditions of the
Lease, then this Guaranty shall terminate and be of no further force or effect.
GG FE
[INITIAL HERE]
<PAGE> 25
If Lessee is in default under any of the terms, covenants or conditions of the
Lease at the time that it provides to Lessor the Security Deposit required by
Paragraph 5 of the Lease, in the amount of Thirty-Five Thousand and No/100
Dollars ($35,000.00), then this Guaranty shall continue in full force and effect
until such time that all defaults under the Lease are cured by Lessee, at which
time this Guaranty shall terminate and be of no further force or effect.
GUARANTOR: Fred Epstien
BUSINESS ADDRESS: 2100 East 49th Street
Vernon, California 90058
RESIDENCE ADDRESS: 6380 Colgate Ave
LA 90048
RESIDENCE TELEPHONE NUMBER: (213) 935-2217
SOCIAL SECURITY NUMBER: ###-##-####
IN WITNESS WHEREOF, the undersigned has executed this Guaranty this 14 day of
OCT 1994.
By: /s/ [Illegible]
--------------------------------
<PAGE> 26
STATE OF CALIFORNIA
COUNTY OF Los Angeles
On 10/14, 1994, before me, Jennifer D. Hitechew appeared, Fred Epstein
personally known to me (or provide to me the basis of satisfactory evidence) to
be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Jennifer D. Hitechew
- - ------------------------
Notary's Signature
-------------------------------------
[SEAL] JENNIFER D. HITECHEW
Comm. # 971053
NOTARY PUBLIC - CALIFORNIA
Los Angeles County
My Comm. Expires Aug. 9, 1996
-------------------------------------
FOR NOTARY SEAL OR STAMP
<PAGE> 27
EXHIBIT F
CONTINUING LEASE GUARANTEE
(Individual)
In consideration of the making of the Lease Agreement and for the purpose of
inducing Lessor to enter into and make the Lease, the undersigned hereby
unconditionally guarantees the full and prompt payment of rent and all other
sums required to be paid by Lessee under the Lease ("Guaranteed Payments") and
the full and faithful performance of all terms, conditions, covenants,
obligations and agreements contained in the Lease on the Lessee's part to be
performed ("Guaranteed Obligations") and the undersigned further promises to pay
all of Lessor's costs and expenses (including reasonable attorney's fees)
incurred in endeavoring to collect the Guaranteed Payments or to enforce the
Guaranteed Obligations or incurred in enforcing this Guarantee as well as all
damages which Lessor may suffer in consequence of any default or breach under
the Lease or this Guaranty.
1. Lessor may at any time and from time to time, without notice to the
undersigned, take any or all of the following actions without affecting or
impairing the liability and obligations of the undersigned on this Guaranty:
a. grant an extension or extensions of time of payment of any Guaranteed
Payment or time for performance of any Guaranteed Obligation;
b. grant an indulgence or indulgences in any Guaranteed Payment or in the
performance of any Guaranteed Obligation;
c. modify or amend the Lease or any term thereof, or any obligation of
Lessee arising thereunder;
d. consent to any Assignment or Assignments, Sublease or Subleases and
successive Assignments or Subleases by Lessee's assigns or sublessees or a
change or different use of the leased Premises;
e. consent to an Extension or Extensions of the term of the Lease;
f. accept other guarantors; and/or
g. release any person primarily or secondarily liable.
The liability of the undersigned under this Guaranty shall in no way be affected
or impaired by any failure or delay in enforcing any Guaranteed Payment or
Guaranteed Obligation or this Guaranty or any security therefor or in exercising
any right or power in respect thereto or by any compromise, waiver, settlement,
change, subordination, modification or disposition of any Guaranteed Payment or
Guaranteed Obligation or any security therefore. In order to hold the
undersigned liable hereunder, there shall be no obligation on the part of
Lessor, at any time, to resort for payment to Lessee or any other Guaranty or to
any security or other rights and remedies, and Lessor shall have the right to
enforce this Guaranty irrespective of whether or not other proceedings or steps
are pending or being taken seeking resort to or realization upon or from any of
the foregoing.
2. The undersigned waives all diligence in collection or in protection of any
security, presentment, protest, demand, notice of dishonor or default, notice of
acceptance of this Guaranty, notice of any extensions granted or other action
taken in reliance hereon and all demands and notices of any kind in connection
with this Guaranty or any Guaranteed Payment or Guaranteed Obligation.
3. The undersigned hereby acknowledges full and complete notice and knowledge of
all of the terms, conditions, covenants, obligations and agreements of the
Lease.
4. The payment by the undersigned of any amount pursuant to this Guaranty shall
not in any way entitle the undersigned to any right, title or interest (whether
by subrogation or otherwise) of the Lessee under the Lease or to any security
being held for any Guaranteed Payment or Guaranteed Obligation.
5. This Guaranty shall be continuing, absolute and unconditional and remain in
full force and effect
GG FE
[INITIAL HERE]
<PAGE> 28
until all Guaranteed Payments are made, all Guaranteed Obligations are
performed, and all obligations of the undersigned under this Guaranty are
fulfilled.
6. This Guaranty shall also bind the heirs, personal representatives and assigns
of the undersigned and inure to the benefit of Lessor, its successors and
assigns. This Guaranty shall be construed according to the laws of California,
in which state it shall be performed by the undersigned.
7. If this Guaranty is executed by more than one person, all singular nouns and
verbs herein relating to the undersigned shall include the plural number and the
obligations of the several guarantors shall be joint and several.
8. The Lessor and the undersigned intend and believe that each provision of this
Guaranty comports with all applicable law. However, if any provision of this
Guaranty is found by a court to be invalid for any reason, the parties intend
that the remainder of this Guaranty shall continue in full force and effect and
the invalid provision shall be construed as if it were not contained herein.
9. Notwithstanding any other provision of the Lease or this Guaranty to the
contrary, Lessor has agreed to execute the Lease and all Exhibits thereto
without benefit of receipt from Lessee of the Security Deposit provided for in
Paragraph 5 of the Lease. In consideration of Lessor agreeing to execute the
Lease and all Exhibits thereto without benefit of receipt from Lessee of the
Security Deposit provided for in Paragraph 5 of the Lease, Vicky Huxtable has
agreed to execute this Guaranty. At such point in time that Lessor receives from
Lessee the Security Deposit required by Paragraph 5 of the Lease, in the amount
of Thirty-Five Thousand and No/100 Dollars ($35,000.00), and so long as Lessee
is not then in default under any of the terms, covenants and conditions of the
Lease, then this Guaranty shall terminate and be of no further force or effect.
GG FE
[INITIAL HERE]
<PAGE> 29
If Lessee is in default under any of the terms, covenants or conditions of the
Lease at the time that it provides to Lessor the Security Deposit required by
Paragraph 5 of the Lease, in the amount of Thirty-Five Thousand and No/100
Dollars ($35,000.00), then this Guaranty shall continue in full force and effect
until such time that all defaults under the Lease are cured by Lessee, at which
time this Guaranty shall terminate and be of no further force or effect.
GUARANTOR: Vicky Huxtable
BUSINESS ADDRESS: 2100 East 49th Street
Vernon, California 90058
RESIDENCE ADDRESS: 6380 Colgate Ave
LA 90048
RESIDENCE TELEPHONE NUMBER: 213 935 7217
SOCIAL SECURITY NUMBER: ###-##-####
IN WITNESS WHEREOF, the undersigned has executed this Guaranty this 14 day of
October 1994.
/s/ Vicky Huxtable
BY: -------------------------------------
<PAGE> 30
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
On 10/14, 1994, before me, Jennifer D. Hitechew appeared, Vicky Huxtable
personally known to me (or provide to me the basis of satisfactory evidence) to
be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Jennifer D. Hitechew
- - -----------------------------------
Notary's Signature
-------------------------------------
[SEAL] JENNIFER D. HITECHEW
Comm. # 971053
NOTARY PUBLIC - CALIFORNIA
Los Angeles County
My Comm. Expires Aug. 9, 1996
-------------------------------------
FOR NOTARY SEAL OR STAMP
<PAGE> 1
THIS LEASE AMENDING AGREEMENT made the 8th day of October, 1998.
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT.
B E T W E E N:
1117423 ONTARIO LTD., a Corporation Incorporated
under the laws of Ontario,
(hereinafter called the "Landlord")
-and-
1218951 ONTARIO LIMITED, a Corporation
incorporated under the laws of Ontario,
(hereinafter called the "Tenant")
WHEREAS the Tenant has agreed to sell its business to Prime Foods
Processing Inc., (hereinafter called "Prime");
AND WHEREAS Prime has agreed to sublease the premises described in a lease
between the Landlord and the Tenant dated the 1st day of February, 1997 (the
"Lease"), comprised of office and warehouse space located at 26 Milford Avenue,
in the City of Toronto, formerly in the City of North York, (the "Leased
Premises");
AND WHEREAS the Landlord and Tenant have agreed to amend the Lease in
accordance with the terms hereof;
NOW THEREFORE WITNESSETH that in consideration of the sum of TEN ($10.00)
DOLLARS and other good and valuable consideration passing between the Landlord
and Tenant, the receipt and sufficiency of which is hereby acknowledged, the
Landlord and Tenant agree as follows:
1. The Landlord hereby consents to the sublease of the Leased Premises by the
Tenant to Prime.
2. The term of the Lease as described in Section 2.00 of the Lease is hereby
extended to the 31st day of May, 2000.
3. During the period December 1, 1998 to November 30, 1999, the annual base
rent (net net) pursuant to the Lease shall be increased to FOUR DOLLARS
AND TWENTY-FIVE CENTS ($4.25) per square foot of the Leased Premises or
THIRTY-SIX THOUSAND, SIX HUNDRED AND NINETY DOLLARS AND TWENTY FIVE CENTS
($36,690.25) to be paid in advance in equal monthly installments of THREE
THOUSAND AND FIFTY-SEVEN DOLLARS AND FIFTY-TWO CENTS ($3,O57.52)
<PAGE> 2
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on the 1st day of each and every month, the first of such payments to be made on
the 1st day of December, 1998 and the last payment of $3,057.52 to be paid
November 30, 1999.
The annual base rent (net net) for the period December 1, 1999 to May 31, 2000
will be increased to FOUR DOLLARS AND FIFTY CENTS ($4.50) per square foot of
the Leased Premises or THIRTY-EIGHT THOUSAND, EIGHT HUNDRED AND FORTY-EIGHT
DOLLARS AND FIFTY CENTS ($38,848.50) to be paid in advance in equal monthly
instalments of THREE THOUSAND, TWO HUNDRED AND THIRTY-SEVEN DOLLARS AND
THIRTY-EIGHT CENTS ($3,237.38) on the 1st day of each and every month the first
of such payments to be made on the 1st day of December, 1999 and the last
payment of $3,237.38 to be paid May 1, 2000.
4. The Lease is hereby amended so that the Tenant shall deliver to the
Landlord six (6) post-dated cheques drawn by Prime endorsed by the Tenant
on account of the base rent (net net) immediately following the execution
of the herein agreement and every six (6) months thereafter for the term
of the Lease as amended herein.
5. The Tenant covenants and agrees that upon receipt of the realty tax bill,
it will provide the Landlord with post-dated cheques, dated the
instalment due dates and in the amount of each installment during each
year of the term. Cheques are to be drawn by Prime and endorsed by
the Tenant.
6. The parties hereto agree that the Landlord will place a fire insurance
policy on the Leased Premises in the amount of SIX HUNDRED THOUSAND
DOLLARS ($600,000.00) and the amount of the premium will be paid by the
Tenant upon presentation of an invoice by the Landlord, PROVIDED THAT in
no event will the premium be greater than the fair market premium for
reasonable insurance coverage.
7. Section 7.09 of the Lease is hereby amended so that the Tenant may use and
occupy the Leased Premises for the purpose at manufacturing pasta,
pasta-related products and other food products.
8. Section 14.00 of the Lease is hereby amended so that the right of first
refusal shall be exercisable by the Tenant and/or Prime.
9. In all other respects, the Landlord and the Tenant confirm the terms of
the Lease.
10. This Agreement shall be binding upon the parties hereto and shall enure to
the benefit of and be binding upon each of their respective successors and
assigns.
<PAGE> 3
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on the 1st day of each and every month, the first of such payments to be made on
the 1st day of December, 1998 and the last payment of $3,057.52 to be paid
November 30, 1999.
The annual base rent (net net) for the period December 1, 1999 to May 31, 2000
will be increased to FOUR DOLLARS AND FIFTY CENTS ($4.50) per square foot of
the Leased Premises or THIRTY-EIGHT THOUSAND, EIGHT HUNDRED AND FORTY-EIGHT
DOLLARS AND FIFTY CENTS ($38,848.50) to be paid in advance in equal monthly
instalments of THREE THOUSAND, TWO HUNDRED AND THIRTY-SEVEN DOLLARS AND
THIRTY-EIGHT CENTS ($3,237.38) on the 1st day of each and every month the first
of such payments to be made on the 1st day of December, 1999 and the last
payment of $3,237.38 to be paid May 1, 2000.
4. The Lease is hereby amended so that the Tenant shall deliver to the
Landlord six (6) post-dated cheques drawn by Prime endorsed by the Tenant
on account of the base rent (net net) immediately following the execution
of the herein agreement and every six (6) months thereafter for the term
of the Lease as amended herein.
5. The Tenant covenants and agrees that upon receipt of the realty tax bill,
it will provide the Landlord with post-dated cheques, dated the instalment
due dates and in the amount of each instalment during each year of the
term. Cheques are to be drawn by Prime and endorsed by the Tenant.
6. The parties hereto agree that the Landlord will place a fire insurance
policy on the Leased Premises in the amount of SIX HUNDRED THOUSAND
DOLLARS ($600,000.00) and the amount of the premium will be paid by the
Tenant upon presentation of an invoice by the Landlord, PROVIDED THAT in
no event will the premium be greater than the fair market premium for
reasonable insurance coverage.
7. Section 7.09 of the Lease is hereby amended so that the Tenant may use and
occupy the Leased Premises for the purpose of manufacturing pasta,
pasta-related products and other food products.
8. Section 14.00 of the Lease is hereby amended so that the right of first
refusal shall be exercisable by the Tenant and/or Prime.
9. In all other respects, the Landlord and the Tenant confirm the terms of
the Lease.
10. This Agreement shall be binding upon the parties hereto and shall enure to
the benefit of and be binding upon each of their respective successors and
assigns.
<PAGE> 4
- 3 -
Agreement as of the date first above written.
1117423 ONTARIO LTD.
Per: /s/ [ILLEGIBLE] c/s
------------------------------------
Name:
Title:
I have authority to bind the Corporation
1218951 ONTARIO LIMITED
Per: /s/ [ILLEGIBLE] c/s
------------------------------------
Name:
Title:
I have authority to bind the Corporation
<PAGE> 1
THIS LEASE made as of the 25th day of May, 1999.
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT.
BETWEEN:
RAFFAELE CERUNDOLO and TONY TAURASI
T & R CONSTRUCTION AND MANAGEMENT INC.
(hereinafter referred to as the "Landlord")
OF THE FIRST PART;
- and -
TRANSCONTINENTAL GOURMET FOODS INC
a company incorporated pursuant to the laws of the Province of Ontario
(hereinafter referred to as the "Tenant")
OF THE SECOND PART.
WHEREAS the Landlord (by its management company) and the Tenant have
agreed, pursuant to an Offer to Lease dated May 25, 1999, that the Landlord
would lease unto the Tenant and that the Tenant would lease from the Landlord
the building of the demised premises municipally known as 610 Oster Lane in the
municipality of Concord having an area of 39,008 square feet on the terms and
conditions contained in the said Offer to Lease;
IN CONSIDERATION of the rents hereby reserved and the covenants
herein contained, the Landlord and the Tenant hereby covenant and agree as
follows:
1. DEMISE OF LEASED PREMISES AND TERM
The Landlord hereby demises and leases unto the Tenant those lands
and premises situate in the building (the "Building") municipally known as 610
Oster Lane in the Municipality of Concord in the Province of Ontario and being
94% of the entire building (the "Leased Premises") as more particularly shown
outlined in red on Schedule "A" attached hereto, for and during a fixed term
that shall be completed and ended on the 31st day of December, 2002 (the
"Term").
2. RENTABLE AREA AND PROPORTIONATE SHARE
THE LANDLORD AND TENANT HEREBY ACKNOWLEDGE AND AGREE that, for the
purposes of all financial calculations herein, the rental floor area of the
Leased Premises shall be deemed to be 39,008 square feet, comprised of Unit One
consisting of 8190 square feet, Unit Two comprised of 10,164 square feet, Unit
Three consisting of 10,490 square feet, and Unit Four consisting of 10,164
square feet.
3. BASE RENT
DURING THE TERM, THE TENANT COVENANTS AND AGREES TO PAY NET RENT TO
THE LANDLORD (hereinafter referred to as "Base Rent") in advance on the first
day of each and every month of each and every year of the Term as follows:
(a) during the rental year commencing on the 1st day of January, 2000
and ending on the last day of December, 2000, the Tenant shall pay
Base Rent in the amount of ONE HUNDRED EIGHTY NINE THOUSAND ONE
HUNDRED EIGHTY EIGHT DOLLARS AND EIGHTY CENTS ($189,188.80) in equal
consecutive monthly installments of FIFTEEN THOUSAND SEVEN HUNDRED
SIXTY
<PAGE> 2
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FIVE DOLLARS AND SEVENTY THREE CENTS ($15,765.73) representing a
rental rate of $4.85 per square foot per annum;
(b) during the rental year commencing on the 1st day of January, 2001
and ending on the last day of December, 2001, the Tenant shall pay
Base Rent in the amount of ONE HUNDRED NINETY SIX THOUSAND NINE
HUNDRED NINETY DOLLARS AND FORTY CENTS ($196,990.40) in equal
consecutive monthly instalments of SIXTEEN THOUSAND FOUR HUNDRED
FIFTEEN DOLLARS AND EIGHTY SEVEN CENTS ($ 16,415.87) representing a
rental rate of $5.05 per square foot per annum;
(c) during the rental year commencing on the 1st day of January, 2002
and ending on the last day of December, 2002, the Tenant shall pay
Base Rent in the amount of TWO HUNDRED TWO THOUSAND EIGHT HUNDRED
FORTY ONE DOLLARS AND SIXTY CENTS ($ 202,841.60) in equal
consecutive monthly instalments of SIXTEEN THOUSAND NINE HUNDRED
THREE DOLLARS AND FORTY SEVEN CENTS ($ 16,903.47) representing a
rental rate of $5.20 per square foot per annum;
Upon the request of the Landlord, the Tenant shall present to the
Landlord on or before the commencement of each rental year of the Term, a series
of monthly post-dated cheques for each such year of the Term comprising the sum
of the monthly Base Rent and such taxes and other payments of Additional Rent as
may be estimated by the Landlord in advance.
4. ADDITIONAL RENT
The Tenant acknowledges and agrees that the payment of Base Rent as
herein provided shall be net to the Landlord and that the Tenant shall be
responsible for payment of all charges, levies, taxes and expenses whatsoever
and howsoever pertaining to the Leased Premises, save and except for matters
which are the Landlords' responsibility under the terms of this lease and save
and except only items of a nature personal to the Landlord such as the income
and capital taxes of the Landlord. Any and all sums of money or charges required
to be paid by the Tenant under this Lease (except Base Rent) shall be deemed to
be "Additional Rent", whether or not the same are designated as Additional Rent
hereunder, and whether or not the same are paid to the Landlord or otherwise,
and all such sums are to be payable in lawful money of Canada without any
deduction, set-off or abatement whatsoever. Additional Rent may be estimated by
the Landlord from time to time and such estimated amount is payable by the
Tenant in monthly instalments in advance with annual adjustments, if necessary,
and all Additional Rent shall be deemed to be accruing due on a day to day
basis. (Base Rent and Additional Rent shall hereinafter collectively be referred
to as "Rent").
5. SECURITY DEPOSIT
The Landlord acknowledges that it has received from the Tenant of
the sum $0. The Landlord agrees that the sum of $0 is to be applied against Rent
(including GST) for the first, month of the Term with the balance, being
$11,082.74 (the "Security Deposit") to be held by the Landlord, without
liability for interest, as security for the faithful and complete performance by
the Tenant of all the terms, covenants and obligations under this Lease by the
Tenant to be kept, observed and performed during the Term and any renewal
thereof. The Landlord agrees to return the Security Deposit to the Tenant
following expiry of the Term, provided the Tenant is not in default of any of
its obligations herein. If at any time during the Term, Rent or any other sums
payable by the Tenant hereunder are overdue and unpaid, or if the Tenant fails
to keep or perform any of the terms, covenants and conditions of this Lease to
be kept, observed and performed by the Tenant, then the Landlord, at its option,
may appropriate and apply the Security Deposit, or part thereof, as compensation
to the Landlord for costs, expenses or fees incurred by the Landlord due to such
breach by the Tenant. If the Security Deposit, or any portion of it, is
appropriated or applied by the Landlord hereunder, then the Tenant shall, upon
demand by the Landlord, forthwith remit to the Landlord a sufficient amount
<PAGE> 3
3
in cash to restore the Security Deposit to the original sum herein, and the
Tenant's failure to do so within five (5) days after receipt of such demand
shall constitute a breach of this Lease.
6. LANDLORD'S COVENANTS
THE LANDLORD COVENANTS AND AGREES with the Tenant as follows:
(a) That if the Tenants pays Rent and performs all of its obligations under
this Lease, the Tenant shall be entitled to peaceable and quiet enjoyment
of the Leased Premises;
(b) The Landlord has the full right, power and authority to lease the Leased
Premises in accordance with the terms and conditions herein contained;
(c) The Landlord consents to give Transcontinental Gourmet Foods the first
right of refusal for the space in Unit # 1 currently occupied by Kay
Enterprises.
7. TENANT'S COVENANTS
THE TENANT COVENANTS AND AGREES with the Landlord as follows:
(a) To pay Rent without deduction, set off or abatement to the Landlord
to such place as the Landlord may from time to time designate;
(b) To pay to the Landlord, as Additional Rent, any and all goods and
services taxes, sales taxes and any other like taxes, whether
existing or imposed at a later date ("Sales Taxes") that may be
eligible, levied or assessed in respect of the Leased Premises, the
payment of Additional Rent or any other supply of goods or services
to the Leased Premises;
(c) To pay, as Additional Rent, in each and every year during the Term,
directly to the Landlord or to the taxing authority as the Landlord
may direct from time to time all real property taxes (including
penalties for non-payment by the Tenant thereof), local improvement
rates, provided that, in the case of local improvement rates which
may by law be payable in installments, the Tenant is only obligated
to pay such installments as fall due or would fall due during the
term, business assessment taxes, impost charges, levies, rates,
duties and assessments of any nature or kind whether special or
general that may be levied, rated, charged or assessed against the
Leased Premises or any part thereof, from time to time by any taxing
authority, whether federal, provincial, municipal, school or
otherwise, and including, but without limitation, any such taxes
payable by the Landlord which are imposed in lieu of or in addition
to or as a substitute for such real property taxes or on account of
the Landlord's ownership of the Leased Premises, whether of the
foregoing character and whether or not same existed at the
commencement of the Term (hereinafter referred to as the "Real
Property Taxes"); provided that if the Leased Premises are not
assessed separately from the remainder of the Building, the Tenant's
Proportionate Share of Real Property Taxes shall be determined by
the Landlord acting reasonably and the Tenant shall be responsible
for prompt payment of Real Property Taxes in accordance with said
determination;
(d) To furnish to the Landlord all tax bills, assessments or other
notices pertaining to the Leased Premises or the Building forthwith
upon receipt of same by the Tenant;
(e) To pay, as Additional Rent, from time to time as and when determined
by the Landlord, its Proportionate Share of Real Property Taxes,
utilities, maintenance, landscaping, snow clearing or other charges
pertaining to the common areas of
<PAGE> 4
4
the Building and any part of the lands upon which the Building is
situate that are not leased exclusively to any other tenant of the
Building;
(f) To pay throughout the Term all utility and other charges relating to
the Leased Premises including, without limitation, all charges in
connection with heating, water, electrical current, gas and any
other public or private utilities or services, and including any
fees or rental charges for equipment, meters, apparatus, water
heaters or other things leased in respect thereof, and for all work,
services or installations performed by any corporation or commission
in connection with any public utilities that may be supplied at any
time to the Leased Premises;
(g) To operate, maintain, paint and keep the Leased Premises and every
part thereof including, but not limited to, the washrooms, plumbing,
heating, ventilating and air conditioning equipment and any and all
other appurtenances thereon in good and substantial repair and
condition throughout the Term as they would be kept by a prudent and
careful owner, excepting only major repairs to or replacements of
heating and mechanical equipment unless such repairs or replacements
were caused the acts, negligence or omissions of the Tenant;
(h) To diligently and thoroughly carry out any and all necessary repairs
and replacements to the Leased Premises and every part thereof as
would a prudent and careful owner, excepting only structural
maintenance and repairs to the roof of the Building, unless such
repair or replacement is caused by the acts, negligence or omissions
of the Tenant;
(i) To promptly comply with and conform to the requirements of all
applicable statutes, laws, by-laws, regulations, ordinances and
orders from time to time or at any time in force during the Term and
affecting the condition, maintenance, use or occupation of the
Leased Premises or equipment situate thereon and with every
applicable regulation, order and requirement of the Insurance
Advisory Organization of Canada, or any body having a similar
function or of any liability or fire insurance company by which the
Landlord and Tenant or either of them may be insured at any time
during the Term;
(j) In the event of the observance of any apparent structural defect or
other damage to the Leased Premises or the Building by any cause, to
give notice in writing to the Landlord of such defect or damage
forthwith upon the same becoming known to the Tenant;
(k) To permit the Landlord to enter upon and view the state of repair
and maintenance of the Leased Premises and to immediately furnish
the Landlord with a key, and any replacement or replacements
thereof, for entry to the Leased Premises;
(l) That upon the expiration or earlier determination of the Term, the
Tenant shall peaceably surrender and deliver up the Leased Premises
in a broom-swept condition and free and clear of all waste,
materials, debris and rubbish, together with any appurtenances,
erections or improvements made therein or thereon in a good state of
repair and maintenance consistent with a first class industrial
building, (the condition of the Leased Premises at the commencement
of occupancy by the Tenant being accepted by both parties as
standard first class commercial), save and except reasonable wear
and tear only, and matters which are the Landlord's responsibility
pursuant to the Tenant shall surrender and deliver to the Landlord
all keys to the Leased Premises;
(m) To keep all sidewalks, entrance ways, exits, steps and platforms
leading to and from the Leased Premises free and clear of all snow,
ice and debris;
<PAGE> 5
5
(n) That the Leased Premises shall be used exclusively by the Tenant
throughout the Term and only for the following purposes: manufacture
frozen foods and general offices;
(o) That the Tenant will not carry on, or permit or acquiesce in the
carrying on of, in or about the Leased Premises any illegal or
improper business activity or any activity which shall, in the
reasonable opinion of the Landlord, be deemed to be a nuisance to
any other person or business;
(p) To assume the sole responsibility and cost of heating and cooling of
the Leased Premises with the heating, ventilating and air
conditioning equipment, if any, supplied by the Landlord;
(q) That the Tenant will not assign, sublet or part with possession of
the Leased Premises, or any part thereof, or share the occupation of
the Leased Premises, or any part thereof, without the consent of the
Landlord in writing being first obtained, which consent is not to be
unreasonably or arbitrarily withheld;
(r) That the Tenant will not place anything on the roof or in any way
make any opening in the roof for stacks or other purposes, or in any
way alter the interior or exterior walls or structure of the
Building or the Leased Premises without the prior written consent of
the Landlord;
(s) That all loading and unloading of merchandise, supplies, materials,
chattels, equipment, garbage and refuse, with the exception of the
Tenant's general office supplies, shall be made only through or by
means of the shipping doors so designated by the Landlord;
(t) To notify the Landlord forthwith of any change in the effective
management or control of the Tenant, shall be deemed to be
assignment within the meaning of paragraph 7(r) of this Lease and
shall require the prior written consent of the Landlord in the same
manner as any assignment or subletting;
(u) Not to allow any ashes, refuse, waste material, debris, garbage or
other loose or objectionable material to remain or accumulate on or
about the Leased Premises or the Building and not to use any outside
garbage or other containers unless first approved by the Landlord,
which shall not be unreasonably withheld.
(v) That it will not install any signs or advertising material upon the
Leased Premises without the prior written consent of the Landlord
and in strict conformity with municipal and local by-laws; provided
that the Tenant shall remove all such signs (which shall remain the
property of the Tenant throughout the Term) and repair any and all
damage caused thereby on or before the expiry of the Term;
(w) That the Landlord shall have the right at any time during the Term
to place upon the Leased Premises a notice of reasonable dimensions,
and reasonably placed so as not to interfere with the Tenant's
business, stating that the Leased Premises are for sale, and at any
time during the last six (6) months of the Term that the Leased
Premises are to let and the Tenant shall not remove such notices, or
permit the same to be removed;
(x) That the Tenant shall not abandon or vacate the Leased Premises
prior to the expiration of the Term for a period of over ten (10)
business days;
(y) Not to permit any lien or encumbrance to be registered on or against
title to the lands comprising the Leased Premises (except as
contemplated in Section 6).
<PAGE> 6
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8. NON-PAYMENT OR NON-PERFORMANCE BY TENANT
IN THE EVENT that the Tenant shall make default in the payment of
any moneys or charges required to be paid by it and such default shall continue
for 7 days after notice that is given to the Tenant or shall make default in the
performance of any covenant or the doing of any thing required to be performed
or done by it hereunder, and such default shall continue for 15 days (or such
longer period as is reasonable to remedy same) after notice thereof is given to
the Tenant, then the Landlord shall have the right to pay any such sum so in
default or to perform or do any such thing and such sums so paid or the costs of
performing or doing such things shall in every such case be deemed to be
Additional Rent and shall be payable by the Tenant in accordance with the
provisions of this Lease. The Landlord shall be entitled to charge all such
moneys or charges to the Tenant together with an administrative and managerial
fee of fifteen (15%) of the said payment and the Tenant shall pay such charges
forthwith on demand, and the Landlord, in addition to any other rights or
remedies available to it, shall have the same remedies and may take the same
steps for the recovery of all such moneys or charges as it might have taken for
the recovery of Rent in arrears under the terms of this Lease. Any and all
arrears of Rent shall bear interest at the rate of fifteen (15%) per cent per
annum, calculated monthly, from the time such arrears were due and payable until
full payment is received by the Landlord.
9. TENANT'S OPTION TO RENEW
If the Tenant has not been in default of any obligation or covenant
herein, then the Tenant shall have the option to renew the term of the within
Lease for one renewal period of five (5) years, subject to the following terms
and conditions:
(z) The Tenant shall give the Landlord written notice of its intention
to exercise this option at least six (6) months, but not more than
twelve (12) months, prior to expiry of the Term;
(aa) The tenancy of the Tenant in the Leased Premises shall be on the
same terms and conditions as are set out herein except that there
shall be no further option to renew and except that the Base Rent
for the renewal period shall be negotiated and agreed to by the
Landlord and the Tenant no later than three (3) months prior to the
commencement of the applicable renewal period and shall be based on
the fair market rental rate at the time of expiry of the Term for
premises similar to the Leased Premises in the immediate vicinity of
the Leased Premises; and
(bb) In the event the Tenant and the Landlord cannot agree upon the Base
Rent for the aforesaid renewal period, the matter shall be referred
to arbitration to be resolved in accordance with the provisions of
this Lease.
[Reference to "Term" in this Lease shall include the renewal period, if
applicable and if the context reasonably permits.]
10. INSURANCE
The Tenant covenants and agrees to obtain and maintain, at its sole
cost and expense, and to keep in full force and effect during the Term such
insurance as may be requested by the Landlord, which insurance coverage shall,
without limitation, include the following:
(cc) All risk, replacement cost and stated amount insurance for the full
reconstruction value of the Leased Premises and all Tenant's
improvements, equipment and other property on or about the Leased
Premises and including loss of rental income insurance;
(dd) Broad form comprehensive boiler and machinery insurance on all
insurable objects located on the Leased Premises in amounts
reasonably satisfactory to the Landlord;
<PAGE> 7
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(ee) Plate Glass insurance;
(ff) Liability insurance of not less than $2,000,000.00 inclusive of all
injuries or death to persons and damage to property of others
arising from any one occurrence.
All such insurance policies shall name the Landlord as additional
insured as its interest may appear and shall waive recourse and any other rights
of subrogation against the Landlord, its officers, directors, employees and
agents and shall be on terms and conditions and with insurers satisfactory to
the Landlord.
The Tenant covenants and agrees to deliver full copies of any
proposed insurance policies to the Landlord for the Landlord's prior approval.
If the Landlord approves of such insurance policy, then no policy shall be
canceled or its coverage reduced without ten (10) days prior written notice to
the Landlord. The Tenant covenants and agrees to maintain all such insurance in
good standing at all times and to pay premiums thereon as and when same become
due. The Landlord shall at all times be supplied with proper evidence of such
insurance being in force and if the Tenant shall fail to make payments on any
such premium as and when the same becomes due or fails to promptly furnish to
the Landlord satisfactory evidence of such insurance or the renewal thereof
prior to its expiration, then the Landlord shall be entitled to effect such
insurance and any premium paid by the Landlord shall be recoverable from the
Tenant upon demand in the same manner as herein provided for collection of Rent
in arrears.
The Tenant shall not do or permit to be done any act or thing
whereby the insurance coverages in respect of the Leased Premises, may be
increased in premium or cancelled by the insurer, or the Leased Premises shall
be rendered uninsurable, and if by reason of any act done or permitted or any
omission, as the case may be, by the Tenant, or its agents or employees, the
said insurance coverage, or any of them, shall be increased in premium, then the
Tenant shall be liable to pay all of such increase in premium with respect to
the entire coverages and this notwithstanding that the Tenant occupies only a
portion of the Building or premises covered by such insurance coverages. If the
Leased Premises shall be rendered uninsurable or if the said insurance coverages
or any of them shall be cancelled by reason of any act done or permitted, or any
omission, as the case may be, by the Tenant, then the Landlord after giving the
Tenant three (3) days notice within which to place the required insurance
coverage or coverages shall, at its absolute discretion, have the right
terminate this Lease.
11. ALTERATIONS AND FIXTURES
(gg) The Tenant may from time to time, at its expense, paint or decorate
the Leased Premises and appurtenances thereof, or make such changes,
alterations or improvements or add such trade fixtures as will, in
the judgement of the Tenant, better adapt the Leased Premises for
its business provided that all such changes, alterations,
improvements or works comply with all statutes, regulations or
by-laws of any municipal, provincial or other authority and further
provided that any changes, alterations, improvements or works to the
interior or exterior walls, landscaping, paving, roof, stairwells or
other structures situate in or on the Leased Premises shall not be
made unless the written consent of the Landlord thereto shall have
been first obtained and such consent shall not be reasonably
withheld.
(hh) Upon the termination of this Lease, all alterations, fixtures,
additions and improvements other than the Tenants equipment,
(freezers) which may be made or installed upon the Leased Premises
and which in any manner are attached to the floors, walls and
ceilings of the Building or any other part of the Leased Premises,
shall, at the option of the Landlord, remain upon and be surrendered
with the Leased Premises as a part thereof, without disturbance,
molestation or injury. If any additional or new locks are placed
upon or affixed to the Leased Premises, such locks and keys shall be
handed over to the Landlord upon the termination or surrender of
this Lease. Provided further that the Landlord may, at its option,
require the Tenant to restore the Leased Premises to the same
condition
<PAGE> 8
8
as it was in at the commencement of this Lease and before any
alterations, additions, or improvements had been made to the Leased
Premises by the Tenant, reasonable wear and tear excepted.
(ii) The Tenant shall not during the Term or upon termination of this
Lease remove or carry away from the Leased Premises any fixtures,
structures, equipment or part thereof or any plumbing, heating,
ventilating, lighting equipment, wiring or electric panels and
services, or other building services without the written consent of
the Landlord being first obtained.
12. ENVIRONMENTAL INSPECTION
(ii) In this Lease:
(i) "Environmental Inspection" shall mean a partial or complete
inspection and audit of the Leased Premises and the
environmental practices of the Tenant thereon by the Landlord,
its employees or agents and shall include such visual
inspections, soil, air and other tests as the Landlord shall
reasonably believe to be necessary;
(ii) "Hazardous Substance" shall mean any substance that requires
special precautions in its storage, collection,
transportation, treatment or disposal to prevent damage to
persons or property and includes explosive, flammable,
volatile, radio-active, toxic and pathological waste.
(kk) The Landlord shall have the right to conduct an Environmental
Inspection of the Leased Premises at any time and from time to time
throughout the Term. In the event that the Environmental Inspection
reveals that the Tenant is storing, handling, transporting,
manufacturing, processing or otherwise dealing with (hereinafter
collectively "handling") any Hazardous Substance in a manner
unsatisfactory to the Landlord, the Landlord shall give the Tenant
fifteen (15) days within which to amend its manner of handling such
Hazardous Substance to comply with effective environmental
protection practices and the manner in which the Landlord indicates
such substances must be handled. The Tenant shall further forthwith
carry out such procedures as are, in the sole opinion of the
Landlord, necessary to correct any damage which may have been done
to the Leased Premises or any other property of the Landlord.
(ll) In the event that the Tenant shall be in default of the provisions
hereof or commit any breach of environmental legislation and shall
fail to amend its practices or take such corrective measures as are
required hereunder, the Landlord shall have the right to enter upon
the Leased Premises and carry out such procedures as are, in the
sole opinion of the Landlord, necessary to correct any damage which
may have been done to the Leased Premises or any other property of
the Landlord and to forestall any potential damage which in the
opinion of the Landlord may be created by the unsatisfactory
handling of Hazardous Substances and, in addition to and without
limiting any other remedies available to the Landlord, the Landlord
may, on seven (7) days notice to the Tenant, terminate the Lease.
The Tenant shall pay to the Landlord as additional rent, forthwith
upon demand, the costs of any Environmental Inspection conducted by
the Landlord together with the costs, if any, to carry out such
procedures required to correct any environmental damage or to
forestall any potential damage due to the unsatisfactory handling of
Hazardous Substances by the Tenant.
13. DEFAULTS AND REMEDIES
(mm) PROVISO for re-entry by the Landlord on non-payment of Rent or
non-performance of covenants. The Tenant and Landlord hereby agree
that, subject to
<PAGE> 9
9
the covenants of the Landlord contained in Article 6 of this Lease,
if and whenever Rent, or any part thereof, shall be unpaid on the
date upon which the same ought to have been paid by the Tenant,
after at least 7 days notice has been made therefor, or in the case
of a Breach therefor, or in the case of the breach or
non-performance of any of the other covenants or agreements herein
contained on the part of the Tenant provided in such case formal
written demand by the Landlord has been made and the Tenant has
failed to properly cure such damage or default within fifteen (15)
days of notice being given in accordance with the terms of this
Lease, then and in either of such cases it shall be lawful for the
Landlord at any time thereafter, at the option of the Landlord, to
enter into and upon the Leased Premises or any part thereof in the
name of the whole and have again, repossess and enjoy the same as of
its former estate and terminate this Lease or itself take steps to
do or cause to be done such things as may be necessary to remedy and
correct such defaults and charge same to the account of the Tenant
as Rent. Provided further that in the event that the Landlord shall
elect to make a re-entry as hereinbefore provided, any re-entry or
other action so taken shall not be deemed to relieve the Tenant of
its obligations to pay Rent and any other moneys payable hereunder
which obligations of the Tenant shall continue to accrue and be
payable until such time as the Landlord is able to re-let or
otherwise deal with the Leased Premises in such manner that it does
not sustain any loss should the Tenant thereafter fail to pay the
Rent and other moneys payable as Rent or otherwise under this Lease.
Provided further that in addition to all other rights hereby
reserved to it, the Landlord shall have the right and authority to
re-enter the Leased Premises as the agent of the Tenant either by
force or otherwise, and to re-let the whole or any portion of the
Leased Premises for any period equal to or greater or less than the
remainder of the Term and to receive the rent therefor, said rent to
be any sum which it may deem reasonable, to any tenant which it may
deem suitable and satisfactory, and for any use and purpose which it
may deem appropriate and in connection with any such lease, the
Landlord may make such changes in the character of the improvements
of the Leased Premises as the Landlord may determine to be
appropriate or helpful in effecting such lease, and the Tenant shall
remain liable to the Landlord for any deficiencies, damages,
expenses or losses incurred by the Landlord in respect of Rent
payable hereunder, it being the intention hereof that nothing herein
contained and no distress or entry made by the Landlord hereunder
shall in any way release the Tenant from the payment of the Rent
hereby reserved during the Term and provided that the Landlord shall
not in any event be required to pay to the Tenant any surplus of any
sums received by the Landlord on a re-letting of the Leased Premises
in excess of the Rent reserved hereunder.
(nn) If the Term hereby granted or any of the goods and chattels of the
Tenant shall be at any time seized or taken in execution or in
attachment by any creditor of the Tenant or if a writ of execution
shall issue against the goods or chattels of the Tenant or if the
Tenant shall make any assignment for the benefit of creditors or
commit any other act of bankruptcy as defined in the Bankruptcy Act
of Canada or any amendment thereto, or become a bankrupt or
insolvent or take the benefit of any legislation which may be in
force for bankrupt or insolvent debtors, or shall attempt to abandon
the Leased Premises or to sell or dispose of its goods or chattels
so that there would not, in the event of such sale or disposal be,
in the opinion of the Landlord, a sufficient distress on the Leased
Premises for the then accruing Rent, and moneys accruing hereunder
as Rent, then the Security Deposit provided hereunder shall be
forfeited and the current month's Rent together with Rent for the
three months next ensuing (and for purposes hereof Rent shall
include additional rent and all moneys to be paid by the Tenant
under the terms of this Lease) and the Term shall, at the option of
the Landlord, forthwith become forfeited and determined, in which
event the Landlord may re-enter and take possession of the Leased
Premises as though the Tenant, or any occupant or occupants of the
Leased Premises, was or were holding over after the expiration
<PAGE> 10
10
of the Term without any right whatsoever, provided that no action by
the Landlord in so doing shall be deemed to relieve the Tenant of
its obligations for the payment of Rent or any other moneys payable
hereunder.
(oo) In the event the Tenant removes any of its goods or chattels from
the Leased Premises outside of Tenant's ordinary course of business,
the Landlord may follow the same for thirty (30) days, in the same
manner as is provided for in the Landlord and Tenant Act with
respect to the fraudulent removal of goods and, notwithstanding
anything contained in the Landlord and Tenant Act or any other
legislation, none of the goods or chattels of the Tenant at any time
during the continuance of the Term situate on the Leased Premises
shall be exempt from levy by distress for Rent in arrears, and that
upon any claim being made for any exemption by the Tenant on a
distress made by the Landlord this covenant may be pleaded as an
estoppel against the Tenant in any action brought to test the right
to the levying upon any such goods, the Tenant waiving as it hereby
does any exemptions from distress which might have accrued to the
Tenant under the provisions of the Landlord and Tenant Act.
14. OVER HOLDING
In the event that the Tenant remains in possession of all or part of
the Leased Premises after the termination of the Term without entering into any
other special agreement with the Landlord, then the Tenant shall be deemed to be
a monthly tenant at a monthly Base Rent equal to double the Base Rent payable
during the last month of the Term, which Base Rent shall be payable together
with Additional Rent on the first day of each and every month that the Tenant
remains in possession of all or part of the Leased Premises and the Tenant
agrees in all other respects to comply with the Terms of this Lease, including
those provisions requiring performance of covenants by the Tenant and payment of
Additional Rent.
15. DESTRUCTION
It is expressly agreed that if all or part of the Leased Premises
shall be materially destroyed or damaged, during the Term, then the following
provisions shall apply:
(pp) If the damage or destruction is such that the Leased Premises are
render within 15 days of such damage or destruction wholly unfit for
occupancy by the Tenant or if, in the opinion of the Landlord, the
Leased Premises are impossible or unsafe to use and occupy and if in
either event the damage, in the opinion of the Landlord, cannot be
repaired with reasonable diligence within sixty (60) days from the
date the Landlord has given its opinion, then the Landlord or the
Tenant at any time thereafter may terminate this Lease by giving to
the Tenant written notice of such termination, in which event this
Lease and the Term hereby demised shall cease and be at an end as of
the date of such destruction or damage and the Rent and all other
payments for which the Tenant is liable under the terms of this
Lease shall be apportioned and paid in full to the date of such
destruction or damage. In the event the Landlord does not so
terminate this Lease, then the Landlord shall repair the Leased
Premises with all reasonable speed and the Base Rent and additional
rent hereby reserved shall abate from the date of the happening of
the damage until the damage shall be made good to the extent of
enabling the Tenant to use and occupy the Leased Premises.
(qq) If the damage be such that the Leased Premises are wholly unfit for
occupancy by the Tenant, or if in the opinion of the Landlord it is
impossible or unsafe to use or occupy all or part of the Leased
Premises, but in either event the damage, in the opinion of the
Landlord, can be repaired with reasonable diligence within sixty
(60) days from the date the Landlord has given its opinion, then the
Base Rent and additional rent hereby reserved shall abate from the
date of the happening of such damage until the damage shall be made
good to the extent of enabling the
<PAGE> 11
11
Tenant to use and occupy the Leased Premises and in the proportion
that the part of the Leased Premises so damaged bears to the whole
of the Leased Premises, and the Landlord shall repair the damage
with all reasonable speed.
16. LIABILITY
THE TENANT HEREBY COVENANTS AND AGREES with the Landlord that the
Landlord shall not be liable for, and the Tenant shall indemnify and save
harmless the Landlord from any and all liability, costs, losses, claims, demands
or actions for damages, injury or loss, incurred, suffered or sustained
whatsoever by any person or persons in or about the Leased Premises howsoever
caused, and in particular, but without in any way limiting the generality of the
foregoing, the Landlord shall not be liable for any damages caused by steam,
water, rain or snow which may leak into, issue or flow from any part of the
Leased Premises or from water, steam, sprinkler or drainage pipes or plumbing
works or for any damage caused by, or attributable to, the condition or
arrangement of any electrical or other wiring or in respect of any costs,
penalties or charges arising from the non-payment of any Taxes or other moneys
to be paid by the Tenant under this Lease and all of the Tenant's covenants of
indemnity herein contained shall survive the termination of this Lease, anything
herein to the contrary notwithstanding, but nothing herein shall relieve the
Landlord for liability arising by reason of the actions or negligence of the
Landlord, its agents, servants, contractors, employees and authorized
representatives.
The Tenant acknowledges and agrees that reference throughout this
Lease to the "acts, negligence or omissions of the Tenant" shall be deemed to
include reference to the acts, negligence or omission of the Tenant's
successors, assigns, subtenants, agents, licensees, affiliates, invitees,
trustees in bankruptcy, employees, guests, suppliers or others acting on behalf
of or at the request of the Tenant and all other persons for whom the Tenant is
responsible in law.
17. STATUS STATEMENTS AND SUBORDINATION
THE LANDLORD AND THE TENANT covenant and agree that, if and whenever
reasonably required by the other party, they will confirm and consent to and
become a party to any reasonable instrument relating to this Lease including,
but not limited to, the delivery of statements as to the status of this Lease,
which may be required by or on behalf of any purchaser, mortgagee or insurer or
other person, firm or corporation which may have an interest in the Leased
Premises. The Tenant further covenants and agrees that the Tenant's rights in
and under this Lease shall be subordinate to any mortgage or charge now or
hereafter registered against the Building and the Leased Premises provided that
the mortgagee or chargee confirms to the tenant that the Tenant's rights under
this lease shall not be disturbed while the Tenant is not in default despite
default under any such mortgage or charge and, if requested by the Landlord, the
Tenant shall execute such documents and give such further assurances as may be
necessary to cause this Lease to be subordinated to such mortgage or charge.
In addition the Landlord hereby postpones and subordinates this Lease in
favour of any security held by RoyNat on any of the machinery and equipment of
the Tenant in respect of any statutory right that it may have to distrain for
arrears of rent or any other similar right granted by statute or existing at
common law or in equity.
18. INSTALLATIONS BY LANDLORD
THE LANDLORD and any persons authorized by the Landlord shall have
the right to install, maintain and/or repair pipes, wires, ducts or other
installations in, under or through the Leased Premises and the Building, for or
in connection with the supply of any services to the Leased Premises and shall
have the right to enter into or upon the Leased Premises for the purposes
aforementioned, but nothing herein contained shall oblige the Landlord to carry
out such installation, maintenance or repairs, and although the Landlord shall
attempt to make all such repairs in a professional manner, the Landlord shall
not be liable for
<PAGE> 12
12
any losses or damages which may be incurred by the Tenant as a result thereof,
other than arising from its negligence.
19. WAIVER
THE FAILURE OF the Landlord or the Tenant to insist upon the strict
performance of any of the agreements, terms, covenants and provisoes contained
in this Lease shall not be deemed to be a waiver of any rights or remedies that
the Landlord or Tenant may have and shall not be deemed to be a waiver of any
subsequent breach or default in any of such agreements, terms, covenants, and
conditions. All rights and powers reserved to the Landlord or Tenant hereunder
may be exercised either by the Landlord or Tenant or their respective agents or
representatives from time to time and all such rights and powers shall be
cumulative and not alternative.
20. NOTICE
ANY NOTICE, request or demand herein provided or permitted to be
given by the Tenant to the Landlord shall be sufficiently given if sent by
facsimile transmission or personally delivered to the Landlord or if mailed in
Ontario by postage prepaid registered mail addressed to the Landlord at 596
Oster Lane, Concord, Ontario, LAK 2C1 [fax # (905) 669-3854].
ANY NOTICE, request or demand herein provided or permitted to be
given by the Landlord to the Tenant shall be sufficiently given if sent by
facsimile transmission or personally delivered to the Tenant or if mailed in
Ontario by postage prepaid registered mail addressed to the Tenant at the Leased
Premises.
All notices given as aforesaid shall be conclusively deemed to have
been received on the day on which such notice is personally delivered or faxed,
or on the third business day following the day upon which such notice is mailed,
as the case may be. Either party may, at any time, give notice in writing to the
other of any change of address of the party giving such notice, and from and
after the giving of such notice, the address therein specified shall be deemed
to be the address of such party for the giving of notices hereunder. The word
"notice" in this paragraph shall be deemed to include any request statement or
other writing in this Lease provided or permitted to be given by the Landlord to
the Tenant or by the Tenant to the Landlord.
21. EXPROPRIATION
If at any time during the Term any public body or paramount
authority shall take or expropriate the whole or a portion of the Leased
Premises, then the Landlord shall be entitled to any compensation awarded for
settlement for the lands so taken or expropriated and the Tenant hereby assigns,
transfers and sets over unto the Landlord all the right, title and interest of
the Tenant therein and thereto, and this Lease shall thereafter continue in
effect with respect to the Leased Premises or such portion thereof as then
remains, with a reasonable abatement of Rent, unless the Lease Premises are no
longer appropriate for the Tenants purposes.
22. ARBITRATION
Any disputes or other matters which the parties agree shall be
settled by arbitration shall be resolved in accordance with the provisions of
the Arbitration Act of Ontario, as amended, subject to the provisions of this
Section.
The Landlord and the Tenant shall select an arbitrator, provided
that in the event the parties cannot agree upon an arbitrator, then each party
shall nominate one arbitrator and the two arbitrators shall promptly select a
third arbitrator to act jointly with them. (If the two arbitrators shall be
unable to agree on the selection of a third arbitrator, then upon written
<PAGE> 13
13
application by either of the arbitrators, the third arbitrator shall be
appointed by a justice of the Superior Court of Ontario). The arbitration shall
take place at such time and location as the arbitrator(s) shall determine for
the purpose of hearing such evidence and representation as the Landlord or the
Tenant may present. The decision of the arbitrator (or, in the event that there
is more than one arbitrator, the majority decision of the arbitrators shall be
final and binding. All costs associated with the arbitration hearing may, by the
decision of the arbitrator, be borne by one party or may be divided equally
between the Landlord and the Tenant.
23. SUCCESSORS and ASSIGNS
THIS INDENTURE and everything herein contained shall enure to the
benefit of, and be binding upon, the parties hereto and their respective heirs,
executors, administrators, successors and assigns, as the case may be, subject
to the consent of the Landlord being obtained as hereinbefore provided to any
assignment, sublease or parting with possession of the Leased Premises by the
Tenant. Notwithstanding any other provision of this Lease, in the event the
Landlord sells, transfers or otherwise disposes of ownership of the Leased
Premises, the party herein signing as Landlord shall be automatically freed and
relieved from and after the date of such transfer or conveyance of any
obligations or liability whatsoever provided that the transferee or subsequent
owner assumes such obligations or liability and upon any such transfer or
conveyance, the subsequent owner or owners of the Leased Premises shall be
deemed to be the only "Landlord" as the term is used in this Lease.
IN WITNESS WHEREOF the parties hereto have hereunto affixed their
respective corporate seals, attested by the hands of their respective officers
duly authorized in that behalf made as of this
SIGNED, SEALED AND DELIVERED
IN THE PRESENCE OF )
)
/s/ [ILLEGIBLE] ) /s/ Ralph Cerundolo
- - ----------------------------------- ) ----------------------------------------
) RALPH CERUNDOLO
)
/s/ [ILLEGIBLE] ) /s/ Tony Taurasi
- - ----------------------------------- ) ----------------------------------------
) TONY TAURASI
)
) Carrying on business as T & R
) CONSTRUCTION AND MANAGEMENT INC.
)
) TRANSCONTINENTAL GOURMET
) FOODS INC.
)
) Per: [ILLEGIBLE]
) -----------------------
) A.S.O.
)
) C/S
)
) Per: [ILLEGIBLE]
) -----------------------
) A.S.O.
<PAGE> 14
Schedule A
[GRAPHIC OMITTED]
- - --------------------------------------------------------------------------------
LEGEND
[ILLEGIBLE]
SURVEYOR'S CERTIFICATE
I HEREBY CERTIFY THE FIELD SURVEY REPRESENTED ON THIS PLAN WAS COMPLETED ON
THE [ILLEGIBLE]th. DAY OF SEPT., 1987
DATE: OCT. 22, 1987 by /s/ R. Salna
----------------- --------------------------------------
R. SALNA
ONTARIO LAND SURVEYOR
NOTES
BEARINGS ARE DETERMINED AND ARE DERIVED FROM THE NORTHERN LIMIT OF OSTER LANE AS
SHOWN ON REGISTERED PLAN 7925 HAVING A BEARING OF [ILLEGIBLE]
- - --------------------------------------------------------------------------------
P. SALNA COMPANY LTD.
ONTARIO LAND SURVEYORS
10225 YONGE STREET
RICHMOND HILL, ONTARIO, [ILLEGIBLE]
PHONE: 894-2980 FILE 67-82
- - --------------------------------------------------------------------------------
(A) KAY ENTERPRISE
<PAGE> 15
LEASE AMENDING AGREEMENT
This agreement made as or this day of March, 1996
BETWEEN:
RAFFAEL CERUNDOLO and TONY TAURASI
----------------------------------
Carrying on business as "T & R Construction"
(hereinafter called the "Landlord")
OF THE FIRST PART;
-and-
TRANSCONTINENTAL GOURMET FOODS INC.
-----------------------------------
a company incorporated under the laws of the
Province of Ontario
(hereinafter called the "Tenant")
OF THE SECOND PART.
WHEREAS by a lease (hereinafter referred to as the "Lease") dated
the 25th day of February, 1992, the Landlord did demise and lease unto the
Tenant those certain premises (hereinafter referred to as the "Demised
Premises") being UNIT #3 in the property municipally known as 610 OSTER LANE, in
the City of Vaughan, as more particularly described in the Lease, for the term
of FIVE (5) years commencing on the 1st day of September, 1991, and ending on
the 31st day of August, 1996;
AND WHEREAS the Landlord and the Tenant wish to amend the Lease;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
mutual covenants and agreements hereinafter contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby by each
of the parties acknowledged, the parties hereto agree as follows:
1. The description of the Demised Premises contained in the Lease shall be
deleted and replaced with the following:
The Demised Premises comprise Unit #3 (10,490 square feet) and Unit
#4 (10,164 square feet) situate in the building municipally known as
610 Oster Lane, Concord as more particularly shown outlined in red
on the drawing attached hereto.
2. The term of the Lease shall be extended for a period of THREE (3) YEARS
AND ONE (1) MONTH so that the term of the Lease shall expire on the 30th
day of December, 1999.
3. The rental rates and amounts contained in the Lease shall be deleted and
replaced with the following:
A) During the rental period commencing on the 1st day of April, 1996
and expiring on the 30th day of September, 1997, the Tenant shall
pay monthly base rent in the amount of $7,142.84 on the first day of
each and every month to the Landlord representing a rental rate of
$4.15 per square foot.
<PAGE> 16
-2-
B) During the rental period commencing on the 1st day of October,
1997 and expiring on the 30th day of September, 1998, the Tenant
shall pay monthly base rent in the amount of $7,487.08 on the first
day of each and every month to the Landlord representing a rental
rate of $4.25 per square foot.
C) During the rental period commencing on the 1st day of October,
1998 and expiring on the 30th day of December, 1999, the Tenant
shall pay monthly base rent in the amount of $8,003.43 the first day
of each and every month to the Landlord representing a rental rate
of $4.65 per square foot.
4. The Tenant acknowledges and agrees that it and Tasty Batters Inc. shall be
jointly and severally responsible throughout the Term for the maintenance,
repair and restoration of (a) the floors of the Demised Premises and (b)
the rooftop refrigeration/ventilation units situate on the roof of the
Demised Premises. The Tenant covenants and agrees to complete all
restorative work required by the Landlord prior to surrendering the
Demised Premises.
5. In all other respects the Lease shall remain unamended.
6. This Agreement benefits and binds the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
IN WITNESS WHEREOF the parties hereto have executed this agreement
as of the date above first written.
SIGNED, SEALED AND DELIVERED ) TRANSCONTINENTAL GORMET
in the presence of: ) FOODS INC.
)
) Per: [ILLEGIBLE]
) ----------------------------------------
) A.S.0.
) Per:
) ----------------------------------------
) A.S.0.
) /s/ Raffael Cerundolo
- - ----------------------------------- ) ----------------------------------------
WITNESS ) Raffael Cerundolo
)
[ILLEGIBLE] 6/6/96. )
- - ----------------------------------- ----------------------------------------
WITNESS Tony Taurasi
Carrying on business as T & R
Construction
<PAGE> 17
[GRAPHIC OMITTED]
- - --------------------------------------------------------------------------------
LEGEND
[ILLEGIBLE]
SURVEYOR'S CERTIFICATE
I HEREBY CERTIFY THE FIELD SURVEY REPRESENTED ON THIS PLAN WAS COMPLETED ON
THE [ILLEGIBLE]th. DAY OF SEPT., 1987
DATE: OCT. 23, 1987 by /s/ R. Salna
----------------- --------------------------------------
R. SALNA
ONTARIO LAND SURVEYOR
NOTES
BEARINGS ARE DETERMINED AND ARE DERIVED FROM THE NORTHERN LIMIT OF OSTER LANE AS
SHOWN ON REGISTERED PLAN 7925 HAVING A BEARING OF [ILLEGIBLE]
- - --------------------------------------------------------------------------------
P. SALNA COMPANY LTD.
ONTARIO LAND SURVEYORS
10225 YONGE STREET
RICHMOND HILL, ONTARIO, [ILLEGIBLE]
PHONE: 894-2980 FILE 6[ILLEGIBLE]
- - --------------------------------------------------------------------------------
<PAGE> 18
THIS INDENTURE made this
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT.
B E T W E E N:
RAFFAEL CERUNDOLO AND TONY TAURASI,
c.o.b. T & R CONSTRUCTION,
(hereinafter referred to as the "LESSOR")
OF THE FIRST PART;
-and-
Transcontinental Gormet Foods Inc., (T.G.F.)
(hereinafter referred to as the "LESSEE")
OF THE SECOND PART.
1. WITNESS that in consideration of the rents, covenants and agreements
hereinafter reserved and contained on the part of the Lessee to be paid,
observed and performed, the Lessor, as owner of the building (hereinafter
referred to as the "building") hath demised and leased and by these presents
doth demise and lease unto the Lessee ALL THAT certain message or tenement
situate, lying and being that part of the building more particularly shown
outlined in red on the Plan annexed hereto as Schedule "A" (hereinafter referred
to as "the demised premises"), together with the right to use the common outside
areas and facilities as hereinafter defined in common with other Lessees of the
Lessor.
2. TO HAVE AND TO HOLD the demised premises for and during the term of five (5)
year to be computed from the 1st day of September, 1991, and from thenceforth
next ensuing and full to be complete and ended on the 3lth day of August, 1996,
together with the right of renewal hereinafter contained.
3. (a) YIELDING AND PAYING THEREFORE yearly for the first (1) years of the term
hereby granted, unto the Lessor, a rental of THIRTY ONE THOUSAND FOUR HUNDRED
AND SEVENTY ($31 470.00) of lawful money of Canada, to be paid in advance,
without deduction, in equal consecutive monthly instalments of TWO THOUSAND SIX
HUNDRED AND TWENTY TWO DOLLARS ($ 2 622.00) each on the first day of each and
every month in each and every year during the first (1) year of the term hereby
granted, at the Lessor's Office at 596 Oster Lane, Concord, Ontario, L4K 2C1 or
at such other place as the Lessor May hereafter from time to time direct,
together with the additional rent hereinafter reserved.
<PAGE> 19
-2-
(b) AND YIELDING AND PAYING THEREFOR yearly for the second (2) year of the
term hereby granted, unto the Lessor, a rental of THIRTY FOUR THOUSAND AND NINEY
TWO DOLLARS AND FIFTY CENTS ($34 092.50) of lawful money of Canada, to be paid
in advance, without deduction, in equal consecutive monthly instalments of TWO
THOUSAND EIGHT HUNDRED AND FOURTY ONE DOLLARS AND FOUR CENTS ($2 841.04) each on
the first day of each and every month.
(c) AND YIELDING AND PAYING THEREFOR yearly for the third (3) year of the
term hereby granted, unto the Lessor, a rental of THIRTY SIX THOUSAND AND SEVEN
HUNDRED AND FIFTEEN DOLLARS ($36 715.00) of lawful money of Canada, to be paid
in advance, without deduction, in equal consecutive monthly instalments of THREE
THOUSAND AND FIFTY NINE DOLLARS AND FIFTY EIGHT CENTS ($3 059.58) each on the
first day of each and every month.
(d) AND YIELDING AND PAYING THEREFOR yearly for the forth (4) year of the
term hereby granted, unto the Lessor, a rental of THIRTY NINE THOUSAND AND THREE
HUNDRED AND THIRTY SEVEN DOLLARS AND FIFTY CENTS ($39 337.50) of lawful money of
Canada, to be paid in advance, without deduction, in equal consecutive monthly
instalments of THREE THOUSAND TWO HUNDRED AND SEVENTY EIGHT DOLLARS AND THIRTEEN
CENTS ($3 278.12) each on the first day of each and every month.
(e) AND YIELDING AND PAYING THEREFOR yearly for the fifth (5) year of the
term hereby granted, unto the Lessor, a rental of FORTY ONE THOUSAND AND NINE
HUNDRED AND SIXTY DOLLARS ($41 960.00) of lawful money of Canada, to be paid in
advance, without deduction, in equal consecutive monthly instalments of THREE
THOUSAND FOUR HUNDRED AND NINEY SIX DOLLARS AND SIXTY SEVEN CENTS ($3 496.67)
each on the first day of each and every month.
(f) THE LESSOR hereby acknowledges receipt of the sum of SIX THOUSAND AND
FIVE HUNDRED AND FORTY SEVEN DOLLARS AND FIFTY ONE CENTS ($6 547.51) to be
applied on account of rent for the first and last months of the term hereby
granted. G.S.T. included in receipted total.
<PAGE> 20
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4. THE LESSEE COVENANTS AND AGREES with the Lessor as follows:
(a) To pay rent.
(b) To pay to the Lessor in each and every year during the term hereof,
as additional rent:
(i) Its proportionate share of the amount of all taxes, rates, duties
and assessments whatsoever, including local improvement rates,
whether municipal, parliamentary or otherwise, now charged, levied,
rated or assessed, or hereafter to be charged levied, rated or
assessed against the building and the lands or any similar taxes not
now in existence or contemplated at any time during the term hereof
by any competent governmental or municipal body in addition to, or
in lieu of, the taxes, rates, duties or assessments hereinbefore
referred to; and
(ii) If the taxes in respect of the building of which the demised
premises form part shall be increased by reason if any installations
made in or upon, or any alteration made in or to the demised
premises by Lessee, the amount of such increase; and
(iii) If the Lessee or any person, firm or corporation occupying the
demised premises or any part thereof shall elect to have the demised
premises or any part thereof assessed for separate school taxes, the
amount by which the separate school taxes exceed the amount which
would be payable by the Lessor for school taxes, had such election
not been made, provided that if the Lessee so elects and the
separate school taxes paid are less than public school taxes in any
year of the term hereby granted, the amount of school tax payable by
the Lessee shall be reduced accordingly.
<PAGE> 21
-4-
(iv) Its proportionate share of all taxes, rates, duties and assessments
whatsoever, including local improvement rates now charged, levied,
rated or assessed, or hereafter to be charged, levied, rated or
assessed, upon or in respect of the common outside areas, and
including, but without limiting the generality of the foregoing, its
proportionate share of all business taxes, if any, from time to time
payable by the Lessor in respect of the common outside areas and
facilities, or any part thereof.
(c) To Pay, as and when the same becomes due, and to save the Lessor in
all respects harmless with respect thereto, all business taxes from time to time
levied against, or payable by the Lessee in respect of the Lessee's occupancy of
the demised premises.
(d) Whenever in this lease reference shall be made to the Lessee's
proportionate share of any taxes, costs, charges or expenses, the same shall be
that proportion which the area of the demised premises bears to be total floor
area (including the demised premises) of the entire building, including any
future additions thereto. The area is to be calculated in accordance with the
method set forth in paragraph 23 hereof.
(e) Whenever in this lease reference shall be made to the common outside
areas and facilities, the same shall mean all of the lands not for the time
being covered by the building (other than any service building for the general
benefit of all tenants of the lands) and shall include any improvements (apart
from structures erected by the Lessee) thereon and thereto, such as tool sheds,
lighting standard and parking signs.
(f) The tax payments required to be made by the Lessee to the Lessor under
the provisions of sub-paragraph (b) hereof shall be paid by the Lessee to the
Lessor on presentation to the Lessee of a statement of moneys due by the Lessee
supported by copies of tax bills or at the option of the Lessor, the Lessor may
estimate on the date of the commencement of each lease year the Lessee's
proportionate share of the payments to be made by the Lessee under sub-paragraph
(b) hereof and such amount shall be payable by the Lessee in equal monthly
instalments of the days on wish rent is payable hereunder with such amount to be
adjusted upon the Lessor finally determining the amount payable under
sub-paragraph (b) hereof whereupon any deficiency in payment shall be
immediately paid to the Lessor and any overpayment shall at the option of the
Lessor either be credited to the Lessee's account or paid to it.
(g) In each and every year during the term hereof to pay, satisfy and
discharge, directly or indirectly, all charges in connection with water,
electrical current, gas, rental charges for gas or electrically operated hot
water heaters and other public or private utilities or services extraordinary as
well as ordinary, supplied at any time to the demised premises.
<PAGE> 22
-5-
(h) To indemnify and keep indemnified the Lessor in respect of all losses,
costs, charges, penalties and expenses occasioned by, or arising from, the
non-payment of any and every tax, rate, assessment, charge, expense or fee,
including any business or similar tax assessed against the Lessee or any
sub-tenant or licensee or other persons occupying the demised premises or any
part thereof, and provided that the same shall be a charge on the demised
premises or in any way the ultimate responsibility of the Lessor, unless the
same shall have already been paid by the Lessee to the Lessor, and provided that
the same shall not be of a kind personal to the Lessor, such as taxes on the
income of the Lessor.
(i) At its own expense, to properly carry out all repairs, which repairs
shall include without limiting the generality of the foregoing leaks to the roof
of the demised premises, replacements, maintenance, and painting of the demised
premises and of all machinery and equipment situate therein or thereon (both
inside and outside and including any stairs or platform leading thereto, and to
repair and maintain the demised premises, reasonable wear and tear ( not
inconsistent with the maintenance of the building as first class industrial
premises having regard for the then age of the building ) and structural defects
to the roof, walls, foundations and cracks to floors not caused by the Lessee's
acts, omissions or neglect, only excepted.
(j) To promptly comply with and conform to the requirement of all
applicable statutes, laws, by-laws, regulations, ordinances and orders from time
to time, or at any time in force during the term hereof and affecting the
condition, equipment, maintenance, use or occupation of the demised premises and
with every applicable regulation, order and requirement of the Insurer's
Advisory Organization of Canada, or any body having a similar function or of any
liability or fire insurance company by which the Lessor and Lessee or either of
them may be insured at any time during the term thereof.
(k) In the event of the observance of any apparent structural defect or
material damage to the demised premises by any cause, to give notice in writing
to the Lessor of such defect or damage forthwith upon the same becoming known to
the Lessee; Provided that if such defects or damages becomes know to the Lessee
or reasonably should have been observed by the Lessee and
<PAGE> 23
-6-
the Lessee fails to give notice thereof to the Lessor, the Lessee shall be
liable for such of the costs incurred by the Lessor in repairing the said defect
or damage as can be shown to be directly attributable to the actions of the
Lessee and those for whom in law the Lessee is responsible (including additional
costs incurred by the Lessor in repairing such defects or damages for reason of
the failure of the Lessee to give such notice) after such defect or damage
became known to the Lessee or reasonably should have been observed by the
Lessee.
(l) To permit the Lessor at all reasonable times to enter upon and view
the state of repair and maintenance of the demised premises and to comply with
all reasonable requirement of the Lessor with respect to the care, maintenance
of the demised premises and to comply with all reasonable requirement of the
Lessor with respect to the care, maintenance and repair thereof, subject to the
exceptions hereinbefore provided.
(m) That upon the expiration of the term hereby granted the Lessee will
peaceable surrender, quit and deliver up the demised premises to the Lessor in a
good state of repair and maintenance, subject to the exceptions herein provided.
(n) At its own expense, to keep entrances and all steps and platforms
leading to the demised premises clear of all snow, ice and debris.
(o) That it will not carry on, or permit to be carried on, in or about the
demised premises any business activity which shall, upon reasonable grounds, in
the opinion of the Lessor, be deemed to be a nuisance, nor will it omit to do or
permit to be omitted to be done anything in respect of the demised premises, the
omission of which shall, upon reasonable grounds in the opinion of the Lessor,
be deemed to be a nuisance, provided that activities carried on only be the
Lessee in its ordinary course of business shall be deemed not to be nuisance.
The demised premises shall only be used, to the extent permitted by the relevant
zoning by-laws for the purposes of offices, showroom, warehouse and general
manufacturing.
(p) To assume the sole responsibility for and the cost of heating of the
demised premises with the heating equipment supplied by the Lessor.
(q) That the Lessee may assign, sublet or part with possession of the
demised premises or any part thereof, or share the occupation of the demised
premises or any part thereof with the consent of the Lessor in writing, which
consent may not be unreasonably or arbitrarily withheld.
<PAGE> 24
-7-
(r) That it may not place anything on the roof or in any way make any
opening in the roof for stacks or other purposes, or in any way alter the walls
or structure of the demised premises without the written consent of the Lessor,
which consent may not be unreasonably or arbitrarily refused.
(s) That it will during the whole of the term hereby granted pay to the
Lessor as hereinafter provided, as additional rent, its proportionate share of
all premiums with respect to insurance to be placed by the Lessor and described
as follows:
(i) Fire, extended coverage and malicious damage insurance, for the full
replacement value of the building, its improvements and equipment
and including fire rental income insurance.
(ii) Broad boiler and unfired pressure vessels insurance including repair
or replacement and rental income coverage in amounts reasonably
satisfactory to the Lessor, if required by the Lessor.
(iii) Plate Glass Insurance, if required by the Lessor, provided the
Lessee may self-insure plate glass;
(iv) Such other insurance coverage, including liability insurance in the
minimum amount to be determined by the Lessor (and which liability
insurance shall show the Lessor and Lessee as insured thereunder) as
may be or become customary for owners of property to carry
respecting loss of or damage to or occurring on the demised premises
or common outside areas; or liability therefrom specifically
including any insurance required by reason of the introduction by or
on behalf of the Lessee, or any persons, firms or corporations
claiming through or under it of any radioactive or hazardous
material or substances into or about the demised premises, or on the
common outside areas.
AND all such insurance coverage shall be kept and maintained with a
member of the Insurer's Advisory Organization of Canada, and in no event shall
the coverage be less than the
<PAGE> 25
-8-
minimum required by any institution then holding a mortgage on the demised
premises. The Lessee shall pay to the Lessor as additional rent, its
proportionate share of the amount of the insurance premiums payable to maintain
the insurance coverage herein contemplated. The Lessor shall deliver certified
copies of all such policies of insurance coverage to the Lessee. The Lessee
shall not do or permit to be done any act or thing whereby the insurance
coverage or any of them hereinbefore contemplated may be increased in premium or
cancelled by the insurer, or the demised premises shall be rendered uninsurable,
and if by reason of any act done or permitted or omission, as the case may be,
by the Lessee, the said insurance coverage or any of them shall be increased in
premium, with respect to the entire coverage and this notwithstanding that the
Lessee occupies only a portion of the building covered by such insurance
coverage, and if the demised premises shall be rendered uninsurable or if the
said insurance coverage or any of then shall be cancelled by reason of any act
done or permitted, or omission, as the case may be, by the Lessee, and shall not
be susceptible of being replaced, the Lessor, after giving the Lessee at least
fourteen (14) days within which to replace the insurance coverage or coverage
shall, at its absolute discretion, have the right to determine that the term
hereof has expired and in such event the Lessee shall deliver up possession of
the demised premises as if the term of this lease had expired.
(t) Not to use any outside garbage or other containers unless approved by
the Lessor, and such permission not to be unreasonably or arbitrarily withheld,
or to allow any ashes, refuse, garbage or other loose materials to accumulate in
or about the demised premises.
(u) (i) That it will, during the whole of the term hereby granted, pay the
Lessor as additional rent as hereinafter provided, its proportionate share of
the costs incurred by the Lessor in cleaning and maintaining the common outside
areas and facilities as hereinbefore defined, including, but without limiting
the generality of the foregoing, snow removal, gardening, and maintenance,
including repairs and maintenance and replacements of paving, curbs, walkways,
landscaping, and drainage as may from time to time become necessary, and other
reasonable costs which may be incurred with respect to the said common outside
areas and facilities;
<PAGE> 26
-9-
(ii) The manner in which the said common outside areas and
facilities be maintained shall be at the sole discretion of the Lessor provided
that the said manner shall be reasonable and in keeping with the maintenance of
a first class industrial building having regard for the then age of the
building.
(v) The Lessor may, at its option, estimate, on the date of the
commencement of each lease year, the Lessee's proportionate share of the
additional rent and other charges herein to be paid by the Lessee and such
amount shall be payable by the Lessee in equal monthly instalments on the days
on which rent is payable hereunder, and such amount is to be adjusted upon the
Lessor finally determining such additional rent and other charges herein,
whereupon any deficiency in payment shall be immediately paid to the Lessor and
any overpayment by the Lessee shall at the option of the Lessor either be
credited to the Lessee's account or paid to it.
(w) The Lessee acknowledges that the demised premises comprise part of the
building and that the building may be served by common drainage, water systems
and sprinkler systems, as well as electrical systems, and in the event that the
repairs are necessary to any of such systems in any portion of the building,
save by reason of negligence of the Lessor, or any other Lessee or Lessees
occupying other portions of the building, or their servants, employees or
agents, then the Lessee covenants to forthwith pay to the Lessor its
proportionate share of the total cost of such repairs forthwith upon receiving
written demand therefor; and the Lessor's servants, employees or agents shall
have reasonable access to the demised premises for the purpose of making the
necessary repairs herein contemplated without liability for any disturbance, or
business interruption which may be caused in do doing, and for greater
certainty, it is expressly agreed that if any of such common systems shall have
been damaged or shall have become inoperative by reason of the negligence of the
Lessee, its servants, employees or agents, then the entire cost of repairing the
same shall be borne by the Lessee.
<PAGE> 27
-10-
(x) The Lessee acknowledges that one or more of the walls of the demised
premises are party walls which may be used as to the portion adjacent to the
demised premises by the adjoining Lessee, or by the Lessor, and the Lessee
covenants and agrees that as to any repairs required to that said party wall
required to be made under the provisions of sub-paragraph 4(i) hereof, it will
bear one-half of the cost of such repairs, unless such repairs are necessitated
wholly by reason of the negligence of the Lessee in which event the Lessee shall
be responsible for the entire cost of such repairs, and in the event that
repairs are made necessary by reason of the negligence of the Lessor, or the
adjoining Lessees, then the cost of repairs shall not be borne by the Lessee,
and the Lessee covenants that it will forthwith pay the cost of such repairs to
the said party walls for which it is responsible hereunder forthwith upon
receiving written demand therefor.
5. PROVIDED that the Lessee may remove its fixtures, including lighting fixtures
and exhaust fans, provided that the lessee shall not remove or carry away form
the demised premises or common outside areas any buildings or part thereof or an
plumbing, heating, ventilating, wiring or electrical panels and services, or
other building services; provided the Lessee shall repair any damage occasioned
to the premises by the installation or removal of its fixtures and shall restore
the demised premises to the state that existed prior to such installation.
6. PROVIDED that if the term hereby granted or any of the goods and chattels of
the Lessee shall be at any time seized or taken in execution or in attachment by
any creditor of the Lessee or if a Writ of Execution shall issue against the
goods or chattels of the Lessee, or if the Lessee shall execute any chattel
mortgage or bill of sale of any of its goods or chattels other than in the
ordinary course of its business, or if the Lessee shall make any assignment for
the benefit of creditors or commit any other act of bankruptcy as defined in the
Bankruptcy Act of Canada or any amendment thereto, or becoming a bankrupt or
insolvent shall take the benefit of any Act which may be in force for bankrupt
or insolvent debtors, or shall attempt to abandon the demised premises or to
sell or dispose of its goods or chattels so that there would not, in the event
of such sales or disposal, be, in the opinion of the Lessor, a sufficient
distress on the demised premises for the then accruing rent and moneys accruing
hereunder as rent, then the current month's rent, together with rent for the
three months next ensuing (and for purposes hereof rent shall include all moneys
designated to be paid as additional rent, including, but without limiting the
generality of the foregoing, against billing on account of taxes, insurance
premiums and maintenance of the common outside areas and facilities:, shall
immediately become due and payable on presentation of invoices and the said term
shall at the
<PAGE> 28
-11-
option of the Lessor forthwith become forfeited and determined, in which event
the Lessor may re-enter and take possession of the demised premises as though
the Lessee, or any occupant or occupants of the demised premises was or were
holding over after the expiration of the term without any right whatsoever,
provided that no action by the Lessor in so doing shall be deemed to relieve the
Lessee of its obligations for the payment of rent and additional rent of any
other moneys payable hereunder.
7. Provided that in case of removal by the Lessee of its goods and chattels from
the demised premises, the Lessor may follow the same for thirty (30) days, in
the same manner as is provided for in The Landlord and Tenant Act; and
notwithstanding anything contained in The Landlord and Tenant Act, or any other
statute or any other subsequent legislation, none of the goods or chattels of
the Lessee at any time during the continuance of the term hereby granted on the
demised premises shall be exempt from levy by distress for rent in arrears, and
that upon any claim being made for any exemption by the Lessee on a distress
made by the Lessor this covenant may be pleaded as an estoppel against the
Lessee in any action brought to test the right to the levying upon any such
goods, the Lessee waiving as it hereby does any exemptions from distress with
might have accrued to the Lessee under the provisions of The Landlord and Tenant
Act.
8. Proviso for re-entry by the Lessor on non-payment of rent or non-performance
of covenants. In the event that the Lessee shall be in default of any of its
covenants hereunder, including the covenant of the Lessee to pay rent or
additional rent, the Lessor shall give to the Lessee notice in writing stating
the said default with reasonably sufficient particulars, and requiring that the
said default be remedied and that if such default is not remedied by the Lessee
with fifteen (15) days after the receipt of such notice, the Lessor may at its
option either enter into and upon the demised premises or any part thereof in
the name of the whole and have again, repossess, and enjoy the same as of its
former estate and the said lease shall thereupon terminate, or itself take steps
and to do or cause to be done such things as may be necessary to remedy and
correct such defaults. Provided further that in the event that the Lessor shall
be entitled to, and shall elect to make a re-entry as hereinbefore provided for,
any re-entry or other action so taken shall not deemed to relieve the Lessee of
its obligation to pay rent and other moneys payable as rent hereunder and such
rent and other moneys payable as rent in accordance with the provisions hereof
shall continue to accrue and be payable until such time as the Lessor is able to
re-let the premises, or otherwise deal with the same in such manner that it did
not sustain any loss should the Lessee thereafter fail to pay the rent and other
moneys payable as rent or otherwise under this
<PAGE> 29
-12-
lease. Provided further that in addition to all other rights hereby reserved to
it, the Lessor shall have the right to re-enter the demised premises as the
agent of the Lessee either by force or otherwise, without being liable for any
prosecution therefor, and to re-let the whole or any portion of the demised
premises for any period equal to or greater or less than the remainder of the
then current term of the lease and to receive the rent therefor, said rent to be
any sum which it may deem suitable and satisfactory, and for any use and purpose
which it may deem appropriate and in connection with any such lease, the Lessor
may make changes in the character of the improvements of the demised premises as
the Lessor may determine to be appropriate or helpful in effecting such lease;
but in no event shall the Lessor be under any obligation to re-let the demised
premises in whole or in part for any purpose which the Lessor may regard as
injurious to the demised premises, or to any lessee which the Lessor, in the
exercise of reasonable discretion, shall deem to be objectionable and to apply
any rent derived from so re-letting the demised premises upon account of the
rent due hereunder, and the Lessee shall remain liable to the Lessor for the
deficiency, if any, it being the intention hereof that nothing herein contained
and no entry made by the Lessor hereunder shall in any way release the Lessee
from the payment of the rent hereby reserved during the term hereof beyond such
sum as may be realized by the Lessor by such re-letting or by the proceeds of
any distress made by the Lessor against the Lessee; and provided that the Lessor
shall not in any event be required to pay to the Lessee any surplus of any sums
received by the Lessor on a re-letting of the demised premises in excess of the
rent reserved hereunder.
9. Provided that should the Lessee remain in possession of the demised premises
after the termination of the original therm hereby created, without other
special agreement, granted that three (3) months notice was given to the Lessor,
it shall be as a monthly tenant at a monthly rental equal to the rental payable
during the last month of the term hereof, payable on the first day of each and
every month and subject in other respects to the terms of this lease, including
those provisions requiring the payment of additional rent in monthly
instalments.
10. The Lessor covenants with the Lessee as follows:
(a) For quiet enjoyment
(b) That the Lessee shall have the right from time to time to make
alterations and changes in the interior of the demised premises as it may find
necessary for its purposes and at its own expense, provided that plans for such
alterations or changes shall be delivered to the Lessor and the consent of the
Lessor in writing shall first be obtained, such consent not to be unreasonably
or arbitrarily withheld.
<PAGE> 30
-13-
(c) That the Lessor has in it good right, full power and absolute
authority to lease the demised premises with their appurtenances according to
the true intent of this indenture, and that it will execute such further
assurances with respect thereto as may be reasonably required.
11. Provided and it is expressly agreed that if and whenever during the term
hereby demised the demised premises shall be destroyed or damaged by any
casualty, then the following provisions shall apply:
(a) If the damage or destruction is such that the demised premises are
rendered wholly unfit for occupancy or it is impossible or unsafe to use and
occupy them and it in either event the damage, in the opinion of the Lessor and
Lessee, to be given to the Lessee within fifteen (15) day of the happening of
such damage or destruction, cannot be repaired with reasonable diligence within
sixty (60) days from the date the Lessor has given its opinion, then either the
Lessor or the Lessee may within five (5) days next succeeding the giving of the
Lessor's opinion as aforesaid, terminate this lease by giving to the other
notice in writing of such termination, in which event this lease and the term
hereby demised shall cease and be at an end as of the date of such destruction
or damage and the rent and all other payments for which the Lessee is liable
under the terms of this lease shall be apportioned and paid in full to the date
of such destruction or damage; in the event that neither the Lessor nor the
Lessee so terminate this lease, then the Lessor shall repair the said building
with all reasonable speed and the rent hereby reserved shall abate from the date
of the happening of the damage until the damage shall be made good to the extent
of enabling the Lessee to use and occupy the demised premises.
(b) If the damage be such that the demised premises are wholly unfit for
occupancy, or if it is impossible or unsafe to use or occupy them, but if in
either event the damage, in the opinion of the Lessor, to be given to the Lessee
within fifteen (15) days from the happening of such damage, can be repaired with
reasonable diligence within sixty (60) days from the date the Lessor has given
its opinion, then the rent hereby reserved shall abate from the date of the
happening of such damage until the damage shall be made good to the extent of
enabling the lessee to use and occupy the demised premises, and the Lessor shall
repair the damage with all reasonable speed.
(c) If the damage is such that the demised premises are only partially
damaged or destroyed, and in the opinion of the Lessor, to be given to the
Lessee within fifteen (15) days from
<PAGE> 31
-14-
the happening of such damage, can be repaired with reasonable diligence within
sixty (60) days from the date the Lessor has given its opinion, then the rent
hereby reserved shall abate in the proportion that the part of the demised
premises so damaged bears to the whole of the demised premises, and the Lessor
shall repair the damage with all reasonable speed. Provided that in the event of
partial damage to the building with no damage to the demised premises, rent
shall not abate and the Lessee shall continue to use and occupy the demised
premises, and the Lessor shall repair the damage to the building with all
reasonable speed.
12. The Lessee hereby covenants and agrees with the Lessor that the Lessor shall
not be liable for, and the Lessee shall save harmless the Lessor from any and
all liability , coasts, claims, demands or actions for damages, injury or loss,
suffered or sustained by any person or persons in or about the demised premises
or any part thereof, and for damage or injury to the property of any person or
persons occasioned by the Lessee, it's customers, employees, servants or agents,
or by their neglect, default or misconduct or occasioned by reason of any other
cause or matter whatsoever, and in particular, but without in any way limiting
the generality of the foregoing, the Lessor shall not be liable for any damages
to any such property cased by steam, water, rain or snow which may leak into,
issue or flow from any part of the demised premises or from the water, steam,
sprinkler or drainage pipes or plumbing works of the same or from any other
place or quarter or for any damage caused by, or attributable to, the condition
or arrangement of any electrical or other wiring and the covenants of indemnity
herein contained in respect of damage to property, injury or death, occurring
during the term of this lease shall survive the termination of this lease,
anything herein to the contrary notwithstanding, but nothing herein shall
relieve the Lessor for liability arising by reason of the negligence of the
lessor, its servants or agents or those for whom the Lessor is in law
responsible.
13. In the event that the Lessee shall make default in the payment of any sum
required to be paid by it or shall make default in the performance of any
covenant or the doing of any thing required to be performed or done by it
hereunder, than the Lessor shall have the right to pay any such sum so in
default or to perform or do any such thing and such sums so in default or to
perform of do any such thing and such sums so paid or the costs or performing or
doing such tings, and in every such case, shall be deemed to be additional rent
payable under the provisions of this lease and the Lessor shall be entitled to
charge all such sums or moneys to the Lessee and the Lessee shall pay them
forthwith on demand; and the Lessor in addition to any other rights, shall have
the same remedies and may take the same steps for the recovery of
<PAGE> 32
-15-
all such sums or moneys as it might have taken for the recovery of rent in
arrears under the terms of this lease. All arrears of rent and moneys payable as
rent or additional rent under the terms of this lease which may be in arrears
shall bear interest at the rate of two per cent (2%) per annum above the prime
lending rate of the Lessor's bank calculated and payable monthly from the time
such arrears become due and payable until paid to the Lessor.
14. The Lessor shall have the right at any time during the term hereby demised
to place upon the demised premises a notice of reasonable dimensions and
reasonably placed so as not to interfere with the Lessee's business, stating
that the demised premises are for sale, and at any time during the last six (6)
months of the term that the demised premises are to let, and the Lessee shall
not remove such notices, or permit the same to be removed.
15. Any building, erection or improvement placed or erected in or upon the
demised premises, or upon the lands, apart from the Lessee's fixtures, shall
become a part thereof and shall, to the extent that the same are utilized by the
Lessee, be subject to all of the provisions of this lease. No building, erection
or improvement shall be erected in or upon, or adjacent to the demised premises,
or upon the lands, without the prior written consent of the Lessor.
16. The Lessee covenants that it will if and whenever reasonably required by the
Lessor, and at the Lessor's expense, if necessary, consent to and become a party
to any reasonable instrument relating to this lease, including the delivery of
statements as to the status of this lease, which may be required by or on behalf
of any purchaser, mortgagee or insurer or other person, firm or corporation
which may have an interest in the demised premises and in addition the Lessee
shall execute such documents which may be necessary to cause this lease to be
subordinated to any incidental mortgage or charge against the lands and
building, provided that the Lessor will obtain from any existing Mortgagee and
any future Mortgagee of the demised premises an agreement in writing to the
effect that if such Mortgagee takes any action under its mortgage to realize its
security in the demised premises by way of foreclosure, possession or otherwise,
such Mortgagee will permit the Lessee to remain in possession of the demised
premises and to enjoy all its rights and privileges under this lease provided
that the Lessee performs and observes all the covenants, provisions, terms and
conditions on the part of the Lessee in the Lease.
17. The Lessee shall have the right, at its own expense to attach, paint or
display such signs, sign boards, posters, flags or other advertisements or
decorations in or about the demised premises, provided that it shall have first
obtained the consent in writing of the Lessor thereto, such consent not to be
unreasonably
<PAGE> 33
-16-
or arbitrarily withheld, and provided that the same shall be removed by the
Lessee at the expiration of the term hereof and the Lessee shall thereupon
restore the demised premises to their former condition. The Lessee acknowledges
and agrees that the Lessor is interested in all of the lands, and accordingly
reserves the right to regulate all signs, sign boards posters, flags,
advertisements or other decorations in its sole and entire discretion in order
to maintain a unanimity in the area and to protect the aesthetics thereof for
its own benefit and for the benefit of the Lessee and other interested persons,
and that the aforesaid covenant by the Lessor not to unreasonably or arbitrarily
withhold its consent shall be construed accordingly. The lessee shall indemnify
the Lessor against any loss or damage caused to any person, firm, corporation or
thing as a result of the placing or use of any sign, sign board, poster, flag,
advertisement or other thing of a similar nature in or about the demised
premises in contravention of the terms of this paragraph.
18. (a) The Lessee acknowledges and agrees that the Lessor shall have the right
to promulgate reasonable rules and regulations, copies of which shall be
delivered to the Lessee to regulate the use of the common outside areas and
facilities about the building, provided that such restrictions shall not hinder
the use of the demised premises by the Lessee. The Lessee agrees that for its
benefit and welfare, and for the benefit and welfare of lessees occupying other
parts of the building and using the said common outside areas and facilities,
such reasonable rules binding upon the Lessee, provided that nothing herein
contained shall require or be deemed to require the Lessor to promulgate any
such rules or regulations or to regulate in any manner whatsoever the use of the
common outside areas and facilities.
(b) The Lessee, its employees, invitees, and customers and persons
connected with the Lessee (subject and except as in this lease provided), as
appurtenant to the demised premises during term of this lease and any renewal
period thereof shall have the right in common with others entitled thereto from
time to time to use the driveways, walkways, lawns, if any ramps and other
common outside areas and facilities in and about the lands as may from time to
time be designated by the Lessor. The Lessee shall not reasonably block or in
any manner hinder the Lessor, other Lessees or persons claiming through or under
them or any of them who may be authorized by the Lessor to utilize the common
outside areas and facilities from so doing. The Lessor may in its discretion
from time to time permit certain lessees or others to have the exclusive use of
portions thereof to the exclusion of other lessees.
(c) Subject as herein provided, the Lessor shall have the right to make
such changes and improvements or alterations as the Lessor may from time to time
in its discretion determine in respect of the common outside areas and
facilities, or any part thereof.
<PAGE> 34
-17-
19. The Lessor and any persons authorized by the Lessor shall have the right to
install, maintain and/or repair pipes, wires, ducts or other installations in,
under or through the demised premises, or in, under or through the common
outside areas and facilities, for or in connection with the supply of any
services to the demised premises or other premises in the building, but nothing
herein contained shall oblige the Lessor to make such installations or do such
maintenance or effect such repairs. The Lessor shall make all such repairs as
quickly as possible and in such manner as to not inconvenience the Lessee to the
least possible extent, but the Lessor shall not be liable for any losses or
damages which may be incurred by the Lessee as a result thereof.
20. The failure of the Lessor of Lessee to insist upon a strict performance of
any of the agreements, terms, covenants and conditions hereof shall not be
deemed to be a waiver of any rights or remedies that the Lessor or Lessee may
have and shall not be deemed to be a waiver of any subsequent breach or default
in any of such agreements, terms, covenants, and conditions. All rights and
powers reserved to be the Lessor or Lessee hereunder may be exercised either by
the Lessor or Lessee or their respective agents or representatives from time to
time and all such rights and powers shall be cumulative and not alternative.
21. Any notice, request or demand herein provided or permitted to be given by
the Lessee to the Lessor shall be sufficiently given if mailed in Ontario by
postage prepaid registered mail, or personally delivered to the Lessor addressed
to 596 Oster Lane, Concord, Ontario, L4K 2C1 and any notice herein provided or
permitted to be given by the Lessor to the Lessee shall be sufficiently given if
mailed in Ontario, by postage prepaid registered mail, or personally delivered
to the Lessee addressed to it at the demised premises. Any such notice given as
aforesaid shall be conclusively deemed to have been given on the day on which
such notice is delivered, or on the third business day following the day upon
which such notice is mailed, as the case may be. Either party may, at any time,
give notice in writing to the other to the other of any change of address of the
party giving such notice, and from and after the giving of such notice, the
address therein specified shall be deemed to be the address of such party for
the giving of notices hereunder. The word "notice" in this paragraph shall be
deemed to include any request, statement or other writing in this lease provided
or permitted to be given by the Lessor to the Lessee or by the Lessee to the
Lessor
22. If at any time during the term hereby granted any public body or paramount
authority shall take or expropriate the whole or a portion of the demised
premises, then the following provision shall apply:
<PAGE> 35
-18-
(a) If such expropriation or compulsory taking does not materially affect
the Lessee's use or enjoyment of the demised premises, then the whole of the
compensation awarded for settlement for the lands, or portion of the demised
premises so taken or expropriated, whether fixed by agreement or otherwise,
shall be paid or received by the Lessor, and the Lessee hereby assigns transfers
and sets over unto the Lessor all the right, title and interest of the Lessee
therein and thereto, and this lease shall thereafter continue in effect with
respect to the demised premises or such portion thereof as then remains, without
abatement of rent.
(b) If such expropriation or compulsory taking does materially affect the
Lessee's use or enjoyment of the demised premises, then this lease shall be
deemed to terminate and the term hereof shall terminate on the date upon which
the expropriating or taking authority requires possession of the lands so
expropriated to taken, and in such event the Lessor shall be entitled to receive
the entire compensation awarded or settlement for the land and/or building so
taken or expropriated, whether fixed by agreement or otherwise, save and except
for that portion thereof as is specifically awarded or allocated in respect of
leasehold improvements, or other interest, made by the Lessee.
23. The rent herein (not including additional rent otherwise provided for) is
calculated on the basis that the demised premises contain by admeasurement an
area of 10 490 square feet, at an annual rent of $3.00 per square foot for the
first (1) year of the original term hereof, an annual rent of $3.25 per square
foot for the second (2) year of the original term hereof, an annual rent of
$3.50 per square foot for the third (3) year of the original term hereof, an
annual rent of $3.75 per square foot for the forth (4) year of the original term
hereof, and an annual rent of $4.00 per square foot for the fifth (5) year of
the original term hereof. When the demised premises have been completed, then
the area thereof shall be calculated by the Lessor measuring the same from the
exterior face of the exterior wall and across the extension of the planes
thereof over the opening for door and windows (save and except that if any doors
and/or windows project beyond the exterior face of the exterior wall, then such
projection shall be measured from the exterior face of the door and/or window
from and across the extension of the planes thereof) to the centre line of any
party wall or partition. In the event that the demised premises are found to
have an area either more or less than the area referred to above, then the
rental hereinbefore set forth (and the monthly rental consequent thereupon)
shall be adjusted upward or downward accordingly, at the said rate(s).
<PAGE> 36
-19-
24. The Lessor covenants with the Lessee that if the Lessee duly and regularly
pays the said rent and performs all the covenants and provisos and requirements
herein and on the part of the Lessee to be paid and preformed, that the Lessee
shall have the option of renewing this lease for a further term of up to five
(5) year upon the same terms years upon the same terms and conditions save and
except that there shall be no further right of renewal and save and except that
the rental for the renewal term shall be such an amount as is determined by the
Lessor and Lessee by common agreement, and failing agreement the rent shall be
determined by arbitration as provided for under The Arbitrations Act of Ontario
(whereupon such determination shall be binding on the parties with no recourse
to appeal) but in no event shall the rental for the renewal term be less than
the rental for the last year of the original term therein granted. The Lessee
shall exercise its right of renewal by delivering to the Lessor in writing
notice of the Lessee s intention to renew at least six (6) months prior to the
expiry of the original term herein failing which the Lessee's right to renewal
shall be deemed to be null and void. In the event the rental to be paid during
the renewal term has not be determined in accordance with the foregoing
provisions on or before the expiry of the original term of the lease, the Lessor
shall have the right to establish the monthly rental during the renewal term and
such rental shall be paid by the Lessee until the rental has been determined by
common agreement or arbitration as hereinbefore provided whereupon the Lessor
and the Lessee shall adjust the rental theretofore paid by the Lessee.
25. This indenture and everything herein contained shall enure to the benefit
of, and be binding upon, the parties hereto and their respective heirs,
executors, administrators, successors and assigns, as the case may be, subject
to the consent of the Lessor being obtained as hereinbefore provided to any
assignment, sublease or parting with possession of the demised premises by the
Lessee.
26. Wherever the context so requires, the terms "Lessee" and "Sub-Lessee" herein
shall be deemed to include the singular, plural, masculine, feminine and neuter,
and when applied in the plural , shall apply to such parties jointly and
severally.
27. North American Frozen Pastries Inc. has assigned the original lease signed
August 23, 1991 to Transcontinental Gourmet Foods Inc. (T.G.F.) provided the
lease remains in good standing and guaranteed by North American Frozen Pastries
Inc.
<PAGE> 37
-20-
In witness whereof the parties hereto have hereunto affixed their
respective corporate seals, attested by the hands of their respective officers
duly authorized in that behalf this 25th day of February , 1992.
SIGNED, SEALED AND DELIVERED ) /s/ Raffaele Cerundolo
in the presence of ) ----------------------------------------
) Raffaele Cerundolo
)
)
) ----------------------------------------
) Tony Taurasi
)
) Name of Lessor
) Per /s/ [ILLEGIBLE]
) ----------------------------------------
) A.S.0.
)
) Per
) ----------------------------------------
) A.S.0.
<PAGE> 1
THIS INDENTURE made as of the 15th day of June, 1999.
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT.
B E T W E E N:
1249462 ONTARIO LIMITED,
hereinafter called the "Landlord"
OF THE FIRST PART
- and -
TASTY SELECTIONS INC.
hereinafter called the "Tenant"
OF THE SECOND PART
- and -
INTERNATIONAL MENU SOLUTIONS INC.,
hereinafter called the "Indemnifier"
OF THE THIRD PART
WHEREAS the Landlord is the owner of certain lands situated in the
City of Vaughan, in the Province of Ontario, and being municipally known as 350
Creditstone Road, Vaughan, Ontario (the "Lands");
AND WHEREAS that in consideration of the rents, covenants and
agreements hereinafter contained on the part of the Tenant to be paid, observed
and performed, the Landlord has demised and leased and by these presents does
demise and lease unto the Tenant the Leased Premises.
THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS
IN THIS LEASE:
(a) "building" means the building in which the Leased Premises are
situated;
(b) "common facilities" means (a) those areas, facilities, utilities,
improvements, equipment and installations in the complex that, from
time to time, are not designated or intended by the Landlord to be
leased to tenants of the complex and (b) those areas, facilities,
utilities, improvements, equipment and installations which serve or
are for the benefit of the complex and are designated from time to
time by the Landlord as part of the common facilities. Common
facilities include, without limitation, the parking areas, all
entrances and exits thereto, driveways, pedestrian sidewalks,
fences, trees, flowers and shrubbery, security systems and general
signs which are designated from time to time by the Landlord and
which are provided and made available for the general use of the
tenants of the complex and their officers, agents, employees and
customers, all whether in existence now or constructed and provided
subsequent to the date hereof;
(c) "complex" means all of the buildings and appurtenant lands and
facilities, including common facilities, and services of which the
premises herein demised form part and situate on the Lands;
<PAGE> 2
2
(d) "Leased Premises" means those premises known as Part of Suite 108,
350 Creditstone Road, Vaughan, Ontario, comprising 9,106 square feet
of Gross Floor Area, more or less, outside measurement (and without
deduction for columns and the like) as more particularly described
in Schedule "A" hereto, such area being determined by the Landlord
acting reasonably;
(e) "proportionate share" means that ratio of any cost for which the
Tenant is required to pay its proportionate share having as
numerator the area of the Leased Premises and as denominator the
aggregate rentable area of the buildings forming part of the
complex, as determined by the Landlord acting reasonably; Provided,
should the Leased Premises form part of a building, then, in the
context of costs and expenses relative to such building, the term
"proportionate share" shall mean that ratio which has as numerator
the area of the Leased Premises and as denominator the aggregate
rentable area of such building, as determined by the Landlord acting
reasonably;
(f) "Term" means the term demised by this Lease, as set out in paragraph
4.
2. BASIC TERMS
The basic terms of this Lease, which are hereinafter more fully
detailed, are summarized as follows:
Refer to
Section
-------
(a) Leased Premises: Part of Suite 108 1
350 Creditstone Road
Vaughan, Ontario
(b) Term: FIVE (5)YEARS AND NINE (9) MONTHS 4
(c) (i) Commencement Date: June 15, 1999 4
(ii) Expiry Date: February 28, 2005
(d) (i) Basic Rent:
Lease Year 1 $31,871.04 per annum
$2655.92 per month
($3.50 per sq. ft. of the
Gross Floor Area of the
Leased Premises per annum)
Lease Year 2 $34,147.56 per annum
$2,845.63 per month
($3.75 per sq. ft. of the
Gross Floor Area of the
Leased Premises per annum)
Lease Year 3 $36,424.08 per annum
$3,035.34 per month
($4.00 per sq. ft. of the
Gross Floor Area of the
Leased Premises per annum)
Lease Year 4 $38,700.48 per annum
$3,225.04 per month
($4.25 per sq. ft. of the
Gross Floor Area of the
Leased Premises per annum)
<PAGE> 3
3
Lease Years 5
and 6 $40,977.00 per annum
$3,414.75 per month
($4.50 per sq. ft. of the
Gross Floor Area of the
Leased Premises per annum)
(ii) Initial Improvements Rent:
Lease Years 1 to 6 $10,471.92 per annum
$872.66 per month
($1.15 per sq. ft. of the
Gross Floor Area of the
Leased Premises per annum)
(e) Gross floor Area of the Leased Premises:
9,106 square feet 2
(f) Deposit: 32
<TABLE>
<CAPTION>
First Month's Last Month's
------------- ------------
<S> <C> <C>
Improvements: Basic $2,655.92 $3,414.75
Improvements $ 872.66 $ 872.66
Additional $2,655.92 $2,655.92
GST $ 432.92 $ 486.03
----------- ---------
Total $6,617.42 $7,429.36
GRAND TOTAL: $14,046.78
============ ==========
</TABLE>
(g) Use of the Leased Premises: 7(a)
MANUFACTURER OF BAKED GOODS
(h) Name of Business to be carried on
in the Leased Premises: 7(c)
TASTY SELECTIONS INC.
(i) Address for Service of Notice on Tenant and Indemnifier 20
Suite 202
350 Creditstone Road
Vaughan, Ontario
(j) Address for Service of Notice on Landlord: 20
1249462 ONTARIO LIMITED
1 Royal Gate Boulevard
Woodbridge, Ontario
L4L 8Z7
Attention: President
(k) Special Provisions, if any: See Schedule "C"
<PAGE> 4
4
Schedules
---------
Plan of Leased Premises: Schedule "A"
Landlord's Work and Tenant's Work Schedule "B"
Special Provisions Schedule "C"
Initial Improvements - Amortization Schedule Schedule "D"
3. INSPECTION
The Tenant acknowledges having inspected the Leased Premises and
accepts same "as-is" on this date.
4. TERM
The term of the Lease ("Term") shall be the period described as Term
in Section 2(b), the first day of which (the "Commencement Date") shall be the
date described as the Commencement Date in Section 2(c)(i).
5. BASIC RENT AND ADDITIONAL RENT
(a) Commencing on the Commencement Date, the Tenant shall pay a fixed
minimum annual rent ("Basic Rent") in the amount described as Basic
Rent in Section 2(d) and shall also pay a fixed minimum annual rent,
as more particularly described in Section 5(b), ("Initial
Improvements Rent") in the amount described as Initial Improvements
Rent in Section 2(d), each to be paid in equal monthly instalments
in advance on the first day of each month throughout the Term. For
any broken month at the beginning or end of the Term, the Basic Rent
and the Initial Improvements Rent shall be pro-rated on a per diem
basis.
Upon the Landlord's architect determining within six (6) months of
the Commencement Date the Gross Floor Area of the Leased Premises,
all rent and other monies payable by the Tenant pursuant to this
Offer and the Lease shall be adjusted accordingly, which adjustment
will be retroactive if actual measurement does not occur until after
the Commencement Date.
(b) The cost of initial improvements to the Leased Premises made by the
Landlord to induce the Tenant to lease the Leased Premises, being
the sum of FORTY-SIX THOUSAND FIVE HUNDRED ($46,500.00) DOLLARS,
shall be included in rents paid by the Tenant as Initial
Improvements Rent. In the event that the Lease is terminated prior
to the expiration of the Term or if the Tenant is in default under
the Lease prior to the expiry of the Term, the Tenant shall at that
time reimburse the Landlord for the portion of the cost of the
initial improvements in the amount of the applicable payment set out
in the Initial Improvements - Amortization Schedule attached hereto
as Schedule "D".
(c) All other amounts payable by the Tenant to the Landlord pursuant
hereto or under the Lease or for any other reason whatsoever
("Additional Rent") shall be deemed to be rent and shall be payable
and collectible in the same manner as rent hereunder and under the
Lease. The Tenant shall pay all Basic Rent, Initial Improvements
Rent and Additional Rent to the Landlord without any deduction,
set-off or abatement whatsoever.
(d) The Tenant agrees o deliver to the Landlord upon execution of the
Lease and hereafter at the beginning of each lease year during the
Term a series of twelve (12) monthly post-dated cheques for the
ensuing lease year, in amounts conforming with the monthly Basic
Rent and Initial Improvements Rent payment and any Additional Rent
estimated by the Landlord in advance plus applicable GST.
<PAGE> 5
5
6. TENANT'S PAYMENTS AND OBLIGATIONS
The Lease shall be absolutely net and carefree to the Landlord save
as set out herein and, commencing on the Commencement Date and thereafter
throughout the Term, the Tenant shall be responsible for and shall pay for:
(a) all obligations and costs whatsoever in respect of the Leased
Premises and the Tenant's business therein including, without
limiting the generality of the foregoing:
(i) all costs and all obligations in respect of all utilities
supplied to or consumed in the Leased Premises, including
costs of consumption determined by separate meters installed
by the Landlord acting reasonably at the Tenant's expense and,
to the extent that the cost of same is not determined by
separate meters, then as allocated by the Landlord, acting
reasonably;
(ii) all costs and all obligations of and in respect of heating,
ventilating and air conditioning of the Leased Premises
subject to section 13 (d), to be the Tenant's proportionate
share (as hereinafter defined) thereof or; at the Landlord's
option, such other allocation as determined by the Landlord,
acting reasonably;
(iii) all business taxes and other taxes as assessed and billed in
respect of the Tenant's business and assets and all taxes
attributable to the operation of the business in the Leased
Premises; and
(iv) all taxes, rates, duties, fees or assessments (other than
income taxes, wealth taxes and large corporation taxes) levied
upon the gross or net rentals or other amounts received by the
Landlord from the Tenant, whether referred to as a business
transfer tax, goods and services tax, value-added tax,
national sales tax or by any other name, and any such costs,
charges and expenses suffered by the Landlord may be collected
in the same manner as rent with all the rights of distress and
otherwise or reserved to the Landlord, in respect of rent
arrears.
(b) (i) all realty taxes and all other assessments and duties levied,
rated, charged or assessed from time to time in respect of the
Leased Premises or if levied, rated, charged or assessed in
respect of the Building then the proportionate share (as
hereinafter defined) thereof and the proportionate share (as
hereinafter defined) of all realty taxes and all other
assessments and duties levied, rated, charged or assessed from
time to time in respect of the common areas and including the
Landlord's capital taxes and any commercial concentration
taxes, if applicable; and
(ii) the proportionate share (as hereinafter defined) of all costs
and expenses, without duplication, but subject to Section
13(d), of maintaining, repairing, operating, insuring and
managing the Building, including the costs of obtaining the
information required to apportion costs, and all common areas
including, but not limited to, insurance, utilities and repair
and replacement of all fixtures, equipment and facilities as
they may relate to or are attributed to by the Landlord to the
building and the common areas and excluding costs incurred in
connection with the correcting of defaults in or inadequacy of
the initial design or construction of the building;
unrecovered expenses resulting from the gross negligence of
the Landlord, its agents, servants or employees; costs for
which the Landlord is otherwise reimbursed by Tenant; and
capital expenditures and major maintenance and replacement of
essential building systems and costs of base building
upgrades, and a management fee of fifteen (15.0%) percent of
gross amounts received or receivable by the Landlord in
respect of the Project for all Additional Rents but excluding
such gross amounts as are received or receivable by the
Landlord in respect of the Project pursuant to Section
6(b)(i), all as defined as "Operating Costs" in the Lease.
(c) The Landlord estimates that the Additional Rent for the Premises for
calendar 1999 to be $3.50 per square foot, detailed as to:
<PAGE> 6
6
<TABLE>
<S> <C>
Taxes $2.35
Maintenance $1.03
Insurance and Other $0.12
-----
Total $3.50
===== =====
</TABLE>
For the purposes of this Lease, the Tenant's proportionate share
shall mean a fraction which has as its numerator the Gross floor Area of the
Leased Premises and as its denominator the total Gross Floor Area of the
rentable premises within the Building, grossed up for the purposes of sections
6(a)(ii) and 6(b) as if there were no vacancies, as amended from time to time as
more fully described in the Lease.
7. USE OF THE LEASED PREMISES
(a) The Tenant shall not use or permit the Leased Premises to be used
for any purpose other than that described as Use of the Leased
Premises in section 2(g).
(b) At all times throughout the Term, the Tenant shall continuously and
actively conduct its business in the whole of the Leased Premises in
a first class and reputable manner during normal business hours as
established by the Landlord in the municipality in which the Project
is located in compliance with the provisions of this Lease and the
requirements of all applicable laws and regulations and the Tenant
shall keep, operate and maintain the Leased Premises and the
building and every part thereof in a clean and sanitary condition
and in accordance with all laws, directions, rules and regulations
of any government authority having jurisdiction in respect of same.
(c) The Tenant covenants that the business to be conducted on the Leased
Premises shall be known by the name set out as Name of Business on
the Leased Premises in Section 1(h) hereof and by no other name
whatsoever without the Landlord's prior written consent which shall
not be unreasonably withheld.
(d) The Tenant shall not erect or permit any signs visible from the
common areas of the Building or from the exterior of the Leased
Premises without the Landlord's prior written consent. The Landlord
acknowledges that a building bulkhead sign as well as a sign at the
lot corner is requested by the Tenant and accepted by the Landlord
subject to Landlord's approval of the format of such sign.
(e) INTENTIONALLY DELETED
(f) Except to the extent that same are to the Landlord's responsibility
pursuant to the terms hereof, the Tenant covenants to maintain,
repair and make necessary replacements to the Leased Premises,
including all contents thereof and all services, facilities and
equipment located in or primarily serving the Leased Premises, all
in good order and first class condition in keeping with the
standards of a first-class building, subject to section 13 (d).
(g) If the Leased Premises shall become vacant or not be used for the
purpose aforesaid, and remain so for a period of thirty (30) days,
or if the Leased Premises shall be used for any purpose other than
that for which the same are hereby leased, this Lease shall, at the
option of the Landlord, forthwith on written notice to the Tenant,
cease and determine and become null and void, and thereupon the
instalments of rent accruing and due during the next ensuing three
(3) months shall immediately become due and payable to the Landlord.
(h) The Tenant shall not perform acts or carry on any practices which
may injure the complex and shall keep the interior of the Leased
Premises reasonably clean and free from rubbish and dirt and shall
store all trash and garbage within the Leased Premises and arrange
for the regular removal of such trash and garbage at such times and
during such hours as the Landlord may designate. The Tenant shall
not burn any trash or garbage in or about the Leased Premises or
anywhere else within the confines of the complex. The Tenant shall
not keep or display merchandise on or otherwise obstruct the common
facilities adjacent to the Leased Premises.
<PAGE> 7
7
(i) The Tenant hereby covenants to the Landlord that after the
Commencement Date that the Tenant, its employees, agents, other
representatives, customers or contractors shall not permit any
unlawful use, storage, manufacturing or disposal of materials or
substances deemed to be hazardous or dangerous as defined under
federal, provincial or municipal environmental, health or safety
laws, policies, guidelines or standards. In the event the nature of
the Tenant's business calls for the use of any such hazardous
materials or substances during the term of this Lease or any renewal
period thereof, the Tenant and its principals shall be held
responsible and liable for the clean up work, remedial actions or
expenditures (including the cost of any environmental site
assessment the Landlord may reasonably require) required to the
Leased Premises in the event the levels of concentration of the
hazardous materials or substances in the building or ground are
found to exceed established governmental decommissioning guidelines
in effect during the Term. The obligations of the Tenant as
described herein shall survive the expiration of this Lease.
(j) The Tenant shall not use, exercise or carry on or permit or suffer
to be used, exercised or carried on, in or upon the Leased Premises
or any part thereof, any noxious, noisome or offensive art, trade,
business, occupation or calling, or keep, sell, use or handle and
dispose of goods or things which are objectionable, or by which the
Leased Premises shall be injured, and shall not cause, permit or
suffer anything to be done or continued to be done in or upon the
Leased Premises or any part thereof which may be or become a
nuisance or annoyance, or which may void or render voidable any
insurance upon the building or part thereof. The Tenant shall be
responsible for the removal and disposal of all of its hazardous
waste, if any, from the Leased Premises, shall pay all costs
associated with such removal and disposal, and shall comply with all
governmental and regulatory body requirements relating to same. The
obligations of the Tenant as described herein shall survive the
expiration of this Lease.
8. INSURANCE
(a) The Tenant covenants with the Landlord that throughout the term of
this Lease, it shall take out and maintain at its sole cost and
expense, in the names of the Tenant and the Landlord as their
respective interests may appear: (i) insurance covering all property
of the Tenant located within the Building, including leasehold
improvements and the Tenant's inventory, stock-in-trade, trade
fixtures, furniture and moveable equipment and everything in general
which the Tenant is obliged to repair or replace by the terms of
this Lease on a replacement cost basis which insurance shall include
the Landlord as a named insured as the Landlord's interest may
appear, provided that any proceeds receivable in the event of loss
shall be payable to the Landlord (but the Landlord agrees to make
available such proceeds towards the repair or replacement of the
insured property if this Lease is not terminated pursuant to any
other provision hereof), in an amount of not less than the full
replacement cost, with coverage against at least the perils of fire
and standard extended coverage, including sprinkler leakages (where
applicable), earthquake and flood; (ii) broad form boiler and
machinery insurance on a blanket repair and replacement basis; (iii)
business interruption insurance to an extent sufficient to allow the
Tenant to meet its ongoing obligations to the Landlord and to
protect the Tenant against loss of revenues; (iv) public liability
and property damage insurance, including personal injury liability,
contractual liability, non-owned automobile liability, employees'
liability and owners' and contractors protective insurance coverage,
written on a comprehensive basis with inclusive limits of not less
than TWO MILLION ($2,000,000.00) DOLLARS; (v) tenant's legal
liability insurance for the actual cash value of the Leased
Premises; (vi) automobile liability insurance with ONE MILLION
($1,000,000.00) DOLLARS inclusive limits; (vii) plate glass
insurance; and (viii) any other form of insurance as the Landlord
reasonably requires.
(b) All insurance required to be obtained by the Tenant hereunder shall
be on terms and with insurers satisfactory to the Landlord acting
reasonably and the amounts referred to herein are subject to
increase as the Landlord may from time to time reasonably demand.
The Tenant shall promptly furnish to the Landlord certified copies
of such insurance policies or certificates of insurance or other
evidence satisfactory to the Landlord of such insurance or any
renewals thereof upon request by the Landlord. In the event of the
failure of the Tenant to so insure or to furnish the Landlord with
<PAGE> 8
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satisfactory evidence of such insurance or of the renewal thereof
the Landlord may from time to time effect such insurance on behalf
of the Tenant, and any premium paid by the Landlord shall be payable
forthwith by the Tenant upon demand as additional rent.
9. RIGHT TO USE COMMON FACILITIES
Subject to the reasonable rules and regulations in this Lease and to
such other and further reasonable rules and regulations as the Landlord may make
from time to time pertaining to the use of the common facilities, the Tenant
shall have for itself and its officers, agents and employees and for the use of
its customers the non-exclusive right to use, in common with all others entitled
thereto, the common facilities of the complex for their proper and intended
purposes during normal business hours.
10. UTILITIES
The Tenant shall pay all charges, costs and rates for all utilities
supplied to the Leased Premises, including heating, gas, electricity and water,
and for all meters, fittings, machines, apparatus and other things used in
connection with the supply and installation of such utilities, and for all work
and services performed by anyone in connection therewith, and shall be
responsible for paying any deposits required by any utility supplier; in the
event that any utility is not separately metered, the Tenant shall pay it's
share of such cost on such basis as the Landlord may determine.
11. TENANT'S ALTERATIONS
The Tenant shall not make any interior alterations which affect the
structure of the Leased Premises or the building, including alterations for the
purpose of installing any interior or exterior lighting or plumbing fixtures, or
exterior decorations or painting, without the previous consent of the Landlord,
such consent not to be unreasonably withheld. The Landlord may require that
prior to its issuing its consent that the Tenant submit complete plans for any
proposed alterations. All fixtures, improvements, installations and alterations
heretofore or hereafter made, erected or installed by the Tenant or by the
Landlord on behalf of the Tenant to the Leased Premises shall, at the
termination of this Lease, be and become the Landlord's property without
compensation therefor to the Tenant, and shall remain upon and be surrendered
with the Leased Premises as part thereof without disturbance, manipulation or
injury at the termination of the term. Notwithstanding anything contained in
this paragraph:
(a) The Tenant may install its usual trade fixtures in the usual manner,
including freezers, provided such installation does not damage the
structure of the Leased Premises or the building.
(b) Provided that the Tenant has paid the rent hereby reserved and
performed the covenants herein contained and on its part to be
performed, the Tenant shall have the right, at the expiration of
this Lease, to remove what is commonly regarded as strictly trade
fixtures, but the Tenant shall make good any damage or injury caused
to the Leased Premises that shall have resulted from such
installation and removal.
(c) The Tenant, subject to Landlord's approval which shall not be
unreasonably withheld or delayed, shall be entitled to erect signs
in or upon the Leased Premises as it may deem appropriate but
provided that the locations, size and quantity or quality of same
comply with all local municipal bylaws together with any other
authority having jurisdiction over the Leased Premises, such signs
shall remain the property of the Tenant and may be removed at its
option, provided all damage caused by such erection or removal, if
any, shall be repaired properly at the Tenant's expense.
(d) The Landlord shall have the right at the expiration of the Lease to
require the Tenant to remove all fixtures, improvements,
installations and alterations heretofore or hereafter made, erected
or installed by the Tenant or by the Landlord on behalf of the
Tenant to the Leased Premises all at the Tenant's cost and the
Tenant shall make good any damage or injury caused to the Leased
Premises that shall have resulted from such installation and
removal.
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12. TENANT'S COVENANTS AND AGREEMENTS
The Tenant covenants and agrees with the Landlord as follows:
(a) All loading and unloading of merchandise, supplies, materials,
garbage, refuse and other chattels shall be made only through or by
means of such doorways as the Landlord shall reasonably designate in
writing from time to time.
(b) The Tenant shall not register this Lease without the consent of the
Landlord. However, upon the request of either the Landlord or the
Tenant, the other shall join the execution of a memorandum or
so-called short form of this Lease for the purposes of registration.
The form of the document shall be subject to the approval of the
Landlord's solicitors and shall be registered at the Tenant's cost.
(c) The Landlord shall not be liable or responsible in any way for any
injury of any nature whatsoever that may be suffered or sustained by
the Tenant or any employee, agent or customer of the Tenant or any
other person who may be upon the Leased Premises, or for any loss of
or damage or injury to any property belonging to the Tenant or its
employees or to any other person while such property is on the
Leased Premises and in particular, but without limiting the
generality of the foregoing, the Landlord shall not be liable for
any damage or damages of any nature whatsoever to persons or
property caused by the failure by reason of breakdown or other
cause, to supply adequate drainage, snow or ice removal, or by the
interruption of any public utility or service or by steam, water,
rain, snow or other substances leaking into, issuing or flowing into
any part of the Leased Premises or from the water, stream, sprinkler
or drainage pipes or plumbing works of the same or from any other
place or quarter or for any damage caused by anything done or
omitted by any tenant, provided that the breakdown or other cause is
remedied in a timely fashion.
The Tenant shall not be entitled to any abatement of rent in respect
of any such condition, failure or interruption of service, and the
same shall not constitute an eviction;
(d) To indemnify and save harmless the Landlord and its directors,
officers, employees, agents, subsidiaries and other affiliates from
all fines, suits, claims, demand and actions of any kind or nature
to which the Landlord shall or may become liable for or suffer:
(i) in connection with any matter referred to in clause (c) of
this paragraph 12 unless attributable to their gross
negligence; or
(ii) by reason of any breach, violation or non-performance by the
Tenant of any covenant, representation, warranty, term or
provision of this Lease; or
(iii) by reason of any injury occasioned to or suffered by any
person or persons or any property resulting from any wrongful
act, neglect or default on the part of the Tenant or any
employee, agent or customer of the Tenant.
(e) In the event the Tenant shall fail to pay any taxes, rates or
charges payable by it under this Lease and which shall constitute a
lien or charge upon the Leased Premises or upon the complex, the
Landlord, after the expiration often (10) days' notice to the
Tenant, within which such default shall not have been cured, may pay
all or any of the same and all of such payments so made shall
constitute rent payable forthwith by the Tenant. The Tenant hereby
waives its right to appeal any such taxes, rates or charges unless
the Landlord otherwise agrees, acting reasonably.
(f) If the Tenant does or permits to be done or omitted upon the Leased
Premises anything which shall cause an increase in the rate of any
insurance upon the building or any part thereof, the Landlord may,
at its option, compel the Tenant to restore the Leased Premises to
the condition they were in prior to such act or permit the Tenant to
continue to do such act, in which case the Tenant shall pay the
Landlord the amount by which the insurance premiums in respect of
the building or any part thereof shall have been so increased. It is
agreed that if any insurance policy upon the building or
<PAGE> 10
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any part thereof shall be canceled or the coverage thereunder
reduced in any way by the insurer, or if such action is threatened,
by reason of the use and occupation of the Leased Premises or any
part thereof by the Tenant or by any assignee, sub-tenant or
licensee of the Tenant, or by anyone permitted by the Tenant to be
upon the Leased Premises, the Tenant shall forthwith remedy the
condition giving rise to such cancellation or reduction of coverage
or threatened cancellation or reduction of coverage.
(g) If the Tenant wishes to install any electrical or other equipment
which may overload the electrical or other service facilities, the
Tenant shall at its own expense make whatever changes are necessary
to comply with the reasonable and lawful requirements of the
insurance underwriters and governmental authorities having
jurisdiction, but no changes shall be made by the Tenant until the
Tenant first submits to the Landlord plans and specifications for
the proposed work and obtains the Landlord's written approval to
make the same, such approval not to be unreasonably withheld.
(h) The Tenant will observe such reasonable rules and regulations as the
Landlord may make pertaining to the operation, reputation, safety,
care or cleanliness of the complex and the Leased Premises, the
operation and maintenance of the building and equipment, the use of
common facilities, display of signs visible outside any premises and
other matters affecting the operation of the complex and the
establishing and maintaining of a suitable image to customers. The
Landlord shall have the right from time to time to change such rules
and regulations and shall not be responsible to the Tenant for the
non-observance or violation of any such rules and regulations by any
other tenant or any person.
(i) The Tenant shall pay to the Landlord in the manner specified herein,
without any deduction, set-off or abatement, all rent hereby
reserved and all other amounts which are collectible by the Landlord
as rent, and in the event the Tenant shall fail to pay any such
amount when due and payable hereunder such amount shall bear
interest at the rate of 1.5% per month (18% per annum) until paid.
The Tenant shall observe and perform all terms and provisions of
this Lease on its part to be observed and performed and shall not do
or suffer to be done anything contrary to any term or provision
hereof.
(j) The Tenant shall, at the Tenant's sole cost and expense, comply with
all laws, orders, notices, rules and regulations of all municipal,
provincial, federal and other applicable governmental authorities,
now in force or which hereafter may be in force, pertaining to the
Leased Premises and the business carried on within, and will provide
the Landlord with notice of any work order, deficiency notice,
compliance order, spill or discharge of a contaminant pertaining or
relating to the Leased Premises and the business carried on within
and will indemnify and save harmless the Landlord from each and
every demand, action, cause of action and expense, including
solicitors' fees, caused by failure so to do. Landlord agrees, at
its cost, to assist Tenant in such manner as is reasonable to
satisfy any work orders or deficiency notices which would be
required to be satisfied in order for any tenant to obtain its
initial occupancy permit for the Leased Premises.
13. LANDLORD'S COVENANTS AND AGREEMENTS
The Landlord covenants and agrees with the Tenant as follows:
(a) That if the Tenant pays the rent hereby reserved and performs the
covenants herein on its part contained, it shall and may peaceably
possess and enjoy the Leased Premises for the term hereby granted
without any interruption or disturbance from the Landlord or any
other person or persons lawfully claiming by, from or under it,
provided that the Landlord and its agent shall have the right to
enter upon the Leased Premises as reasonable times to show such
premises to prospective purchasers, encumbrancers, tenants or
assignees, the Landlord shall have the right within the three (3)
months prior to the termination of the Lease, to place upon the
Leased Premises (but not at the entrance of the Leased Premises) a
notice of reasonable dimensions and reasonably placed so as not to
interfere with the business of the Tenant, stating that the Leased
Premises are for sale or to let, and the Tenant agrees that it will
not remove such notice or permit the same to be removed.
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(b) To enforce whatever guarantee and warranties, if any, given to the
Landlord in respect of the roof and outside walls, foundations and
steel assembly of the building.
(c) To repair and/or replace the paved areas provided the necessity for
same does not arise due to the unreasonable use thereof by the
Tenant, its agents employees or invitees, but the cost of same shall
be added to the Landlord's cost as provided for herein, and shall be
recoverable as additional rent.
(d) That the Tenant is not responsible for structural maintenance or
repairs of the Leased Premises, unless such repair or replacement is
caused by the negligence of the Tenant, including the heating, air
conditioning, electrical wiring, roofing and plumbing.
14. DAMAGE TO LEASED PREMISES
(a) If and whenever the Leased Premises shall be destroyed, demolished
or damaged by fire or other cause to such an extent that the same
shall not be capable with due diligence of being repaired, restored
or rebuilt within a period of one hundred and twenty (120) days
after the happening of such destruction, demolition or damage, then
either the Landlord or the Tenant may terminate this Lease upon
thirty (30) days' written notice to the other given within
forty-five (45) days of the date of such destruction, demolition or
damage, and in such event the Tenant shall thereupon immediately
surrender the Leased Premises and this Lease to the Landlord and
rent shall be apportioned to the date of such damage, demolition or
destruction.
(b) If the Leased Premises are destroyed, demolished or damages by fire
or other cause and notice to terminate this Lease shall not have
been given as provided under subparagraph (a) of this paragraph 14,
the Landlord shall repair the Leased Premises, excluding the
Tenant's fixtures, with all reasonable speed, and (i) if the
destruction, demolition or damage is such as to render the Leased
Premises wholly unfit for occupancy, all rent under this Lease shall
cease from the time of the occurrence thereof until the substantial
completion of repairs to the Leased Premises by the Landlord; (ii)
if the destruction, demolition or damage is such that the Leased
Premises can be partially used by the Tenant all rent hereunder
shall be payable in accordance with the terms hereof, provided that
rent payable during the whole or any part of the period during which
the Leased Premises may be only partially used by the Tenant, shall
abate according to the nature and extent of the destruction,
demolition or damage from the time of the occurrence of such
destruction, demolition or damage until the substantial completion
of repairs to the Leased Premises by the Landlord; and (iii) upon
the substantial completion of repairs to the Leased Premises by the
Landlord all rent under this Lease shall recommence within fifteen
(15) days, or upon the opening of the Leased Premises for business,
whichever is the earlier. For greater certainty it is acknowledged
and agreed that the Landlord's work herein shall be funded only by
insurance proceeds, and the Landlord's work shall accordingly be
delayed until its claims under such insurance have been accepted and
it has received the insurer's authorization of the payment of such
proceeds to it.
(c) Any question as to the extent of damage to or destruction of the
Leased Premises or the building shall be determined by the
Landlord's architect whose decision shall be available to Tenant
within fifteen (15) days of the date of the damage and which shall
be final and binding and no appeal shall lie therefrom.
15. RE-ENTRY BY LANDLORD
(a) Proviso for re-entry by the Landlord on non-payment of rent or
non-performance of covenants, subject to the provisions of this
Lease.
(b) If the Tenant shall fail to pay any instalment of rent or other sums
payable as rent under this Lease when due and shall allow such
default to continue for seven (7) days after notice of such default
or if the Tenant shall fail to perform any of the other covenants,
conditions or agreements in this Lease
<PAGE> 12
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on the Tenant's part to be observed, kept or performed, and shall
allow any such default to continue for seven (7) days (or such
longer period as is reasonably necessary to remedy the default,
provided that the correction of the default is commenced within such
seven (7) day period and diligently proceeded with) following the
giving by the Landlord to the Tenant of written notice of such
default or if the Tenant shall without the Landlord's prior written
consent fail to move into or take possession of the Leased Premises
and open for business as provided in this Lease, then the term of
this Lease may at the option of the Landlord and without notice to
the Tenant be terminated and the term and estate hereby vested in
the Tenant any and all other rights of the Tenant hereunder shall
thereupon immediately cease and expire as fully and with like effect
as if the entire term of the Lease had elapsed.
(c) If the Tenant shall default in the performance of any covenant
(other than any covenant to pay rent) on its part to be performed
under this Lease, the Landlord may, if such default shall continue
for seven (7) days following the giving by the Landlord to the
Tenant of written notice of such default perform the same for the
account of the Tenant, and may enter upon the Leased Premises for
that purpose and shall not be liable to the Tenant for any loss or
damage to the Tenant's merchandise or business caused by acts of the
Landlord in so remedying the default or neglect of the Tenant. If
the Landlord at any time is compelled or elects to pay any sum of
money or do any act which would require the payment of any sum of
money by reason of the failure of the Tenant to comply with any
provisions of this Lease or if the Landlord is compelled or elects
to incur any expense, including legal fees, by reason of any default
of the Tenant under this Lease, the sum or sums, including legal
fees so paid by the Landlord with all interest, costs and damages
being deemed to be additional rent hereunder and shall be paid by
the Tenant to the Landlord forthwith upon demand and upon
presentation of proof of payment.
(d) If the Landlord shall re-enter or if this Lease shall be terminated
as aforesaid:
(i) rent shall immediately become due and be paid up to the time
of such re-entry or termination, together with reasonable
expenses of the Landlord as set forth in clause (iv) of this
subparagraph (d);
(ii) the Landlord may re-let the Leased Premises or any part
thereof, either in the name of the Tenant or otherwise, for a
term or terms which may at the Landlord's option be less than
or exceed the period which would otherwise have constituted
the balance of the term of this Lease and may grant reasonable
concessions in connection therewith;
(iii) the Landlord, at its option and in addition to any other
remedy it may have, may require the Tenant, or the legal
representative of the Tenant, to pay the Landlord as
liquidated damages, monthly on the first day of each month
following such re-entry or termination until the expiration of
the period which would otherwise have constituted the balance
of the terms of this Lease, any deficiency between: (a) the
average of the amounts paid or payable by the Tenant as rent
and additional rent for each month during the period of twelve
(12) months immediately preceding such re-entry or termination
or for each month during the expired term hereof if less than
twelve (12) months; and (b) the amount, if any, of the rent
collected on account of the Lease or Leases of the Leased
Premises, for each month of the period which would otherwise
have constituted the balance of the term of this Lease; and
(iv) there shall be paid forthwith by the Tenant to the Landlord
such reasonable expenses as the Landlord may have incurred in
connection with re-letting, including legal costs, solicitors'
fees and brokerage, and the expenses of keeping the Leased
Premises in good order or of preparing the same for
re-letting.
(e) In the event of a breach or threatened breach by the Tenant of any
of the covenants or provisions of this Lease, the Landlord shall
have the right to invoke any remedy allowed at law or in equity as
if re-entry and other remedies were not provided for in this Lease.
Mention in this Lease of any particular remedy shall not preclude
the Landlord from any other remedy available to it at law or equity.
All rights and remedies granted to the Landlord by the terms of this
Lease may be enforced successively, concurrently and/or cumulatively
by it.
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16. RIGHT TO DISTRESS
The Tenant hereby covenants and agrees with the Landlord that in
consideration of these presents, and of the leasing and letting by the Landlord
to the Tenant of the Leased Premises for the term hereby created (and it is upon
that express understanding that these presents are entered into) that
notwithstanding anything contained herein or contained in the Commercial
Tenancies Act (Ontario) or any other statute which may hereafter be passed to
take the place of the said Act, or to amend the same, none of the goods or
chattels of the Tenant at any time during the continuance of the term hereby
created on the Leased Premises shall be exempt from levy by distress for rent in
arrears by the Tenant as provided for by any section or sections of the said Act
above-named, or any amendment or amendments thereto, and that upon any claim
being made for such exemption by the Tenant or on distress being made by the
Landlord this covenant and agreement may be pleaded as an estoppel against the
Tenant in any action brought to test the right to the levying upon any such
goods as are named as exempted in said section or sections or amendment or
amendments thereto, the Tenant waiving, as it hereby does, all and every benefit
that could or might have accrued to it under and by virtue of the said section
or sections of the said Act or any amendment or amendments thereto for the above
covenant.
17. BANKRUPTCY OR INSOLVENCY OF TENANT
(a) If the Tenant shall be adjudicated a bankrupt or adjudged to be
insolvent, or a receiver or trustee of the Tenant's property and
affairs shall be appointed or if the Tenant shall make an assignment
for the benefit of creditors in bankruptcy or applies for the
appointment of a receiver or if any execution or attachment shall be
issued against the Tenant or any of the Tenant's property whereupon
the Leased Premises or any portion thereof shall be taken or
occupied or attempted to be taken or occupied by someone other than
the Tenant and such execution, petition or attachment shall not be
set aside, vacated, discharged, disputed by legal proceedings or
bonded within seven (7) days after the issuance of same or if the
Tenant attempts to make a bulk sale or move the bulk of its fixtures
out of the Leased Premises then, in any of such events, the then
current month's rent and rent for the next three (3) ensuing months
shall immediately become due and be paid and this Lease may at the
option of the Landlord be cancelled and terminated, whether or not
the term has commenced or whether or not any rent has been prepaid.
For the purpose of this Lease accelerated rent shall include all
amounts payable by the Tenant as rent and additional rent and shall
be calculated on the basis of the average of the amounts thereof so
paid by or payable by the Tenant for each month during the period of
twelve (12) months immediately preceding such termination or during
the expired term of this Lease if less than twelve (12) months. If
this Lease shall be so cancelled and terminated, neither the Tenant
nor any person claiming through or under the Tenant by virtue of any
statute or order of any Court shall be entitled to possession or to
remain in possession of the Leased Premises but shall forthwith quit
and surrender the Leased Premises, and the Landlord, in addition to
other rights and remedies the Landlord has by virtue of any other
provisions of this Lease or of any statute or rule of law, may
retain on account of liquidated damages any rent, security, deposit
or moneys received by it from the Tenant or other on behalf of the
Tenant.
(b) In the event of termination of this Lease under subparagraph (a) of
this paragraph 17, the Landlord shall be entitled to recover
forthwith from the Tenant as liquidated damages an amount equal to
the amount by which:
(i) an amount equal to the product obtained by multiplying the
average of the amounts paid or payable by the Tenant as rent
and additional rent for each month during the period of twelve
(12) months immediately preceding such termination or during
the expired term of this Lease, if less than twelve (12)
months, multiplied by the number of months then constituting
the unexpired portion of the term in respect of which rent
shall not have been paid, exceeds
(ii) the amount of the rental value of the Leased Premises at the
time of termination for the term equal to the unexpired
portion of the term both of such amounts discounted at the
rate of 5% per annum to present worth.
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(c) In determining the rental value of the Leased Premises for the
purpose of subparagraph (b) of this paragraph 17, the rental
realized by any re-letting, if such re-letting be accomplished by
the Landlord within a reasonable time after termination of this
Lease, shall be deemed prima facia to be the rental value.
18. TRANSFER OF LEASE
(a) The Tenant, without the previous written consent of the Landlord,
which consent may not be unreasonably withheld, shall not assign
this Lease or sublet or part with possession of the Leased Premises
or any part thereof The Tenant hereby waives its right to the
benefit of any present or future Act of the Legislature of Ontario
which would allow the Tenant to assign this Lease or sublet the
Leased Premises without the Landlord's consent. The Tenant shall not
grant any concession or enter into any licence or franchise to use
the Leased Premises or any part thereof.
(b) Notwithstanding anything contained herein or contained in the
Commercial Tenancies Act (Ontario) or any other statute which may
hereafter be passed to take the place of the said Act, or to amend
the same, the Landlord shall not be deemed to be unreasonable in
withholding its consent in the event that the proposed material or
substantial change in the use of the Leased Premises to now which is
more injurious, as decided upon by the Landlord acting reasonably,
than that of the Tenant, in which event it may arbitrarily withhold
such consent, and in any event may arbitrarily withhold such consent
unless and until the proposed assignee or sublessee shall have
agreed in writing with the Landlord to assume and perform each of
the covenants and obligations of the Tenant in this Lease insofar as
the same pertain to the portion of the Leased Premises being
assigned or subletted.
(c) Notwithstanding any consent to assignment or sublease, the Tenant
shall remain fully liable under this Lease and shall not be released
from performing any of its covenants, obligations or agreements in
this Lease and shall continue to be bound by this Lease.
(d) If there is a permitted transfer of this Lease, either by assignment
or sublet, the Landlord may collect the rents from the assignee,
sub-tenant or occupant, all of the foregoing being hereinafter
collectively referred to as the "Transferee", and to apply the net
amount collected to the rent required to be paid pursuant to this
Lease, and no acceptance by the Landlord of any payment by the
Transferee shall be deemed a waiver of this covenant, or the
acceptance of the Transferee as tenant, or a release of the Tenant
from the further performance by the Tenant of the covenants,
obligations and agreements on the part of the Tenant herein
contained. Any document or consent evidencing such transfer of this
Lease, if permitted or consented to by the Landlord, shall be
subject to the Landlord's solicitors, acting reasonably, and all
legal costs with respect thereto shall be paid by the Tenant to the
Landlord forthwith upon demand as additional rent.
(e) If the Tenant intends to effect a transfer as aforesaid, either by
assignment or sublet, then and so often as such event shall occur,
the Tenant shall give prior written notice to the Landlord of such
intent, specifying therein the proposed Transferee providing such
information with respect thereto, including without limitation,
information concerning the principals thereof, and as to any credit,
financial or business information relating to the proposed
Transferee as the Landlord or a mortgagee requires, and the Landlord
shall, within thirty (30) days after receipt of all information
which is required by it, notify the Tenant in writing either that it
consents or does not consent in accordance with the provisions and
qualifications of this paragraph 18.
(f) If the party originally entering into this Lease as Tenant, or any
party who subsequently becomes the Tenant by way of assignment or
sublease or otherwise as provided for in this Lease, is a
corporation then:
(i) the Tenant and the Indemnifier shall, upon request, provide
the Landlord with such information as to the Tenant's or the
Indemnifier's financial standing and corporate organization as
the Landlord reasonably requires, including the most recent
financial statements of the Tenant and the Indemnifier.
<PAGE> 15
15
(ii) The Tenant and the Indemnifier shall each provide to the
Landlord financial statements prepared by an independent
chartered accountant within two (2) weeks of request for same
by the Landlord.
19. LANDLORD'S ADDITIONAL RIGHTS TO TERMINATE AND RE-LET
(a) In the event of the sale by the Landlord of the complex and to the
extent that such purchaser shall have assumed the covenants and
obligations of the Landlord hereunder, by written agreement made in
favour of the Tenant, the Landlord shall, without further written
agreement, be freed and relieved of liability upon such covenants
and obligations. The Tenant shall from time to time at the request
of the Landlord certify or acknowledge to any mortgagee, purchaser,
lessee or assignee, as to the status and validity of this Lease and
the state of the Landlord and Tenant's account hereunder.
(b) If the Leased Premises are expropriated or condemned by any
competent authority and upon payment by the Landlord to the Tenant
of a pro rata share of the proceeds that Landlord has or will
receive in respect of such expropriation or condemnation which are
attributable to the Tenant's leasehold improvements:
(i) the Landlord shall have the right to terminate this Lease by
giving ninety (90) clear days' notice in writing to the
Tenant; or
(ii) the Landlord may require the Tenant to vacate the Leased
Premises within thirty (30) days from payment by the Landlord
to the Tenant of a bonus equal to three months' rent, but
payment of the said bonus shall be accompanied or preceded by
written notice from the Landlord to the Tenant advising of the
Landlord's intent to exercise this option.
(d) The Tenant agrees to permit the Landlord during the last three
months of the term of this Lease to display "For Rent" or "For Sale"
signs or both at the Leased Premises (but not at the entrance of the
Leased Premises) and to show the Leased Premises to prospective new
tenants or purchasers and to permit anyone having written authority
of the Landlord to view the Leased Premises at reasonable hours.
20. NOTICES
Any written notice provided for in this Lease shall be effectually
given to the Landlord by registered mail addressed to or by delivery to the
Landlord at the following address:
1249462 ONTARIO LIMITED
1 Royal Gate Boulevard
Woodbridge, Ontario
L4L 8Z7
Attention: President
and to the Tenant and/or the Indemnifier by registered mail addressed to or by
delivery to the Tenant and/or Indemnifier at the Leased Premises and every such
notice shall be deemed to have been given upon the day it was so mailed or
delivered. Provided any notice as aforesaid may be transmitted by facsimile
transmission provided the original thereof is as well sent by ordinary mail,
postage prepaid, and in such event shall be deemed to have been received on that
date of transmission.
21. SUBORDINATION
Subject to the terms of Section 5 of Schedule "C" attached hereto,
this Lease and all rights of the Tenant hereunder are subject and subordinate to
all mortgages, or deeds of trust or liens which may now or at any
<PAGE> 16
16
time hereafter effect the Leased Premises in whole or in part and whether or not
any such mortgages or deeds of trust or liens shall affect only the Leased
Premises or the complex then this Lease and the rights of the Tenant hereunder
will be subject and subordinate to all advances made or to be made under the
security of such mortgages, deeds of trust or liens. The Tenant covenants and
agrees at any time upon notice for the Landlord to attorn to and become a tenant
of any mortgagee or trustee under any such mortgage or deed of trust upon the
same terms and conditions as are in this Lease. In confirmation of such
subordination and agreement to attorn, the Tenant shall execute promptly upon
request by the Landlord any certificates, instruments of postponement or
attornment or other instruments which may from time to time be requested to give
effect thereto.
22. CONTINUATION OF LEASE
In the event that the Tenant remains in possession of the Leased
Premises after the expiration of the term without objection by the Landlord and
without written agreement otherwise providing, the Tenant shall be deemed to be
a tenant from month to month, and subject otherwise to the provisions of this
Lease insofar as the same are applicable, except that the basic rent will be
automatically increased by twenty (20%) percent. PROVIDED that if without the
consent or approval of the Landlord or the acceptance of rent by the Landlord,
the Tenant shall continue to occupy the Leased Premises, the Landlord may cause
it to vacate without notice and with no recourse to legal proceedings and may
forcibly eject the Tenant and its belongings and in exercising the foregoing
right to the landlord shall not be liable to the Tenant for damages or injuries
to persons howsoever caused, and the Tenant covenants and agrees with the
Landlord to indemnify and save the Landlord harmless from all claims and demands
of every nature and kind arising from or connected with such ejection.
23. NON-WAIVER
The waiver or acquiescence of the Landlord in default by the Tenant
under any paragraph, subparagraph, clause or subclause of this Lease shall not
be deemed to be a waiver of such paragraph, subparagraph, clause or subclause or
any subsequent or other default hereunder.
24. WORK
(a) All work performed by the Tenant and the Landlord upon the Leased
Premises shall be done in a good and workmanlike manner and with
first class materials, shall accord with all applicable laws,
orders, regulations and requirements of all government and other
authorities having jurisdiction, shall be done in compliance with
such reasonable rules and regulations as the Landlord or its agents
or contractors may make, shall be done in such manner as not to
interfere reasonably with any work being done by the Landlord upon
the Leased Premises or in other portions of the complex, shall be
subject to the reasonable supervision of the Landlord or its agents
or contractors.
(b) The Tenant shall pay promptly all sums due for materials and work
supplied or done in connection with its work upon the Leased
Premises so as to minimize the possibility of mechanics' liens or
other similar liens being registered or claimed against any of the
land of the Landlord with respect thereto. If at any time a lien in
respect of materials, work or services supplied to or for the Tenant
or its contractors in respect of the Leased Premises shall be
registered against any of the lands of the Landlord, or notice
thereof shall be given to the Landlord, or to a mortgagee or
purchaser of any of the lands of the Landlord, or an action shall be
commenced in respect of any such lien, or a certificate of action is
registered, the Tenant shall forthwith have such registration
vacated and such action discontinued. Unless such registration is
vacated and such notice withdrawn or such action discontinued within
fourteen (14) days of such registration, notice or commencement of
action, as the case may be, the Landlord may:
(i) terminate this Lease by written notice to the Tenant; or
(ii) pay, in the name of the Tenant, the amount of the lien, and
costs into court, whereupon the Tenant shall forthwith pay to
the Landlord the amount so paid by the Landlord plus all costs
incurred by the Landlord in connection therewith.
<PAGE> 17
17
(c) The Tenant shall furnish to the Landlord all certificates, approvals
and evidences of payment with respect to work done and installations
made upon the Leased Premises that may be required by any relevant
authority or may be reasonably required by the Landlord.
(d) In the event of any dispute between the Landlord and the Tenant as
to whether the provisions of subparagraphs (a), (b) and (c) of this
paragraph 24 have been met, the certificate of the Landlord's
architect shall be conclusive.
(e) If an excavation shall be made upon the lands adjacent to the Leased
Premises or the building, or shall be authorized to be made, the
Tenant shall afford to the person making or authorized to make such
excavation, licence to enter upon the Leased Premises for the
purposes of doing such work as the Landlord shall deem necessary to
preserve any wall of the Leased Premises or the building from injury
or damage and to support the same by proper foundations, without any
claim for damages or indemnification against the Landlord or
diminution or abatement of rent.
25. RIGHTS OF ENTRY
(a) The Landlord and any person authorized by the Landlord shall have
the right to use, install, maintain and/or repair pipes, wires,
ducts or other installations in, under, over or through the Leased
Premises for or in connection with the supply of any services to the
Leased Premises, the building or any other premises or building in
the complex. Such services shall include, without limiting the
generality of the foregoing, gas, electricity, water, sanitation,
heat, ventilation and air-conditioning.
(b) When necessary by reason of accident or other cause or in order to
make any repairs, alterations, improvements or additions in or
relating to the Leased Premises or the building or to other portions
of the complex, the Landlord may cause such reasonable and temporary
obstruction of common facilities as may be necessary and may
interrupt or suspend the supply to the Leased Premises and the
building of electricity, water and other services where necessary
until such repairs, alterations, improvements or additions shall
have been completed. There shall be no abatement in rent because of
any such obstruction, interruption or suspension provided that such
repairs, alterations, improvements or additions are made as
expeditiously as is reasonably possible.
(c) The Landlord or its agents shall have the right to enter upon the
Leased Premises at all reasonable times to view the state of repair,
condition and use thereof and to make such decorations, repairs,
alterations, improvements or additions as it may deem advisable and
the Landlord or its agents shall be allowed to take all material
into and upon the Leased Premises that may be required therefor
without the same constituting an eviction of the Tenant in whole or
in part. The rent shall not abate while such decorations, repairs,
alterations, improvements or additions are being made by reason of
loss or interruption of the business of the Tenant because of the
prosecution of any such work, provided that the same are made as
expeditiously as is reasonably possible.
(d) The Landlord shall not be liable to the Tenant for any interference
or inconvenience caused by additional construction permitted under
this Lease, provided such additional construction is carried out as
expeditiously as is reasonably possible.
26. LANDLORD'S AND TENANT'S WORK
The Tenant's Work will be performed at the expense of the Tenant by
contractors, subcontractors and workmen engaged by the Tenant. The Landlord
acting reasonably shall have the right to approve the Tenant's Work and workmen
prior to the commencement of any work in the Leased Premises. Any equipment
supplied or work performed by the Landlord in addition to that specified in
Schedule "B" specifically for the Tenant and any excess or additional cost in
the Landlord's Work occasioned by the Tenant's requirements or revision to such
requirements will be paid by the Tenant to the Landlord upon completion of the
work and presentation of the Landlord's invoice therefore.
<PAGE> 18
18
27. RENEWAL
N/A
28. SUCCESSORS AND ASSIGNS
It is hereby expressly agreed that these presents and all rights,
advantages, privileges, powers and things hereby secured to the parties hereto
shall be fully secured to, binding upon and exercisable by the respective
successors and assigns, and all parties claiming by, through or under them or
any of them and that all covenants, liabilities and obligations entered into by
or imposed hereunder upon the parties hereto shall be equally binding upon the
respective successors and assigns and wherever in these presents reference is
made to "person" or "persons" such expression shall be construed to include
individuals, firms, syndicates, companies, corporations and trustees and where
the context may require, the singular shall include the plural and the masculine
shall include the feminine and neuter. If any paragraph, subparagraph, clause or
subclause in this Lease shall be judicially held invalid or unenforceable the
remainder of this Lease shall be interpreted as if such paragraph, subparagraph,
clause or subclause had not been included.
29. INDEMNIFIER
In consideration of the Landlord's accepting this offer, the
Indemnifier agrees:
(a) To guarantee the obligations of the Tenant pursuant hereto.
(b) To indemnify the Landlord against any losses, damages and costs
incurred by the Landlord as a result of any default by the Tenant
pursuant hereto.
(c) If the Tenant fails to do so as and when required, to perform all
obligations of the Tenant pursuant to the terms of this Lease.
(d) In the event of the termination of this Lease to be executed
pursuant hereto as a result of the default of the Tenant or
following bankruptcy of the Tenant, at the option of the Landlord to
enter into a new agreement to Lease and Lease for what would have
been the balance of the Term but for such termination on the same
terms as would have applied to the balance of the Term but for such
termination.
(e) To execute, withing fifteen (15) days after request by the Landlord,
the Landlord's form of indemnity agreement containing, inter alia,
all of the foregoing provisions, it being agreed that until
execution thereof, in addition to the Landlord's other rights, the
Landlord shall have such rights against the Indemnifier as if such
indemnity agreement had been executed and delivered to the Landlord.
<PAGE> 19
19
30. DUE AUTHORIZATION
The Landlord and the Tenant covenant that each of them has all
requisite power and possesses all licences, franchises, permits, consents and
other rights and authorizations necessary to enable each of them to enter into
this Lease contemplated hereby. The Tenant covenants, represents and warrants
that it is not a party to any agreement which would restrict or covenant which
would prevent the Tenant from opening the Leased Premises for business and
operating same throughout the term for the purposes set out herein.
31. SEVERABILITY
If any term, covenant or condition of this Lease or the application
thereof to any person or circumstance is to any extent held or rendered invalid,
unenforceable or illegal, the remainder of this Lease or the application of such
term, covenant or condition to persons or circumstances other than those with
respect to which it is held invalid, unenforceable or illegal, is not affected
thereby and continues to be applicable and enforceable to the fullest extent
permitted by law.
32. POST-DATED CHEQUES AND DEPOSIT
Provided further that upon the execution of this Lease, the Tenant
will deliver to the Landlord a series of twelve (12) post-dated cheques payable
to the Landlord or according to the Landlord's direction, covering the monthly
instalments of rent falling due in the first year of the term created hereunder
and thereafter on or before each anniversary of the commencement date of this
Lease, the Tenant will forward to the Landlord, or its nominee, a further series
of twelve (12) post-dated cheques in respect of rent falling due in the next
ensuing year, payable to the Landlord or according to the Landlord's direction.
The Tenant hereby deposits with the Landlord the amount set out as "Deposit" in
Section 2(f), which shall be held by the Landlord without interest and applied
as hereinbefore stated.
33. FORCE MAJEURE
Notwithstanding anything contained in this Lease, neither party
shall be deemed in default with respect to the performance of any of the terms,
covenants and conditions of this Lease, if such default is due to any strike,
lock-out, civil commotion, warlike operation, invasion, rebellion, hostilities,
military or usurped power, sabotage, government regulations or controls,
inability to obtain any material or service, an act of God or other cause beyond
the control of such party.
34. ALL REMEDIES AVAILABLE
The Tenant covenants and agrees that all remedies available to the
Landlord if the Tenant fails to pay rent or any instalment thereof (whether such
remedies are provided by the terms of this Lease or otherwise) shall also be
available to the Landlord if the Tenant fails to pay any other amount it is
required to pay under the terms of this Lease.
35. NO OTHER RELATIONSHIP
It is understood and agreed that neither the provisions of this
Lease nor any acts of the parties hereto shall be deemed to create any
relationship between the parties hereto other than the relationship of landlord
and tenant.
36. TIME OF THE ESSENCE
Time shall be of the essence of this Lease except as specified
herein.
<PAGE> 20
37. AMENDMENT
This Lease may not be modified or amended except by an instrument in
writing signed by the parties hereto or by their successors and assigns.
38. ENTIRE AGREEMENT
This Lease constitutes the entire agreement between the Landlord and
the Tenant and neither party is bound by any representation, warranty, promise,
agreement or inducement not embodied herein.
39. GOVERNING LAW
This Lease shall be governed by and construed according to the laws
of the Province of Ontario.
IN WITNESS WHEREOF the parties hereto have hereunto executed this
agreement.
LANDLORD: 1249462 ONTARIO LIMITED
Per: /s/ Vic De Zen
---------------------------------------
Vic De Zen
President
I have the authority to bind the corporation.
TENANT: TASTY SELECTIONS INC.
Per: /s/ [ILLEGIBLE]
---------------------------------------
President
I have the authority to bind the corporation.
INDEMNIFIER: INTERNATIONAL MENU SOLUTIONS INC.
Per: /s/ Michael A. Steele
---------------------------------------
Michael A. Steele
President
I have the authority to bind the corporation.
<PAGE> 21
SCHEDULE "A"
PART OF SUITE 108
[FLOOR PLAN]
<PAGE> 22
SCHEDULE "B"
LANDLORD'S WORK
The Landlord shall supply and install in a good and workmanlike manner, at the
Landlord's expense, the following:
ELECTRICAL
500 mcm Tech Cable
48 x 48 x 12M.C
600 Amp Vacuum Break Switch Commander
600 Amp 600 Volt N.F. Switch
600 Amp 6' Bus Bar Trough
100 Amp 600 Volt Fusable Switch
100 Amp 600 Volt T.D. Fuses
4 x 4 x 3 Pressure Treated Wood
1 1/14 - 2h Rigid Clips
Miscellaneous Fittings
Relocation of Meter to accommodate new meter cabinet
Refeed existing 100 Amp service and disconnect all services
ROOFING
- - - To cut existing built up roofing and steel deck for two new wood curb
housing for electrical cables complete with removable cover
- - - Supply and construction of two wood curbs (approximately 18" high x 12"
wide x 36" long)
- - - Roofing in of curbs with felts FR-40 membrane
- - - Metal flashing for removable cover
- - - Structural reinforcing of openings to underside of deck
- - - Return trip to seal openings in curb after cables installed
DEMISING AND GENERAL
- - - Install 8" block wall separating Arrow 2000 from Tenant's space
- - - Remove stairs located at south end of building leading to Suite 202,
remove door and frame and replace with blocks
- - - Remove blocks from 10' x 12' opening leading to Bakery (West Unit)
<PAGE> 23
SCHEDULE "B"
TENANT'S WORK
1. Construction and installation of 4,500 square foot mezzanine.
2. Repair and renovation of all plant floors - fill all crack, holes and
seal.
3. Supply and install 5000 CFM air make up unit with 500 MBH heating complete
includes gas piping, roof support, ductwork, electrical complete.
4. Cutting block walls between units - 2 locations.
5. To remove flues and gas piping from 5 existing ovens and install new roof
flashings and b-vent flues complete and re-pipe gas lines to the units.
6. All plumbing installation, 8 handwash stations and supply and install
recessed drainage floor system for drainage.
7. Remove and/or relocate electrical conduit and fixtures and heating
equipment.
<PAGE> 24
SCHEDULE "C"
SPECIAL PROVISIONS
1. In the event that the Landlord proposes to rent any premises which are
adjacent to the Leased Premises, then the Landlord shall give the first
right of refusal to the Tenant to lease such premises on the same terms
and conditions as contained in this Lease other than the Minimum Rent
which shall be the minimum rent offered by any other tenant or prospective
tenant with respect to such adjacent premises as is acceptable to the
Landlord as rent for such other premises, exercisable on notice within
five (5) business days of receipt from the Landlord of the offer for such
space, from the other prospective tenant.
2. Tenant may repay to Landlord the then indicated balance owing on the
Initial Improvements as set out in Schedule D at any time following which
the Tenant will no longer be required to pay Initial Improvements Rent.
3. Tenant shall, at its risk and liability, be permitted access to the Leased
Premises to complete Tenant's Work following the execution of this Lease.
Tenant agrees and acknowledges that during such time the Landlord will be
carrying out Landlord's Work in the Leased Premises and that Landlord will
be using the Leased Premises as a storage area for other tenants of the
building prior to the Commencement Date.
4. Royal King Electric Limited will perform substantially all electrical work
on the Leased Premises prior to the Commencement Date.
5. The Landlord shall use its best efforts to obtain a written
Non-Disturbance Agreement under seal from any mortgagee or other
encumbrancer of the complex who has, or may in the future have, priority
to the Tenant's leasehold interest in the Leased Premises. Such
Non-Disturbance Agreement shall provide that notwithstanding the exercise
of any rights by any such mortgagee or other encumbrancer, so long as the
Tenant is not then in default, the Tenant shall be entitled to remain
undisturbed in its possession of the Leased Premises, subject to the terms
and conditions of the Lease. The Tenant will not be required to
subordinate or postpone this Lease nor to attorn to any mortgagee or
encumbrancer unless the Landlord has obtained such Non-Disturbance
Agreement.
<PAGE> 25
SCHEDULE "D"
INITIAL IMPROVEMENTS - AMORTIZATION SCHEDULE
LOAN AMORTIZATION SCHEDULE May 5, 1999
Borrower :International Menu Solutions Description :Leasehold improvements
Lender :1249462 Ontario Limited
Principal: 46500.00 Payment: 872.66 payable every 1 month(s)
Interest rate : 9.7500 Compounded every 1 month(s)
Start :1999/06/01 1st :1999/06/01 Last :2005/02/01 Maturity :2005/02/28
<TABLE>
<CAPTION>
Date Interest Principal Balance
<S> <C> <C> <C>
1. 1999/06/01 0.00 872.66 45627.34
2. 1999/07/01 365.62 501.04 45120.30
3. 1999/08/01 373.66 499.00 44621.31
4. 1999/09/01 369.53 503.13 44118.18
5. 1999/10/01 353.53 519.13 43599.05
6. 1999/11/01 361.06 511.60 43087.45
7. 1999/12/01 345.27 527.39 42560.06
8. 2000/01/01 352.46 520.20 42039.86
9. 2000/02/01 347.20 525.46 41514.40
10. 2000/03/01 320.65 552.01 40962.39
11. 2000/04/01 338.30 534.36 40426.03
12. 2000/05/01 323.07 549.59 39878.44
13. 2000/06/01 329.35 543.31 39335.12
14. 2000/07/01 314.34 558.32 39776.80
15. 2000/08/01 320.25 552.41 38224.39
16. 2000/09/01 315.69 556.97 37667.41
17. 2000/10/01 301.01 571.65 37095.76
18. 2000/11/01 306.36 566.30 36529.47
19. 2000/12/01 291.92 580.74 35948.73
20. 2001/01/01 296.89 575.77 35372.96
21. 2001/02/01 292.94 579.72 34793.24
22. 2001/03/01 260.15 612.51 34180.73
23. 2001/04/01 283.07 589.59 33591.13
24. 2001/05/01 269.17 603.49 32987.65
25. 2001/06/01 273.19 599.47 32388.18
26. 2001/07/01 259.53 613.13 31775.05
27. 2001/08/01 263.14 609.52 31165.53
28. 2001/09/03 258.10 614.56 30550.97
29. 2001/10/01 244.81 627.95 29923.12
30. 2001/11/01 247.81 624.85 29298.27
31. 2001/12/01 234.77 637.89 28660.38
32. 2002/01/01 237.35 635.31 28025.07
33. 2002/02/01 232.09 640.57 27384.50
34. 2002/03/01 204.76 667.90 26716.60
35. 2002/04/01 221.25 651.41 26065.19
36. 2002/05/01 208.87 663.79 25401.40
37. 2002/06/01 210.36 662.30 24739.10
38. 2002/07/01 198.24 674.42 24064.68
39. 2002/08/01 199.29 673.37 23391.31
40. 2002/09/01 193.71 678.95 22712.36
41. 2002/10/01 182.00 690.66 22021.70
42. 2002/11/01 182.37 690.29 21331.42
43. 2002/12/01 170.93 701.73 20629.69
44. 2003/01/01 170.84 701.82 19927.87
45. 2003/02/01 165.03 707.63 19220.25
46. 2003/03/01 143.71 728.95 18491.30
47. 2003/04/01 153 14 719.52 17771.77
</TABLE>
<PAGE> 26
LOAN AMORTIZATION SCHEDULE May 5, 1999
Borrower :International Menu Solutions Description :Leasehold improvements
Lender :1249462 Ontario Limited
Principal: 46500.00 Payment: 872.66 payable every 1 month(s)
Interest rate : 9.7500 Compounded every 1 month(s)
Start :1999/06/01 1st :1999/06/01 Last :2005/02/01 Maturity :2005/02/28
<TABLE>
<CAPTION>
Date Interest Principal Balance
<S> <C> <C> <C>
51. 2003/08/01 128.93 743.73 14824.29
52. 2003/09/01 122.77 749.89 14074.40
53. 2003/10/01 112.78 759.88 13314.52
54. 2003/11/01 110.26 762.40 12552.13
55. 2003/12/01 100.58 772.06 11780.05
56. 2004/01/01 97.56 775.10 11004.94
57. 2004/02/01 90.89 781.77 10223.17
58. 2004/03/01 78.96 793.70 9429.47
59. 2004/04/01 77.88 794.78 8634.69
60. 2004/05/01 69.00 803.66 7831.03
61. 2004/06/01 64.67 807.99 7023.05
62. 2004/07/01 56.12 616.54 6206.51
63. 2004/08/01 51.26 821.40 5385.11
64. 2004/09/01 44.47 828.19 4556.92
65. 2004/10/01 36.42 836.24 3720.68
66. 2004/11/01 30.73 841.93 2878.75
67. 2004/12/01 23.00 849.66 2029.09
68. 2005/01/01 16.76 855.90 1173.19
69. 2005/02/01 9.72 862.94 310.24
70. 2005/02/28 2.24 -2.24 312.48
Total 14026.02 46187.52
</TABLE>
<PAGE> 27
INDEMNITY AGREEMENT
THIS AGREEMENT, dated June 15, 1999, between:
INTERNATIONAL MENU SOLUTIONS INC.
(the "Indemnifier")
OF THE FIRST PART
- and -
1249462 ONTARIO LIMITED
(the "Landlord")
OF THE SECOND PART
WHEREAS the Indemnifier and the Tenant have requested the Landlord
to enter into a lease (the "Lease") dated June 15, 1999, between it as landlord
and TASTY SELECTIONS INC. as tenant (the "Tenant") relating to premises (the
"Premises") in the property known as PART OF SUITE 108, 350 CREDITSTONE ROAD,
VAUGHAN, ONTARIO and the Landlord has agreed to do so only if the Indemnifier
executes and delivers this agreement under seal in favour of the Landlord;
NOW THEREFORE for good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged by the Indemnifier), the
Indemnifier hereby agrees with the Landlord as follows:
1. (a) the Indemnifier shall indemnify and save the Landlord harmless from
all reasonable and actual damages, losses and costs incurred by the
Landlord if, during the period which is expressed by Section 4 of
the Lease to be its term, or any renewal thereof, the Landlord does
not receive any amount payable by the Tenant under the Lease for
such period which, if the Lease were in full force and effect and
good standing, would be payable under the Lease;
(b) if the Tenant defaults in the payment of any amount payable under
the Lease or in the due performance of any other obligation of the
Tenant under the Lease and the Tenant fails to cure such default in
accordance with the terms of the Lease the Indemnifier shall
forthwith upon written demand by the Landlord pay to the Landlord
any amount so payable and all reasonable and actual damages, losses
and costs that may arise upon the default by the Tenant in the
payment thereof or in the due performance of any such obligation;
provided the Landlord has complied with the covenants contained in
Section 2 hereof;
(c) the Indemnifier shall be jointly and severally bound with the Tenant
to the Landlord for the performance of the obligations of the Tenant
under the Lease, and its liability shall be that of a direct and
primary obligor and not merely that of a surety;
(d) if the Tenant defaults under the Lease and the Tenant fails to cure
such default in accordance with the terms of the Lease the Landlord
may proceed against the Indemnifier as if it were the Tenant,
provided the Landlord has complied with the covenants contained in
Section 2 hereof, without waiving any of its rights against the
Tenant and without any requirement that the Landlord shall first
have proceeded against the Tenant or had recourse to or exhausted
any of its remedies against the Tenant;
<PAGE> 28
2
(e) subject to Section 2 hereof, the obligations of the Indemnifier and
the rights of the Landlord hereunder shall not be affected or in any
way prejudiced or impaired by any delay, neglect or forebearance by
the Landlord in enforcing performance by the Tenant of its
obligations under the Lease or by the granting by the Landlord to
the Tenant of any extension of time or by any waiver by the Landlord
of any of the Tenant's obligations or by any assignment or sublease
or other dealing by the Tenant with the Lease or the premises
whether with or without the consent of the Landlord or by any want
of notice to the Indemnifier or by any dealing between the Landlord
and the Tenant with or without notice to the Indemnifier whereby the
respective obligations and rights of either the Landlord or the
Tenant are amended, or by any other act or failure to act by the
Landlord which would release, discharge or affect the obligations of
the Indemnifier if it were a mere surety, and with the intent that
this indemnity shall not be released or affected or the rights of
the Landlord hereunder in any way impaired (except as otherwise
provided herein) until such time as all the obligations of the
Tenant under the Lease have been fully performed and satisfied;
(f) the obligations of the Indemnifier shall not be released, discharged
or affected by the bankruptcy or insolvency of the Tenant or any
proposal made by it to its creditors or any repudiation of the Lease
pursuant to the Bankruptcy and Insolvency Act (Canada), or any
successor or similar legislation including the Companies' Creditors
Arrangement Act (Canada), or any disclaimer by any trustee in
bankruptcy of the Tenant or by the Tenant ceasing to exist (whether
by winding-up, forfeiture, cancellation or surrender of charter, or
any other circumstance) or by any event terminating the Lease
including a re-entry or termination pursuant to the terms of the
Lease; if a re-entry or termination shall occur under any such
provisions the Landlord may require the Indemnifier to enter into a
lease of the premises as a tenant upon the terms and conditions of
the Lease and for the unexpired residue of the term of the Lease;
(g) the obligations of the Indemnifier hereunder may be assigned by the
Landlord, will benefit and be enforceable by the successors and
assigns of the Landlord and shall bind the heirs, executors and
legal representatives and the successors and assigns of the
Indemnifier; and
(h) this agreement shall be governed by the laws of the Province of
Ontario.
2. The Landlord hereby covenants and agrees to and with the Indemnifier that,
following its receipt of written notice from the Indemnifier that the
Indemnifier is not a "non-arms length" party to the Tenant (as the term
"non-arms length" is defined in the Income Tax Act (Canada)), it shall:
(a) simultaneously with the giving of any notice of default to the
Tenant, provide the Indemnifier with notice of any such default;
(b) not terminate or surrender the Lease for any reason without giving
the Tenant prior written notice of its intention to terminate or
surrender the Lease;
(c) the Landlord will, simultaneously with the giving of any notice of
default to the Tenant, provide the Indemnifer with notice of any
such default and will grant to the Indemnifier the right to cure any
such default within the cure provisions set out in the Lease; and
(d) not amend, vary or assign the Lease in any way whatsoever without
obtaining the prior written consent of the Indemnifier and any such
notice requesting consent shall contain details satisfactory to the
Indemnifier, acting reasonably, with respect to such amendment,
variation or assignment.
<PAGE> 29
3
3. In the event of re-entry and/or termination of the Lease, any net payments
received by the Landlord, after deducting all reasonable costs and expenses of
re-entry and reletting the Premises, shall be credited from time to time to the
account of the Indemnifier to compensate the Indemnifier for (but not exceed)
any amounts it paid to the Landlord in connection with its indemnification of
the obligations of the Tenant.
4. No modification of this Indemnity Agreement shall be effective unless it is
in writing and is executed or initialed by both the Indemnifier and the
Landlord.
The Indemnifier acknowledges receipt of an executed copy of the
Lease and covenants, represents and warrants that it has full power, capacity
and authority to enter into this agreement and to perform its obligations
hereunder and that the person(s) who have executed this agreement on behalf of
the Indemnifier have the authority to bind the Indemnifier. Whenever any
reference is made herein to the Lease or the obligations of the Tenant
thereunder, such reference shall be deemed to include any and all agreements and
instruments executed by the Tenant concurrently with the Lease or pursuant
thereto and which relate to the Premises, and shall be deemed to include the
Tenant's obligations under such agreements and instruments, including. without
limitation any agreement with respect to the work to be performed by the Tenant
or by the Landlord on its behalf with respect to the construction of leasehold
improvements and fixtures in the Premises.
IN WITNESS WHEREOF the Indemnifier has executed this agreement under
seal.
SIGNED, SEALED and DELIVERED ) 1249462 ONTARIO LIMITED
in the presence of )
)
) By: /s/ Vic De Zen
- - ---------------------------- ) -----------------------------------
)
) Title: President
) -----------------------------------
)
)
) INTERNATIONAL MENU SOLUTIONS INC.
)
)
) By: /s/ Michael A. Steele
- - ---------------------------- ) -----------------------------------
)
) Title: President
) -----------------------------------
)
<PAGE> 30
[LOGO]
Jovien Associates Limited
A Member of the Royal Group of Companies
February 24, 1999
NorBakco Ltd.
350 Creditstone Road.
Concord, Ontario
L4K 3Z2
Attention: Larry Hoffman
RE: Available Space for Rent
Confirming our conversation with Ron Goegan this afternoon, please find detailed
below a detailed breakdown of rent rates for the office and industrial space.
<TABLE>
<CAPTION>
Estimated
Unit # Area Base Rent T.M.I. Monthly Amount G.S.T. Total Monthly Rent
------ ---- --------- ------ -------------- ------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Second Floor:
Offices
202 4,034 Yr. 1 $6.75/sq.ft. $4.25/sq.ft. $3,697.83 $258.85 $3,956.68
Yr. 2 $6.75/sq.ft.
Yr. 3 $7.25/sq.ft.
Reception (Common - 2nd fl.) 606 Yr. 1 $1.25/sq.ft. $4.25/sq.ft. $ 493.17 $ 34.52 $ 527.69
Reception (Common - 1st fl.) 470 Yr. 2 $1.25/sq ft.
Total Reception: 1,076 sq.ft. Yr. 3 $1.75/sq.ft.
</TABLE>
Term for office space to be for three years with option to extend to Feb. 28,
2005. Right of first refusal for west offices (suite 203). Exterior glass will
be cleaned and carpet steam cleaned by us. Ground floor reception allowed,
unless other office space is leased to another tenant at which time a 30 day
notice will be given to relocate reception to second floor.
TIMING OF LEASE TO MATCH WITH NORBAKCO LEASE
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Industrial Space: TIMING
(As is - broom swept) 12,606 sq.ft. Yr. 1 $3.50/sq.ft. $3.50/sq.ft. $7,353.50 $514.75 $7,868.25 OF LEASE
Yr. 2 $3.75/sq.ft. TO MATCH
Yr. 3 $4.00/sq.ft. WITH
Yr. 4 $4.25/sq.ft. NORBAKCO
Yr. 5 $4.50/sq.ft. LEASE
Yr. 6 $4.50/sq.ft.
</TABLE>
March rent will be base rent free for the Industrial space. We will contribute
up-to $3,500 towards electrical improvements and drainage with excess work
billed to NorBakco Ltd., and due on completion.
Should you require any further information, please call Ron Goegan or myself at
your earliest convenience. A copy of the ground floor and second floor plan is
enclosed for your referral.
SUBJECT TO CLEARING ELECTRICAL CAPACITY
Yours Truly, OK /s/ Larry Hoffman
/s/ Tony Marziliano LARRY HOFFMAN
PRESIDENT
Tony Marziliano
/s/ [ILLEGIBLE]
Property Manager
cc. Ron Goegan
Frank Montesanti
1 Royal Gate Blvd., Woodbridge, Ontario, Canada L4L 8Z7
Tel.: (905) 264-0703 Fax: (905) 264-0704
<PAGE> 31
THIS LEASE made this __ day of February, 1995.
BETWEEN:
ALCONE HOLDINGS LTD.
a company incorporated under the laws of the Province of Ontario,
hereinafter called the "Landlord" of the FIRST PART.
- AND -
THORNHILL BAKERY LIMITED
a company incorporated under the laws of the Province of Ontario,
hereinafter called the "Tenant" of the SECOND PART.
WHEREAS the Landlord is the owner of a property and building thereon
located at the municipal address of 350 Creditstone Road, City of Vaughan in the
Province of Ontario (hereinafter referred to inclusively as the "Building") and
certain premises thereof being Unit #D, consisting of ground floor office and
plant area representing approximately thirty-four thousand (34,000) square feet
as set out in red on Schedule "A" being a plan of the first floor of the
Building (hereinafter said Unit being referred to as 'Unit D", and said Unit D
along with additional premises which the Tenant may lease hereunder being
referred to as the 'Premises");
NOW THEREFORE WITNESSETH that in consideration of the promises and
mutual covenants and agreements herein contained the parties hereto agree as
follows:
SECTION 1.00 - LEASE OF PREMISES
1.01 DEMISE - NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of
the rents reserved hereunder and the terms, covenants, obligations and
stipulations, conditions and agreements contained herein, the Landlord hereby
leases the Premises to the Tenant and the Tenant hereby leases the Premises from
the Landlord (hereinafter referred to as the "Lease").
1.02 TERM - The Tenant shall have and hold the Premises for and during a term of
ten (10) years commencing on the 1st day of March, 1995, (hereinafter called the
Commencement Date) and thenceforth next ensuing and to be fully completed and
ended on the 28th day of February, 2005, as may be extended by and subject to
any rights of renewal hereunder (hereinafter referred to as the "Term").
1.03 OPTION TO RENEW - The Tenant shall have the option to renew the Lease for
two (2) further periods of five (5) years at a rental rate to be negotiated at
then market value for premises of similar size, usage and nature, provided that
the Tenant gives notice to the Landlord, in writing, of its desire to exercise
the said option at least six (6) months prior to the end of the Term. In the
event that an agreement is not reached as aforesaid, the rental rate shall be
set by arbitration in accordance with the Arbitration Act of Ontario, which
determination shall be binding on both parties. The arbitration committee shall
consist of three (3) arbitrators, with one (1) each to be appointed by the
Landlord and the Tenant, and the third to be agreed upon by both arbitrators.
There shall be no further right of renewal.
1.04 ACCESS PRIOR TO COMMENCEMENT DATE - The Tenant shall be entitled to access
to Premises from the 15th of January, 1995 (hereafter referred to as the
"Occupancy Date"), provided Premises is demised and available for occupancy, and
with occupancy prior to the Commencement Date to be rent free. Should the Tenant
require possession earlier than the Occupancy Date, the parties agree that the
Commencement Date may be adjusted to an earlier date.
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<PAGE> 32
1.05 PRO-RATED RENT - The Tenant shall pay all rent due hereunder calculated on
a per diem basis, from the Commencement date, determined in accordance with the
foregoing and following, if the Commencement Date is not the first day of a
month to the first day of the month next following, on the Commencement Date.
1.06 RIGHT OF FIRST REFUSAL - The Tenant shall have a right of first refusal to
lease additional space to the west of Unit D in the amount of twenty-three
thousand (23,000) square feet. If and when such space becomes available the
Tenant shall have the right to acquire same at the fair market rent of similar
space at the time it becomes available. The term applicable to such space shall
coincide with the balance of the Term left on the lease of Unit D and shall
contain the same options of renewal as contained in that lease. If the said
additional space does not become available within four and a half years of the
start of the lease of Unit D, then the Tenant shall have an option exercisable
within the first five (5) years of the term of the lease of Unit D, to lease
alternative adjacent premises to the immediate east of Unit D, consisting of
approximately eleven thousand (11,000) square feet exclusive of office and
showroom space (hereinafter referred to as the "Eastern Space"), exercisable by
notice in writing from the Tenant no later than six (6) months prior to the end
of the five (5) year option period. The lease of the Eastern Space would be at
the fair market rent of similar space at the time of exercise of such option and
would be for a five (5) year term to coincide with the balance of the term of
the premises (Unit D) and shall contain a right of further renewal for two (2)
more five year terms exercisable in tandem with the option to renew on the
premises (Unit D) and upon the same rental terms as established in Section 1.03
herein. In the event that the Landlord does not or cannot grant to the Tenant a
lease to the Eastern Space in accordance with this option, then the Tenant shall
be permitted, at its option, to terminate its lease of Unit D at any time,
provided the Tenant gives at least six (6) months' advance written notice of
such termination.
SECTION 2.00 - RENT
2.01 BASE RENT - From and after the Commencement Date the Tenant shall pay to
the Landlord in lawful money of Canada, without deduction, abatement or set-off
whatsoever, an annual net rent (hereafter referred to as the "Base Rent") as
follows.
(a) From March 1st, 1995 to February 28th, 1996, the annual net
rental shall be the sum of two dollars and seventy-five cents
($2.75) per square foot per annum, being determined as
ninety-three thousand five hundred dollars ($93,500.00),
payable in equal monthly instalments of seven thousand seven
hundred and ninety-one dollars and sixty-six cents
($7,791.66), plus G.S.T.;
(b) From March 1st, 1996 to February 29th, 1997, the annual net
rental shall be the sum of three dollars ($3.00) per square
foot per annum, being determined as one hundred and two
thousand dollars ($102,000.00), payable in equal monthly
instalments of eight thousand five hundred dollars
($8,500.00), plus G.S.T.;
(c) From March 1st, 1997 to February 28th, 1998, the annual net
rental shall be the sum of three dollars and twenty-five cents
($3.25) per square foot per annum, being determined as one
hundred and ten thousand five hundred dollars ($110,500.00),
payable in equal monthly instalments of nine thousand two
hundred and eight dollars and thirty-three cents ($9,208.33),
plus G.S.T.;
(d) From March 1st, 1998 to February 28th, 1999, the annual net
rental shall be the sum of three dollars and seventy-five
cents ($3.75) per square foot per annum, being determined as
one hundred and twenty-seven thousand five hundred dollars
-2-
<PAGE> 33
($127,500.00), payable in equal monthly instalments of ten
thousand six hundred and twenty-five dollars ($10,625.00),
plus G.S.T.;
(e) From March 1st, 1999 to February 29th, 2000, the annual net
rental shall be the sum of four dollars ($4.00) per square
foot per annum, being determined as one hundred and thirty-six
thousand dollars ($136,000.00), payable in equal monthly
instalments of eleven thousand three hundred and thirty-three
dollars and thirty-three cents ($11,333.33), plus G.S.T.;
(f) From March 1st, 2000 to February 28th, 2001, the annual net
rental shall be the sum of four dollars and fifty cents
($4.50) per square foot per annum, being determined as one
hundred and fifty-three thousand dollars ($153,000.00),
payable in equal monthly instalments of twelve thousand seven
hundred and fifty dollars ($12,750.00), plus G.S.T.;
(g) From March 1st, 2001 to February 28th, 2002, the annual net
rental shall be the sum of four dollars and fifty cents
($4.50) per square foot per annum, being determined as one
hundred and fifty-three thousand dollars ($153,000.00),
payable in equal monthly instalments of twelve thousand seven
hundred and fifty dollars ($12,750.00), plus G.S.T.;
(h) From March 1st, 2002 to February 28th, 2003, the annual net
rental shall be the sum of four dollars and fifty cents
($4.50) per square foot per annum, being determined as one
hundred and fifty-three thousand dollars ($153,000.00),
payable in equal monthly instalments of twelve thousand seven
hundred and fifty dollars ($12,750.00), plus G.S.T.;
(i) From March 1st, 2003 to February 29th, 2004, the annual net
rental shall be the sum of four dollars and fifty cents
($4.50) per square foot per annum, being determined as one
hundred and fifty-three thousand dollars ($153,000.00),
payable in equal monthly instalments of twelve thousand seven
hundred and fifty dollars ($12,750.00), plus G.S.T.;
(j) From March 1st, 2004 to February 28th, 2005, the annual net
rental shall be the sum of four dollars and fifty cents
($4.50) per square foot per annum, being determined as one
hundred and fifty-three thousand dollars ($153,000.00),
payable in equal monthly instalments of twelve thousand seven
hundred and fifty dollars ($12,750.00), plus G.S.T.
2.02 ADDITIONAL RENT - Tenant acknowledges that this is a net lease carefree of
all expenses to the Landlord, and the Tenant therefore covenants to be
responsible and pay for, and of which sums the Landlord shall be entitled to
charge to the Tenant, a monthly fee which shall include the following:
(i) water and sewer charges (unless separately metered); all real
estate taxes; outside maintenance including driveways,
trucking and parking areas; lawn and shrubbery maintenance;
snow removal and fire insurance premiums; and any other
expenses of whatever nature traceable to the Tenant's use
and/or occupation of the Premises including but not limited to
any and all utility charges (hydro and gas), telephone
charges, business taxes, local improvement charges, and
heating, ventilation and air conditioning, to the extent such
are not separately metered and/or assessed; and,
-3-
<PAGE> 34
(ii) a reasonable apportionment of expenses incurred in managing,
maintaining and insuring the Building and for structural and
common area maintenance thereof, along with the Landlord's
administration charge of fifteen percent (15%) of all such
expenses;
as apportioned to the Tenant according to the proportion the square footage of
the Premises bears to the square footage of the Building, all of which sums
(hereafter referred to as "Additional Rent") including G.S.T. thereon shall be
estimated by the Landlord for each year of the Term with notice thereof to be
provided to the Tenant by 31st of December of the preceding year of the Term
(except for the first year) and one-twelfth (1/12) of such estimate shall be
payable by the Tenant as Additional Rent every month during a year of the Term;
the Landlord shall reconcile the actual expenses compared to such estimated
expenses by the 31st of March of the year following a year of the Term, shall
provide such reconciliation to the Tenant, and shall either demand from the
Tenant any underpayment which shall be payable immediately upon notice thereof
or return to the Tenant any overpayment; and the Landlord, in addition to any
other rights, shall have the same remedies and may take the same steps for the
recovery of such sums as rent in arrears under the terms of this Lease. For the
first year of the Term the estimated annual Additional Rent shall be the sum of
sixty-six thousand and three hundred dollars ($66,300,00) being a monthly
payment of five thousand two hundred and twenty-five dollars ($5,525.00), plus
G.S.T., where the Landlord warrants and represents that for the first year of
the Term such Additional Rent shall not exceed the aforementioned estimate and
such Additional Rent shall be adjusted once the Tenant receives its own water
meter.
2.03 PREPAID RENT - It is acknowledged that the Tenant has paid the sum of
thirty-three thousand eight hundred and three dollars and eight cents
($33,803.08) to be applied towards payment of the first and last month's Base
Rent and Additional Rent for the Term herein, (where Additional Rent for the
last month of the Term has been estimated as five thousand five hundred and
twenty-five dollars ($5,525.00), plus G.S.T), including G.S.T. on such sums.
Last Month Feb. 2005 $16,901.54
2.04 PAYMENT DATE - The Tenant is to pay Base Rent and Additional Rent on the
first day of each month during the Term.
2.05 POST DATED PAYMENTS - The Tenant is to provide in advance twelve (12)
post-dated cheques for every month for Base Rent and Additional Rent for a year
of the Term no later than March 1st of every year of the Term.
2.06 RENT FREE PERIODS - Notwithstanding the aforementioned, the Landlord agrees
to provide to the Tenant four (4) months during which Base Rent is not payable,
being the months of March, April, May and June of 1995, provided during such
period the Tenant shall remain responsible for Additional Rent, notification of
all proper authorities as to utility hookup and payment for utility charges as
separately metered, business taxes, and all other responsibilities hereunder
this Lease.
2.07 FITTINGS, FIXTURES & PARTITIONS - Subject to the terms of this Lease and to
the written approval of the Landlord, which approval shall not be arbitrarily
withheld, the Tenant may, at its own expense, install any fittings, fixtures and
partitions that may be necessary for the operation of its business, from time to
time during the Term. Upon the date of this Lease the Landlord hereby approves
of the Tenant's installation of fittings, fixtures and partitions, installed to
date subject to inspection thereof by the Landlord's expert to determine
compliance of the Tenant's installations with applicable laws, rules and
regulations governing same, for which any noncompliance the Tenant shall bear
the cost of required rectification.
SECTION 3.00 - TENANT'S COVENANTS
3.01 COVENANT FOR RENT - The Tenant covenants to pay Base Rent and Additional
Rent as rent due under this Lease.
-4-
<PAGE> 35
3.02 TENANT TO PAY BUSINESS TAXES - The Tenant shall pay and discharge on or
before the due date when the same or the instalments for same become due all
business taxes levied on his business.
3.03 OBLIGATION TO REPAIR - The Tenant covenants with the Landlord that,
throughout the Term, the Tenant shall maintain and repair the interior of the
Premises and keep all fixtures and equipment therein in good order and same
state of repair as at the commencement of the Lease, reasonable wear and tear,
damage by fire, lightning and tempest only excepted.
3.04 COMPLIANCE WITH STATUTES, ETC. - The Tenant shall comply promptly with the
requirements of every applicable statute, law and ordinance, and with every
applicable lawful regulation and order with respect to the placement or removal
of any encroachment erected by Tenant or to the condition, equipment,
maintenance, use or occupation of the Premises and to comply with the applicable
regulation or order of the Canadian Underwriter's Association, or of any body
having similar functions, or of any liability or fire insurance company by which
the Tenant and/or Landlord may be responsible for the condition, operation,
maintenance and management of the Premises, it shall be the responsibility of
the Tenant to obtain all necessary municipal licenses and approvals of whatever
nature related to its use and occupancy of the Premises, including an occupancy
permit to carry on its business and operations in or on the Premises in
accordance with the use provided herein this Lease and as permitted by municipal
by-laws. It shall further be the responsibility of the Tenant to obtain any and
all necessary permits to carry on its business in or on the Premises, including
any permits, licenses or inspections as required by relevant authorities
governing such business or use. Provided that if a municipality makes a charge
against the Tenant or against the Premises by reason of the Tenant failing to
observe the requirements of any municipal or provincial by-law or regulation,
the Tenant shall pay such charge and if the Tenant fails to do so upon request,
the Landlord may pay the amount of such charge and recover the amount so paid in
the same manner as rent in arrears and with like powers or distress.
3.05 ENVIRONMENTAL COMPLIANCE -
For the purposes of this section, the following terms shall have the
following meanings respectively:
(i) "Contaminant" includes, but is not limited to, any pollutants,
dangerous substances, liquid waste, industrial waste, toxic
substances, hazardous wastes, hazardous materials, hazardous
substances or contaminants including any of the foregoing
defined in any Environmental Law having jurisdiction over the
Premises;
(ii) "Environmental Activity" means any activity, event or
circumstances in respect of a Contaminant, including, without
limitation, its storage, use, holding, collection, purchase,
accumulation, assessment, generation, manufacture,
construction, processing, treatments, stabilization,
disposition, handling or transportation, or its Release,
escape, leaching, dispersal or migration into the natural
environment, including the movement through or in the air,
soil, surface water or ground water;
(iii) "Environmental Laws" means any and all current and future
applicable international, federal, provincial or municipal
laws, bylaws, statutes, regulations, policies, guidelines,
orders or judgments, relating to the environment, or any
Environmental Activity as it relates to the Premises; and,
(iv) "Release" includes release, spill, pump, escape, leach,
dispose of, infuse, introduce, discharge, spray, inject,
inoculate, abandon, deposit, spill, leak, seep, pour, emit,
empty, throw, dump, place
-5-
<PAGE> 36
and exhaust, or similar.
In addition to any other provision herein this Lease, the Tenant
covenants, represents and warrants during the course of the Term that it shall
not permit the Release of any of the Contaminants into the environment or
municipal services as the result of any Environmental Activity conducted by the
Tenant or those persons for whom it is responsible in law, on the Premises or
Building, and that it shall comply with all Environmental Laws in effect from
time to time. The Tenant shall upon the Landlord's request provide a plan for
waste handling and disposal for dealing with the Contaminants and/or
Environmental Laws, or a contingency plan for dealing with Contaminant Release
should such occur. The Landlord may specify the location or locations in which
Contaminants are to be kept on the Premises.
The Tenant warrants and represents, that to the best of the Tenant's
knowledge after having made and continuing to make all due enquiries and
investigations respecting same, and as follows that:
(a) the Tenant and its respective processes and undertakings have been,
are and continue to be in strict compliance with all Environmental
Laws;
(b) the Tenant has received no notice of non compliance with,
requisition or order made under, the Environmental Laws and does not
know of or have reasonable grounds to know of any acts, matters or
things which would, or may, give rise to the aforementioned notice,
requisition or order being issued in respect of any of the Tenant's
activities or proposed activities, businesses or operations;
(c) the Tenant has at no time been prosecuted to conviction for an
offence of non compliance with any Environmental Laws or settled any
such prosecution short of conviction; and,
(d) for the duration of the Lease to notify the Landlord immediately of
the nature and extent of any such Release if such should or could
possibly occur and to undertake any reasonably necessary remedial
action related thereto as the Landlord may direct.
The Tenant further covenants and agrees to indemnify and save harmless and
shall keep indemnified and continue to save harmless the Landlord from and
against any liability, actions, suits, damages (including lost profits,
consequential damages, interests, penalties, fines or monetary sanctions, and
all legal and expert fees related thereto), losses, costs and expenses incurred
or suffered by the Landlord by reason of or resulting from or in connection
with, or arising in any manner whatsoever out of the Release of the
Contaminants, breach of Environmental Laws, or breach of any warranty or
covenant or the inaccuracy of any representation of the Tenant contained or
referred to herein, if such Release of Contaminants or breach of Environmental
Laws has been caused by the Tenant or those persons for whom it is responsible
in law. This covenant shall remain in effect notwithstanding the expiry or
termination of this Lease.
3.06 RIGHT TO INSPECTION - The Tenant shall permit the Landlord and its
officers, agents, servants, employees and contractors upon reasonable notice and
during business hours and in the presence of a duly authorized representative of
the Tenant, during the Term to enter the Premises to inspect and examine the
condition thereof, or for the purpose of making any repairs or work in this
Lease required or permitted to be done, and:
(i) where upon notice in writing given by the Landlord to the
Tenant of any want of repair for which the Tenant is liable
under the terms hereof, the Tenant shall rectify and make good
any such defect in such manner as the Landlord shall direct
within a reasonable time from the delivery of the notice;
provided that if the Tenant shall not repair according to
notice in writing as herein provided, the
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<PAGE> 37
Landlord may enter upon the Premises (without being liable for
any disturbance or damage so caused) and may do such repairs
and of which the cost thereof the Landlord shall be entitled
to charge to the Tenant who shall pay such forthwith on
demand; and the Landlord, in addition to any other rights,
shall have the same remedies and may take the same steps for
the recovery of such sums as rent in arrears under the terms
of this Lease; and,
(ii) where in the opinion of the Landlord there exists on the
Premises any condition, matter or thing which is reasonably
likely to lead to a breach of section 3.05 hereof the Landlord
and its agents may conduct such audits, investigations, tests
and surveys as it deems necessary to assess the nature and
extent of the breach or likely breach and the completion of
necessary remedial action therefor, that the Landlord at its
option may either cause the Tenant to undertake in accordance
with subsection 3.06(i) hereof or which the Landlord shall
undertake, and of which the cost thereof the Landlord shall be
entitled to charge to the Tenant who shall pay such forthwith
on demand; and the Landlord, in addition to any other rights,
shall have the same remedies and may take the same steps for
the recovery of such sums as rent in arrears under the terms
of this Lease. If no breach of s. 3.05 is so found the
Landlord shall bear the costs of such audits, investigations,
tests, and surveys.
3.07 SURRENDER OF LEASED PREMISES - At the expiration or earlier termination of
the Term the Tenant shall peaceably surrender and yield up to the Landlord the
Premises, in a broom swept condition only reasonable wear and tear excepted,
shall remove any Contaminants and shall take all reasonably necessary remedial
action with regard to any Released Contaminants or for conformance to
Environmental Laws (where "Contaminant", "Release" and "Environmental Laws" are
as defined in clause 3.05) as required by the Landlord, and if so required by
the Landlord, the Premises shall be restored to their original condition in the
event of any alterations made thereto. Where any restorations are to be made to
the ceiling of the Premises such work shall be carried out by the Landlord at
the Tenant's expense.
3.08 REMOVAL OF TRADE FIXTURES - At any time within thirty (30) days prior to
the expiration of the Term the Tenant, if not in default under this Lease, may
and at the request of the Landlord shall, remove from the Premises at its cost
all its movable trade fixtures, furniture, equipment and Tenant's work (other
than rugs, carpeting, floor coverings and leaseholds attached in any way to the
Premises) not affixed to the Premises, provided that the Tenant surrenders the
Premises in substantially the same condition as at the Commencement Date and the
Tenant shall repair any damage to the Premises and the Building which may be
occasioned by such removal. On the expiration of the Term all such movable trade
fixtures, furniture, equipment and Tenant's work not so removed shall be deemed
to have become the property of the Landlord.
3.09 EXHIBIT LEASED PREMISES - Upon reasonable notice and during business hours
during the Term the Landlord may exhibit the Premises to prospective purchasers
or mortgagees of the Building and during the six (6) months prior to expiration
of the Term, the Landlord may exhibit the Premises to prospective lessees.
3.10 ASSIGNMENT AND SUBLETTING - The Tenant will not assign, set over, transfer,
sublet or sublease, hypothecate, encumber or in any way deal with or part with,
the whole or any part of the Term or Premises, without written consent first
being obtained from the Landlord, but such consent shall not be unreasonably or
arbitrarily withheld, or delayed provided, however, and it is made a condition
to the giving of such consent that:
(i) The Tenant shall deliver to the Landlord a written request to
such assignment, sublease, etc. together with a copy of the
proposed assignment or sublease and shall provide the Landlord
with such information as the Landlord may reasonably require
with respect
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<PAGE> 38
to the business and financial responsibility and standing of
the proposed assignee or sub-lessee;
(ii) Any assignee or sub-lessee of this Lease shall agree in
writing to assume and perform all of the terms, covenants,
obligations and stipulations, conditions and agreements by
this Lease imposed upon the Tenant herein in the form to be
approved by the solicitor for the Landlord; and,
(iii) No assignments or sublease shall in any manner release the
Tenant from its covenants and obligations hereunder.
3.11 USE OF PREMISES - The Tenant shall occupy the Premises throughout the Term
solely for the purpose of conducting thereon the business of a bakery, and
packaging and distribution of products and services associated therewith.
3.12 INSURANCE - The Tenant shall take out and maintain at its sole cost and
expense and in the names of the Tenant and the Landlord (and the Landlord's
mortgagee, if required by the Landlord) as their respective interests may
appear, insurance coverage of not less than one million dollars ($1,000,000.00)
including without limiting the generality of the foregoing, contents insurance,
property damage insurance, third party liability insurance, business
interruption insurance and legal liability insurance, or in such amount or
amounts as the Landlord may reasonably from time to time stipulate. The Tenant
shall deposit certificates of all such insurance coverages with the Landlord at
the Landlord's request.
3.13 INCREASE IN INSURANCE PREMIUMS - The Tenant shall pay to the Landlord
forthwith on demand thereof any amount by which the basic premium of insurance
paid by the Landlord is increased by reason of any particular use or occupation
by the Tenant of the Premises.
3.14 RE-ENTRY - It is hereby agreed that when:
(a) the Tenant shall be in default in the payment of any rent, for
a period of seven (7) days after having received notice of
default;
(b) the Tenant shall be in default of any of its terms, covenants,
obligations and stipulations, conditions and agreements under
this Lease (other than its covenant to pay rent) and such
default shall have continued for a period of ten (10)
consecutive days after notice by the Landlord to the Tenant
specifying with reasonable particularity the nature of such
default and requiring the same to be remedied, provided
further that if the Tenant is taking steps to remedy and
cannot complete within ten (10) days, such ten (10) day period
shall be extended as the Landlord reasonably determines to
permit the Tenant to remedy;
(c) any property of the Tenant has been sold under a valid writ of
execution, or the Tenant shall have made an assignment for the
benefit of creditors, or have had a receiving order made
against it under the Bankruptcy and Insolvency Act, R.S.C
1985, as amended, or becoming bankrupt or insolvent, or shall
have made application for relief under the provisions of any
statute now or hereafter in force concerning bankrupt or
insolvent debtors, or any action whatever, legislative or
otherwise, shall have been taken with a view to the winding
up, dissolution or liquidation of the Tenant;
(d) any insurance policy is cancelled or not renewed by an insurer
by reason of any particular use or occupation of the Premises,
or;
(e) the Premises shall have been vacated or have become vacant or
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shall have remained unoccupied for a period of fifteen (15)
consecutive days;
then and in any of such cases, the then current month's rent
together with the rent for the three (3) months ensuing shall immediately become
due and payable, and at the option of the Landlord the Term shall become
forfeited and void, and the Landlord without notice or any form of legal process
whatsoever may forthwith re-enter the Premises or any part thereof in the name
of the whole and repossess and enjoy the same as of its former estate, anything
contained in any statute or law to the contrary notwithstanding. Such forfeiture
shall be wholly without prejudice to the right of the Landlord to recover
arrears of rent and damages for any antecedent breach of the terms, covenants,
obligations and stipulations, conditions and agreements of the Tenant under this
Lease. Notwithstanding any such forfeiture the Landlord may subsequently recover
from the Tenant damages for loss of rent suffered by reason of this Lease having
been prematurely determined and it may recover from the Tenant all damages it
may incur with respect thereto including the cost of recovering the Premises.
3.15 LANDLORD ENTITLED TO RE-LET - If the Landlord does not exercise its option
under section 3.14 to terminate this Lease it may nevertheless in the events set
out in section 3.14 from time to time re-enter the Premises without terminating
this Lease and acting reasonably make such alterations and repairs as may be
necessary in order to re-let the Premises or any part thereof as agent for the
Tenant for such period or periods (which may extend beyond the term) and at such
rental or rentals and upon such other terms and conditions as the Landlord in
its sole discretion may deem advisable. Upon each re-letting rent shall be
applied, first, to the payment of any Indebtedness other than rent due from the
Tenant to the Landlord; second, to the payment of any cost and expenses of such
re-letting, including brokerage fees and solicitor's fees and of the costs of
such alterations and repairs; third, to the payment of rent due and unpaid; and
the residue, if any, shall be held by the Landlord and applied in payment of
future rent as the same may become due and payable. The Tenant shall pay to the
Landlord the amount by which the rentals received from such re-letting during
any month are less than the rent payable during that month by the Tenant.
Notwithstanding any such re-letting without termination, the Landlord may at any
time thereafter elect to terminate this Lease. No such re-entry or taking of
possession by the Landlord shall be construed as an election on its part to
re-entry or taking of possession, unless a written notice of such intention has
been given to the Tenant or unless the termination thereof be decreed by a court
of competent jurisdiction.
3.16 DISTRESS - Notwithstanding anything contained in any statute or amendment
or revision thereof, none of the goods or chattels of the said Tenant at any
time during the continuance of the Term hereby created situate on the Premises
shall be exempt from levy by distress for rent in arrears, and that upon any
claim being made for such exemption by the Tenant or on distress being made by
the Landlord this covenant and agreement may be pleaded as an estoppel against
the Tenant in any action brought to test the right to the levying upon any such
goods as are named as exempt in any such statute, and the Tenant waives every
benefit that might have accrued to the Tenant under any such statute but for
this covenant.
3.17 LANDLORD MAY FOLLOW CHATTELS - In case of removal by the Tenant, except in
the ordinary course of business, of goods and chattels from the Premises, the
Landlord may follow same for a period of thirty (30) days in the same manner as
is provided for in the Landlord and Tenant Act, R.S.O. 1990, as amended, or in
any other act respecting the fraudulent and clandestine removal of goods.
3.18 REMOVAL OF REFUSE - Tenant is not to allow any refuse, garbage or other
loose or objectionable material to accumulate in, on or around the Premises and
is at all times to keep the Premises in clean and wholesome condition, failing
which the Landlord may do so at the Tenant's expense, and upon the termination
of the Term the Tenant is not to leave upon the Premises any rubbish or waste
material but to leave the Premises in a clean and tidy condition. To the extent
the Landlord shall have to undertake removal of refuse it shall be entitled to
charge the expenses thereof
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<PAGE> 40
to the Tenant who shall pay them forthwith on demand; and the Landlord, in
addition to any other rights, shall have the same remedies and may take the same
steps for the recovery of such sums as rent in arrears under the terms of this
Lease. The Tenant is to provide a disposal bin for Tenant's refuse.
3.19 TENANT'S ALTERATIONS - The Tenant shall not make any alteration, repair or
improvement to the Premises nor make, construct, erect, or install any leasehold
improvements in or to the said Premises, except with the prior written approval
of the Landlord which approval not to be unreasonably withheld and in accordance
with the procedures and provisions set out in this section. Before beginning any
such work the Tenant shall deliver to the Landlord sufficient copies of its
plans and specifications thereof and such other information as the Landlord may
reasonably require with respect thereto. All such work shall be carried out by
the Tenant in accordance with the applicable requirements of all regulatory
authorities having jurisdiction with respect thereto and shall be carried out as
expeditiously as possible and in a good and workman like manner with first class
new materials. Such work shall comply with the reasonable rules and regulations
as may from time to time be made by the Landlord and shall not be of such kind
or extent as to in any manner weaken the structure of the Building or Premises,
or reduce the value thereof. The Tenant shall obtain all necessary permits for
Tenant's work, which includes any and all work carded out by the Tenant beyond
that done by the Landlord.
3.20 OVERLOADING PREMISES - The Tenant will not bring upon the Building or
Premises, or any part thereof any machinery, equipment, article or thing that by
reason of its weight or size might damage the Building or Premises and will not
at any time overload the floors of the Building or Premises and that if any
damage is caused to the Building or Premises by any machinery, equipment,
article or thing or by overloading or by any act, neglect or misuse on the part
of the Tenant or any of its servants, agents or employees or any person having
business with Tenant, Tenant will forthwith pay to the Landlord the cost of
making good the same. The Landlord acknowledges that the Premises can
accommodate the business of the Tenant.
3.21 EVIDENCE OF PAYMENT - The Tenant shall from time to time at the request of
the Landlord produce for the Landlord, reasonable and satisfactory evidence of
the due payment by the Tenant of all payments required to be made by the Tenant
under this Lease.
3.22 IMPROVEMENTS BECOME PART OF PREMISES - Subject to the terms of this Lease,
any building, erection or improvement placed or erected upon the Premises shall
become part thereof and shall not be removed and shall be subject to all the
provisions of this Lease. No building, erection or improvement shall be erected
upon the Premises herein without the prior written consent of the Landlord which
shall not be unreasonably withheld or delayed.
3.23 OVERHOLDING TENANT - If at the expiration of the Term by elapse of time the
Tenant shall hold over without the written consent of the Landlord for any
reason the tenancy of the Tenant thereafter shall be from month to month and
shall, in the absence of written agreement to the contrary, be at a monthly Base
Rent of twenty thousand dollars ($20,000.00) and subject to all covenants,
obligations and agreements provided for in this Lease, except as to duration and
rights of renewal, if any.
3.24 TENANT TO INDEMNIFY - The Tenant will indemnify and save harmless the
Landlord of and from all liability, fines, suits, claims, damages (including
lost profits, consequential damages, interests, penalties, fines or monetary
sanctions, and all legal and expert fees related thereto), losses, costs and
expenses incurred or suffered by the Landlord by reason of or resulting from or
in connection with, or arising in any manner whatsoever out of, or demands and
actions of any kind or nature to which Landlord shall or may become liable for
or suffer by reason of, liabilities caused by the negligence of the Tenant or
its officers, agents, servants, employees and contractors, and such obligation
to indemnify shall survive any termination of this Lease, anything contained
herein to the contrary notwithstanding.
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<PAGE> 41
SECTION 4.00 - LANDLORD'S COVENANTS
4.01 LANDLORD's WORK - The Landlord shall provide the following at its own cost
on or before the Occupancy Date:
(a) floor to ceiling block as per sketch submitted by the Tenant;
(b) supply 550 volt, 400 amp service, (1) 75KVa Transformer, (1)
575 V, 208A 110V Transformer;
(c) supply separate hydro and gas meters;
(d) supply separate water meter, if cost effectively possible;
and,
(e) leave existing air lines for use by the Tenant, if belonging
to the Landlord and in its possession;
where all work shall be completed to standard grade industrial finish by the
Landlord according to a sketch or drawing of proposed work to be submitted by
the Tenant to the Landlord within five (5) days of the Occupancy Date.
4.02 SIGNAGE - The Tenant may install in, erect or affix upon or about the
Premises, signs and advertising material, which shall remain the property of the
Tenant, and which the Tenant may remove upon the expiration of the Term or shall
remove at the Landlord's request upon the expiration of the Term, provided that
all damage caused by such installation, erection, affixation or removal is
repaired and the Premises left in good repair. All signs and locations thereof
are subject to prior approval in writing by the Landlord, such consent not to be
unreasonably withheld, and must conform with all municipal, local and other
laws, bylaws, ordinances and restrictions, and Landlord's regulations governing
signs, applicable thereto.
4.03 PARKING - The Tenant shall have free access to the side of the Building
proximate to the Premises for shipping purposes, and shall be allowed adequate
parking for staff and office personnel, and overnight trucking.
4.04 WARRANTIES - The Landlord warrants and represents that the roof shall be in
good repair and all mechanical, air conditioning equipment (HVAC), heating,
ventilating, plumbing, sprinkler, shipping doors, washrooms and electrical
systems shall be in good working order, normal wear and tear excepted, prior to
and on the Occupancy Date. The Landlord shall during the Term, at its cost,
maintain the roof and all such systems, as well as the interior of the Premises,
in a good state of repair.
4.05 STRUCTURAL PENETRATION - The Tenant shall be permitted four (4) openings in
the ceiling of the Premises, which shall be made at such time and in such
location according to the prior written consent of the Landlord, which consent
shall not be unreasonably withheld or delayed. The Tenant shall be permitted to
add one (1) receiving door in its shipping office on the Premises with maximum
dimensions of eighty-two (82) inches high and one hundred and thirty-six (136)
inches wide. The Tenant is to perform the work necessary to complete such
openings in a professional and workmanlike manner, at its own cost.
4.06 STRUCTURAL MAINTENANCE AND CAPITAL EXPENDITURES - The Tenant shall not be
responsible for structural maintenance or capital expenditures including major
repairs to or replacement of (which necessity for and scope of repair and
replacement shall be as determined by the Landlord's architect or appointed
expert), the roof or exterior of the Premises, parking lots, mechanical, air
conditioning equipment (HVAC), or main electrical service, unless such repairs
or replacement are caused by the negligence of the Tenant.
4.07 DAMAGE TO PREMISES - Provided that if during the continuation of
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this Lease:
(a) the Building or Premises are totally destroyed by any
casualties so that it cannot be repaired with reasonable
diligence within one hundred and twenty (120) days of the
happening of such injury, as determined by the Landlord's
architect, then the Lease shall cease and become null and void
from the date of such damage or destruction, and the Tenant
shall immediately surrender the Premises and all interest
therein to the Landlord, and the Tenant shall pay rent only to
the time of such surrender and any prepaid rent shall be
returned to the Tenant and in case of destruction or partial
destruction as above mentioned the Landlord may re-enter or
repossess the Premises discharged of this Lease, and may
remove all parties therefrom;
(b) if the Building or the Premises are partially destroyed by
casualty, and can be repaired with reasonable diligence within
one hundred and twenty (120) days from the happening of said
injury, but if the damage is such as to render the Premises
wholly unfit for occupancy, as determined by the Landlord's
architect, then the Base Rent shall not run or accrue after
the said injury, or while the process of repairs is going on,
and the Landlord shall repair the same with all reasonable
speed and then the Base Rent shall recommence immediately
after the said repairs have been completed; or,
(c) if the Building or the Premises are partially destroyed by
casualties, and can be repaired with reasonable diligence
within one hundred and twenty (120) days from the happening of
the said injury, and if the damage is such that the Premises
can be partially used, then until such damage shall have been
repaired, the Base Rent shall abate in proportion that the
part of the Premises rendered unfit for occupancy bears to the
whole of the Premises, all as determined by the Landlord's
architect and the Landlord shall repair same with all
reasonable speed.
4.08 LIMIT OF LANDLORD'S LIABILITY - Except for matters arising from the
negligence of the Landlord, its officers, agents, servants, employees or
contractors, the Landlord shall not be liable or responsible in any way for, and
the Tenant shall not be entitled to any abatement of rent in respect of, any
loss, damage, or injury of any nature whatever that may be suffered or sustained
to any persons or property, and in particular, without limiting the generality
of the foregoing, the Landlord shall not be liable for any loss, damage or
injury of any nature whatever to any person or persons or property resulting
from any defect in the Premises or in the Building or resulting from the
condition or arrangement or interruption or breakdown of any service, equipment,
machinery, utilities or other facility related to the Premises or Building, or
resulting by reason of steam, smoke, water, rain, snow, or other substances
leaking, issuing, flowing or escaping onto any part of the said Premises or by
the Landlord, its servants, employees, agents, contractors, customers, invitees
or licensees, or by other occupants of the Building, or by persons in the
Premises or the Building, or by occupants of adjacent property, or by the
public, nor shall the same constitute an eviction.
4.09 PAYMENT OF MONIES BY LANDLORD - In the event of the Tenant failing to pay
any business taxes, insurance premiums or charges which it has herein covenanted
to pay, and in the manner herein provided, the Landlord may pay the same and
shall be entitled to charge the sums so paid to the Tenant who shall pay them
forthwith on demand; and the Landlord, in addition to any other rights, shall
have the same remedies and may take the same steps for the recovery of such sums
as rent in arrears under the terms of this Lease.
4.11 LANDLORD MAY ASSIGN LEASE - The Landlord declares that it may
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<PAGE> 43
assign its rights under the Lease and in the event that such an assignment is
given and executed by the Landlord and notification is given to the Tenant, the
Tenant if so requested, will, at the Landlord's cost, at any time, and from time
to time:
(a) execute an acknowledgement concerning the performance and
observance by the Landlord of its obligations under this Lease
and concerning the payment by the Tenant of the rent reserved
and other sums payable by and under this Lease as may be
requested by the Landlord or assignees;
(b) certify that this Lease is unmodified and is in full force and
effect (or if modified, stating the modification and the same
is in full force and effect as modified); and,
(c) provide particulars of any monies or security deposited
hereunder with the Landlord and whether or not there is any
existing default on the part of the Landlord of which Tenant
has notice.
It is hereby agreed that any such statement delivered pursuant to
the provisions of this paragraph may be conclusively relied upon, save as to any
default on the part of the Landlord of which the Tenant does not have notice as
of the date thereof. If the Tenant fails to give such statement within
twenty-one (21) days after the receipt of notice requesting same, then the
Landlord may sign such statement as attorney for the Tenant and the contents of
such statement shall be binding on the Tenant.
4.12 QUIET ENJOYMENT - Provided that the Tenant is not in default under the
terms of this Lease, the Tenant shall have quiet enjoyment of the Premises
during the continuance of the Term and any renewals thereof. The Tenant shall
have access to the Leased Premises from the maintenance (front of building) for
receiving guests.
4.13 SUBORDINATION OF LEASEHOLDS - Notwithstanding any clause in the Lease
herein, and any further adjustments thereto that may exist from time to time,
the parties hereto agree that The Toronto Dominion Bank has a first position
charge against the Tenant's leaseholds that are not affixed to the Premises,
ranking ahead of any interest of the Landlord against such leaseholds herein and
having priority over any rights that the Landlord herein may have against such
leaseholds as per the within Lease.
SECTION 5.00 - GENERAL PROVISIONS
5.01 PRIORITY OF LEASE - It is understood and agreed between the parties hereto
that the Term hereby granted shall not have priority over The Toronto Dominion
Bank mortgage presently registered on the property.
5.02 NOTICE OF LEASE - The Tenant shall have the right to register notice of
this Lease at its own expense, and in such case the Tenant will provide at its
own expense a copy of such notice to be registered to the Landlord, which must
be approved and executed by the Landlord, except for sufficient and reasonable
cause, prior to registry.
5.03 PLANNING ACT - This Lease is entered into subject to the condition that it
is to be effective only on obtaining such consents, if any, as may be required
under the Planning Act, R.S.O. 1980, as amended, or any successor legislation or
other statute which may hereafter be passed to take the place of the said Act or
to amend the same, and provided that such consents are granted on conditions
which are acceptable to the Landlord.
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<PAGE> 44
5.04 NOTICE - Any notice required to be given hereunder to the Tenant or in
connection with the Lease, for any purpose, may be sufficiently given if sent by
registered post prepaid to the Tenant at 350 Creditstone Road, Unit #D, Concord,
Ontario, L4K 2E8. Any notice for the Landlord may be sufficiently given if
delivered to the Landlord personally or, if sent by registered post prepaid to
the Landlord at 350 Creditstone Road, Unit #C, Concord, Ontario, L4K 3X2. The
said notice shall be deemed to have been given on the third (3rd) Business Day
following the day when it is deposited in a post office in the Regional
Municipality of York (where "Business Day" in this Lease means any day other
than a Saturday, Sunday or statutory holiday in Ontario).
5.06 TIME OF THE ESSENCE - Time shall be of the essence of this Lease.
5.07 AMENDMENTS - This Lease may not be modified or amended except by instrument
in writing signed by the Landlord and Tenant.
5.08 WAIVER - No waiver by either party of any breach by the other party of any
of its terms, covenants, obligations and stipulations, conditions and agreements
under this Lease shall be a waiver of any subsequent breach or of any other
term, covenant, obligation and stipulation, condition and agreement contained
herein, nor shall any forbearance to seek a remedy for any breach be a waiver of
any rights and remedies with respect to such or any subsequent breach.
5.09 SERVERABILITY - If any terms, covenants, obligations and stipulations,
conditions and agreements contained herein this Lease, or part thereof, or the
application thereof to any person or circumstance shall, to any extent, be
declared invalid or unenforceable by a court of competent jurisdiction, the
remainder of this Lease or the application of such terms, covenants, obligations
and stipulations, conditions and agreements contained herein to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant, obligation and
stipulation, condition and agreement contained herein this Lease shall be
separately valid and enforceable to the fullest extent permitted.
5.10 HEADINGS - The article headings and section headings in this Lease have
been inserted for convenience of reference only and do not form part of this
Lease. Such headings shall not be referred to in the interpretation of this
Lease.
5.11 CHANGES REQUIRED BY CONTEXT - This Lease shall be read with all changes of
gender and number required by the context.
5.12 ASSIGNS - This Lease shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, administrators, executors, successors
and assigns.
5.13 FURTHER ACTIONS - The Tenant and the Landlord covenant with the each other
to do, execute and provide all other things as may be required by the other to
give effect to the terms, covenants, obligations and stipulations, conditions
and agreements contained herein of each other under this Lease.
5.14 APPLICABLE LAW - This Lease shall be construed in accordance with the laws
of the Province of Ontario, and of Canada as applicable therein.
5.15 WHOLE AGREEMENT - This Lease contains the whole agreement
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<PAGE> 45
between the parties with respect to the subject matter of this Lease. There is
no representation, warranty, collateral agreement or condition affecting the
Building, the Premises, or this Lease, or supported by this Lease other than as
expressed in this Lease. The schedules and appendices to this Lease form part of
this Lease.
IN WITNESS WHEREOF the parties hereto have affixed their hand and
corporate seals, as applicable, as attested by the hands of their proper signing
officer duly authorized in that behalf.
SIGNED, SEALED AND DELIVERED )
in the presence of )
)
) ALCONE HOLDINGS LTD.
)
) ----------------------------------------
) PER. Ernesto Cascone, President
) I have authority to bind the Corporation
)
)
) THORNHILL BAKERY LIMITED
)
) ----------------------------------------
) PER.
) I have authority to bind the Corporation
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<PAGE> 46
between the parties with respect to the subject matter of this Lease. There is
no representation, warranty, collateral agreement or condition affecting the
Building, the Premises, or this Lease, or supported by this Lease other than as
expressed in this Lease. The schedules and appendices to this Lease form part of
this Lease.
IN WITNESS WHEREOF the parties hereto have affixed their hand and
corporate seals, as applicable, as attested by the hands of their proper signing
officer duly authorized in that behalf.
SIGNED, SEALED AND DELIVERED )
in the presence of )
)
) ALCONE HOLDINGS LTD.
)
) ----------------------------------------
) PER. Ernesto Cascone, President
) I have authority to bind the Corporation
)
)
) THORNHILL BAKERY LIMITED
)
) ----------------------------------------
) PER.
) I have authority to bind the Corporation
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<PAGE> 1
[LETTERHEAD OF SCOTIABANK]
April 15, 1999
International Menu Solutions Inc.
c/o 620 Colby Drive
Waterloo, Ontario
Attention: M.A. Steele, President
Dear Sir:
We confirm that subject to acceptance by you, The Bank of Nova Scotia (the
"Bank") will make available to International Menu Solutions Inc. (the
"Borrower"), credit facilities on the terms and conditions set out in the
attached Terms and Conditions Sheet and Schedule "A".
If the arrangements set out in this letter, and in the attached Terms and
Conditions Sheet and Schedule "A" (collectively the "Commitment Letter") are
acceptable to you, please sign the enclosed copy of this letter in the space
indicated below and return the letter to us by the close of business on April
23, 1999, after which date this offer will lapse.
Yours very truly,
/s/ C.W. MacDonald /s/ M.J. Field
C.W. MacDonald M.J. Field
Senior Account Manager Vice President & Manager
The arrangements set out above and in the attached Terms and Conditions
Sheet and Schedule "A" (collectively the "Commitment Letter") are hereby
acknowledged and accepted by:
GUARANTORS
INTERNATIONAL MENU SOLUTIONS INC. PRIME FOODS PROCESSING INC.
- - ----------------------------------- -----------------------------------
Name Name
By: /s/ [ILLEGIBLE] President By: /s/ [ILLEGIBLE] Director
- - ----------------------------------- -----------------------------------
Title: Title:
Date: April 16/99. Date: April 16/99.
--------------------------- ------------------------------
GUARANTORS (cont'd.)
TRANSCONTINENTAL GOURMET FOODS INC. NORBAKCO LIMITED
- - ----------------------------------- -----------------------------------
Name Name
By: /s/ [ILLEGIBLE] President By: /s/ [ILLEGIBLE] Director
- - ----------------------------------- -----------------------------------
Title: Vice President & CEO Title: Vice President & CEO
Date: April 16/99. Date: April 16/99.
--------------------------- ------------------------------
<PAGE> 2
GUARANTORS (cont'd.)
1188980 ONTARIO INC. D.C. FOOD PROCESSING, INC./
O/A TASTY BATTERS / Tasty Selections Inc. 1005549 ONTARIO LIMITED
- - ----------------------------------------- -----------------------------------
Name Name
By: /s/ [ILLEGIBLE] Director. By:
- - ----------------------------------------- -----------------------------------
Title: Title:
Date: April 16/99. Date:
--------------------------- ------------------------------
<PAGE> 3
Page 1
TERMS AND CONDITIONS
CREDIT NUMBER: 01 AUTHORIZED AMOUNT: $10,000,000
- - --------------------------------------------------------------------------------
TYPE
Operating
PURPOSE
General operating requirements
CURRENCY
Canadian dollars
AVAILMENT
The Borrower may avail the Credit by way of direct advances evidenced by
Agreement re Operating Credit Line and/or Bankers' Acceptances in Canadian
dollars in multiples of $500,000 (subject to a minimum availment amount of
$500,000) and having terms of maturity of 30 to 180 days without grace.
INTEREST RATE
The Bank's Prime Lending Rate from time to time, plus 1/2% per annum with
interest payable monthly. (PRIME ON PORTION SECURED BY CASH OR TERM
DEPOSIT)
The Bank's Commercial Bankers' Acceptance Fee, (subject to revision at any
time), plus 1% per annum, payable at the time of each acceptance.
REPAYMENT
Advances are repayable on demand.
SPECIFIC SECURITY
The following security, evidenced by documents in form satisfactory to the
Bank and registered or recorded as required by the Bank, is to be provided
prior to any advances or availment being made under the Credit:
Authority to hold funds in the amount of $4,000,000.
Agreement re Operating Credit Line.
Bankers' Acceptance Agreement.
<PAGE> 4
Page 2
SPECIFIC CONDITIONS
Until all debts and liabilities under the Credit have been discharged in
full, the following conditions will apply in respect of the Credit:
Operating loans are not to exceed at any time the aggregate of 80%
of good quality accounts receivable plus cash security (with the
requirement the first $4,000,000 availed has the benefit of cash
security), excluding accounts over 90 days, accounts due by
employees, offsets and inter-company accounts, less security
interests or charges held by other parties and specific payables
which have or may have priority over the Bank's security.
CREDIT NUMBER: 02 AUTHORIZED AMOUNT: $3,500,000
- - --------------------------------------------------------------------------------
TYPE
364 Day Revolving Term
This facility may be drawn down up to and including 364 days from
acceptance hereof. The Borrower has the option, provided at least 60 days
written notice has been provided, to extend the facility for a further 364
days, with such extension subject to no event of default having occurred
and subject to Bank approval.
PURPOSE
To finance sundry equipment
CURRENCY
Canadian dollars
AVAILMENT
The Borrower may avail the Credit by way of direct advances evidenced by
Demand Promissory Notes.
INTEREST RATE
The Bank's Prime Lending Rate from time to time, plus 1 1/4% per annum
with interest payable monthly.
FEES
A Standby Fee of 1/2% per annum on the daily unused portion of the Credit
is payable monthly from the date of acceptance of this commitment. (BASED
OR LESS THAN 75% UTILIZATION ANNUALLY)
DRAWDOWN
Advances are to be made in minimum multiples of $250,000.
REPAYMENT
Advances are repayable on demand.
<PAGE> 5
Page 3
PREPAYMENT
Prepayment is permitted without penalty at any time in whole or in part.
SPECIFIC SECURITY
The following security, evidenced by documents in form satisfactory to the
Bank and registered or recorded as required by the Bank, is to be provided
prior to any advances or availment being made under the Credit:
Schedule "A" to the General Security Agreement covering the
equipment purchased.
SPECIFIC CONDITIONS
Prior to any drawdown, the Bank is to be satisfied with the quality, value
and eligibility of all assets to be financed.
OPTIONAL AVAILMENTS WITHIN CREDIT NO. 2 ABOVE
The Borrower has the following availment options under the Credit:
OPTION 1 - TERM PROMISSORY NOTES
At any time during the 364 day period, provided no event of default
exists, the Borrower may convert to a term facility the whole, or a
portion of outstandings as follows:
AMOUNT: Minimum of $250,000 per note amount
AVAILMENT: By Term Promissory Note
TERM: Up to 5 years
FLOATING RATE: The Bank's Prime Lending Rate from time to time
plus 1 1/4% per annum with interest payable monthly.
FIXED RATE: The rate applicable to each advance will be set on the
date of conversion based upon the Bank's Base for Fixed
Rates plus 2% per annum, calculated and payable monthly.
REPAYMENT
Each advance is repayable in up to 60 equal monthly installments of
principal commencing within one month of each drawdown. The term of each
advance is not to exceed 5 years and the amortization is not to exceed 5
years.
PREPAYMENT
Floating Rate
Prepayment is permitted without penalty at any time in whole or in part.
<PAGE> 6
Page 4
Fixed Rate
Prepayment of the loan in whole or in part is permitted at any time on
payment of an amount equal to the greater of:
i) three months simple interest at the rate applicable to the loan on
the principal amount prepaid; and
ii) the amount, if any, by which interest at the rate applicable to the
loan exceeds interest at the prevailing rate at the time of
prepayment calculated on the amount of the principal prepayment for
the remaining term of the loan. The "prevailing rate at the time of
prepayment" is defined as that rate at which the Bank would then
lend to the Borrower, based on the same security, for the remaining
term of the loan.
OPTION 2 - NON-REVOLVING (SCOTIA LEASING)
AMOUNT
Minimum of $250,000 per Lease contract
AVAILMENT
Lease Agreements/Conditional Sales Contract with appropriate supporting
documentation.
INTEREST RATE
Floating Rate
The base payment applicable to each contract will be set on the
commencement date of the contract based upon the Bank's Prime Lending Rate
plus 1 1/4% per annum, calculated and payable monthly. The total periodic
payment will be adjusted monthly with changes in the Bank's Prime Lending
Rate.
Fixed Rate
The payment applicable to each contract will be set on the commencement
date of the contract based on the published Scotia Leasing's Base Rate
plus 2% per annum, calculated and payable monthly.
REPAYMENT
Leases and/or conditional sale contracts are repayable in accordance with
the terms and conditions of each respective lease or conditional sale
contract. The maximum term of any such lease or conditional sale contract
shall not exceed 60 months.
At the end of the term to option, the lessee shall elect one of the
following options:
a. purchase the equipment for not more than 20% of the original cost;
b. allow a third party who has agreed with the Bank to purchase the
equipment for not more than 20% of the original cost;
<PAGE> 7
Page 5
c. rent the equipment for an additional term and revised rent payment
to be authorized by the Bank.
PREPAYMENT
Leases and/or conditional sale contracts are not cancellable, and no
prepayments of principal are permitted.
SPECIFIC SECURITY
The following security, evidenced by documents in form satisfactory to the
Bank and registered or recorded as required by the Bank, is to be provided
prior to any advances or availment being made under the Credit:
Lease Agreement(s)/Conditional Sale Contract(s) covering equipment
leased/financed, together with applicable supporting documentation.
Comprehensive General Liability insurance for a minimum of
$2,000,000 per occurrence with the Bank recorded as an additional
named insured. All risks insurance covering the replacement value of
the equipment with the Bank recorded as loss payee and additional
named insured.
Resolution of Directors authorizing leases.
Progress Payment Agreement under which the Borrower may act on
behalf of the Bank in the ordering and acquisition of equipment to
be leased. The total cost of the equipment to be acquired under this
agreement shall not exceed the amount of this credit.
SPECIFIC CONDITION
Prior to any drawdown, the Bank is to be satisfied with the quality,
value, and eligibility of all assets to be leased or financed.
NOTE: The aggregate of outstandings under advances payable on demand and Options
1 and 2 is not to exceed $3,500,000 at any time.
ADDITIONAL FACILITY
Subject to availability and execution of mutually satisfactory
documentation the Borrower may enter into Forward Exchange Contracts with
the Bank for maximum terms of up to one year.
Maximum aggregate Forward Exchange Contracts outstanding at any one time
are not to exceed $7,500,000 U.S. dollars.
GENERAL FEES
An Application Fee of $20,000 has been paid, $15,000 of which is
refundable if this offer is not accepted by the Borrower.
A Commitment Fee of $30,000 is payable upon acceptance of this commitment.
<PAGE> 8
Page 6
CONDITIONS PRECEDENT
Prior to any advances being made, the Bank is to be provided with the
following in form and substance satisfactory to the Bank:
Audited consolidated December 31, 1998 financial statements.
Auditor prepared unconsolidated statements for the Borrower and all
individual operating companies, identified as guarantors under
"General Security" below.
Evidence of compliance with all environmental and other regulatory
requirements.
Evidence of Year 2000 compliance.
Evidence of a minimum of $8,000,000 additional equity by way of
deeply subordinated debt and/or convertible debentures and/or common
shares.
Opening pro forma Balance Sheet to reflect additional capital/equity
and impact of new acquisitions.
Due diligence is to be to the Bank's satisfaction and will include receipt
and review of the foregoing, but without limitation thereto should the
Bank, at its sole discretion, require completion of due diligence with
respect to any other area.
GENERAL SECURITY, TERMS AND CONDITIONS APPLICABLE TO ALL CREDITS
GENERAL SECURITY
The following security, evidenced by documents in form satisfactory to the
Bank providing for a first security interest on all assets and
undertakings of the company, except for specific permitted encumbrances to
be identified and agreed to by the Bank securing loans to other creditors,
registered or recorded as required by the Bank, is to be provided prior to
any advances or availment being made under the Credits:
General Assignment of Book Debts.
General Security Agreement over all present and future personal
property with appropriate insurance coverage, loss if any, payable
to the Bank.
Life Insurance in the face amount of $2,500,000 on the life of
Michael Steele assigned to the Bank.
Priority Agreement with Sub Debt/Debenture Lenders and Business
Development Corporation giving the Bank priority over all assets
except specific assets financed by other parties.
<PAGE> 9
Page 7
Guarantees given by the following (with corporate seals and
resolutions as applicable) in the amounts shown:
NAME AMOUNT
---- ------
Prime Foods Processing Inc.* Unlimited
Transcontinental Gourmet Foods Inc.* Unlimited
Norbakco Limited** Unlimited
1188980 Ontario Inc. o/a Tasty Batters* Unlimited
D.C. Food Processing Inc./
1005549 Ontario Limited* Unlimited
To be secured by:
* General Security Agreement over all present and future personal
property with appropriate insurance coverage, loss if any, payable
to the Bank.
** In the event of 100% ownership being acquired, the unlimited
guarantee is to be secured by a General Security Agreement.
GENERAL CONDITIONS
Until all debts and liabilities under the Credits have been discharged in
full, the following conditions will apply in respect of the Credits:
The ratio of Consolidated Debt (including deferred taxes) to
Tangible Net Worth (TNW) is not to exceed 2:1.
TNW is defined as the sum of share capital, earned and contributed
surplus, postponed funds, deeply subordinated debt shall also
include convertible debentures having maturities in excess of one
year and convertible debentures less (i) amounts due from
officers/affiliates, (ii) investments in affiliates, and (iii)
intangible assets as defined by the Bank.
The ratio of current assets to current liabilities is to be
maintained at all times at 1.25:1 or better.
Without the Bank's prior written consent (which will not be
unreasonably withheld)
No dividends, withdrawals, bonuses, advances to shareholders,
management or affiliates are permitted.
No change in ownership is permitted.
No mergers, acquisitions or change in the Borrower's line of
business are permitted (other than acquisitions as now
contemplated, namely, 1188980 Ontario Inc. t/a Tasty Batters,
D.C. Food Processing Inc./1005549 Ontario Limited and
remaining 41% of Norbakco Limited).
Cumulative capital expenditures are not to exceed $6,000,000
for the fiscal year ending December 31, 1999.
The Borrower will not grant or permit a Purchase Money
Security Interest to any supplier or creditor.
Guarantees or other contingent liabilities are not to be
entered into and assets are not to be further encumbered.
<PAGE> 10
Page 8
The Borrower shall permit the Bank, or its agents, access, at all
reasonable times, to all premises where the collateral covered by
the Bank's security may be located and the Bank or its agents may
inspect such collateral and all related documents and records.
For ongoing Credit Risk management purposes, all operating accounts
of the Borrower shall be maintained with the Bank as long as the
Borrower has any operating line facilities with the Bank.
GENERAL BORROWER REPORTING CONDITIONS
Until all debts and liabilities under the Credits have been discharged in
full, the Borrower will provide the Bank with the following:
Annual Audited Consolidated Financial Statements, within 120 days of
the Borrower's fiscal year end, duly signed.
Annual Prepared Unconsolidated Financial Statements for all
operating and guarantor subsidiaries, within 120 days of the
Borrower's fiscal year end, duly signed.
Quarterly Consolidated and Unconsolidated Financial Statements
within 60 days of period end.
A Consolidated Statement of Security monthly, to include information
on inventory, accounts receivable and accounts payable, within 20
days of period end.
Quarterly Aged Listing of Receivables within 20 days of period end.
Quarterly Aged Listing of Trade Accounts Payable within 20 days of
period end.
<PAGE> 11
Page 9
SCHEDULE A
ADDITIONAL TERMS AND CONDITIONS APPLICABLE
TO ALL CREDITS
(In the event of a conflict, the terms and conditions of any lease
agreement and/or conditional sale contract supersede the terms and
conditions in this Schedule A with regard to such leases and/or
conditional sale contracts).
Calculation and Payment of Interest
1. Interest on loans/advances made in Canadian dollars will be calculated on
a daily basis and payable monthly on the 22nd day of each month (unless
otherwise stipulated by the Bank). Interest shall be payable not in
advance on the basis of a calendar year for the actual number of days
elapsed both before and after demand of payment or default and/or
judgment.
Interest on Overdue Interest
2. Interest on overdue interest shall be calculated at the same rate as
interest on the loans/advances in respect of which interest is overdue,
but shall be compounded monthly and be payable on demand, both before and
after demand and judgment.
Calculation and Payment of Bankers' Acceptance Fee
3. The fee for the acceptance of each Bankers' Acceptance will be payable on
the face amount of each Bankers' Acceptance at the time of acceptance of
each draft calculated on the basis of a calendar year for the actual
number of days elapsed from and including the date of acceptance to the
due date of the draft.
Environment
4. The Borrower agrees:
(a) to obey all applicable laws and requirements of any federal,
provincial, or any other governmental authority relating to the
environment and the operation of the business activities of the
Borrower;
(b) to allow the Bank access at all times to the business premises of
the Borrower to monitor and inspect all property and business
activities of the Borrower;
(c) to notify the Bank from time to time of any business activity
conducted by the Borrower which involves the use or handling of
hazardous materials or wastes or which increases the environmental
liability of the Borrower in any material manner;
(d) to notify the Bank of any proposed change in the use or occupation
of the property of the Borrower prior to any change occurring;
<PAGE> 12
Page 10
(e) to provide the Bank with immediate written notice of any
environmental problem and any hazardous materials or substances
which have an adverse effect on the property, equipment, or business
activities of the Borrower and with any other environmental
information requested by the Bank from time to time.
(f) to conduct all environmental remedial activities which a
commercially reasonable person would perform in similar
circumstances to meet its environmental responsibilities and if the
Borrower fails to do so, the Bank may perform such activities; and
(g) to pay for any environmental investigations, assessments or remedial
activities with respect to any property of the Borrower that may be
performed for or by the Bank from time to time.
If the Borrower notifies the Bank of any specified activity or change or
provides the Bank with any information pursuant to subsections (c), (d),
or (e), or if the Bank receives any environmental information from other
sources, the Bank, in its sole discretion, may decide that an adverse
change in the environmental condition of the Borrower or any of the
property, equipment, or business activities of the Borrower has occurred
which decision will constitute, in the absence of manifest error,
conclusive evidence of the adverse change. Following this decision being
made by the Bank, the Bank shall notify the Borrower of the Bank's
decision concerning the adverse change.
If the Bank decides or is required to incur expenses in compliance or to
verify the Borrower's compliance with applicable environmental or other
regulations, the Borrower shall indemnify the Bank in respect of such
expenses, which will constitute further advances by the Bank to the
Borrower under this Agreement.
Initial Drawdown
5. The right of the Borrower to obtain the initial drawdown under the
Credit(s) is subject to the condition precedent that there shall not have
been any material adverse changes in the financial condition or the
environmental condition of the Borrower or any guarantor of the Borrower.
Periodic Review
6. The obligation of the Bank to make further advances or other accommodation
available under any Credit(s) of the Borrower under which the indebtedness
or liability of the Borrower is payable on demand, is subject to periodic
review and to no adverse change occurring in the financial condition or
the environmental condition of the Borrower or any guarantor.
Evidence of Indebtedness
7. The Bank's accounts, books and records constitute, in the absence of
manifest error, conclusive evidence of the advances made under this
Credit, repayments on account thereof and the indebtedness of the Borrower
to the Bank.
<PAGE> 13
Page 11
Acceleration
8. (a) All indebtedness and liability of the Borrower to the Bank payable
on demand, is repayable by the Borrower to the Bank at any time on
demand;
(b) All indebtedness and liability of the Borrower to the Bank not
payable on demand, shall, at the option of the Bank, become
immediately due and payable, the security held by the Bank shall
immediately become enforceable, and the obligation of the Bank to
make further advances or other accommodation available under the
Credits shall terminate, if any one of the following Events of
Default occurs:
(i) the Borrower or any guarantor fails to make when due, whether
on demand or at a fixed payment date, by acceleration or
otherwise, any payment of interest, principal, fees,
commissions or other amounts payable to the Bank;
(ii) there is a breach by the Borrower or any guarantor of any
other term or condition contained in this Commitment Letter or
in any other agreement to which the Borrower and/or any
guarantor and the Bank are parties;
(iii) any default occurs under any security listed in this
Commitment Letter under the headings "Specific Security" or
"General Security" or under any other credit, loan or security
agreement to which the Borrower and/or any guarantor is a
party;
(iv) any bankruptcy, re-organization, compromise, arrangement,
insolvency or liquidation proceedings or other proceedings for
the relief of debtors are instituted by or against the
Borrower or any guarantor and, if instituted against the
Borrower or any guarantor, are allowed against or consented to
by the Borrower or any guarantor or are not dismissed or
stayed within 60 days after such institution;
(v) a receiver is appointed over any property of the Borrower or
any guarantor or any judgement or order or any process of any
court becomes enforceable against the Borrower or any
guarantor or any property of the Borrower or any guarantor or
any creditor takes possession of any property of the Borrower
or any guarantor;
(vi) any course of action is undertaken by the Borrower or any
guarantor or with respect to the Borrower or any guarantor
which would result in the Borrower's or guarantor's
reorganization, amalgamation or merger with another
corporation or the transfer of all or substantially all of the
Borrower's or any guarantor's assets;
(vii) any guarantee of indebtedness and liability under the Credit
Line is withdrawn, determined to be invalid or otherwise
rendered ineffective;
<PAGE> 14
Page 12
(viii) any adverse change occurs in the financial condition of the
Borrower or any guarantor.
(ix) any adverse change occurs in the environmental condition of:
(A) the Borrower or any guarantor of the Borrower; or
(B) any property, equipment, or business activities of the
Borrower or any guarantor of the Borrower.
Costs
9. All costs, including legal and appraisal fees incurred by the Bank
relative to security and other documentation and the enforcement thereof,
shall be for the account of the Borrower and may be charged to the
Borrower's deposit account when submitted.
<PAGE> 1
THIS AGREEMENT made as of the 1st day of December, 1998.
AMONG:
INTERNATIONAL MENU SOLUTIONS INC.,
a corporation incorporated under the laws of the Province of
Ontario,
(hereinafter referred to as the "Corporation"),
OF THE FIRST PART,
- and -
LARRY HOFFMAN,
of the Town of Whitchurch, in the Province of Ontario,
(hereinafter referred to as "Executive").
OF THE SECOND PART.
WHEREAS the Corporation wishes to retain the services of the Executive to
provide the services hereinafter described during the term hereinafter set out;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements here contained and for other good and valuable
consideration, the parties agree as follows:
1. TERM
The corporation shall employ the Executive for a period of five (5) years, from
December 1, 1998 to and including November 30, 2003, unless such employment
shall be terminated earlier as hereinafter provided. Upon the expiry of the term
of this Agreement on November 30, 2003, and on each anniversary of such date
falling thereafter, the term of this Agreement shall automatically be extended
for one additional year on the same terms and conditions unless, not less than
three (3) months prior to any such anniversary, either the Executive or the
Corporation shall have given written notice to the other that it does not wish
to further extend this Agreement.
2. DUTIES
The Executive shall serve the Corporation and any subsidiaries of the
Corporation in such capacity or capacities and shall perform such duties and
exercise such powers pertaining to the management and operation of the
Corporation and any affiliates and associates of the Corporation (as those terms
are defined in the Ontario Business Corporations Act) as may be determined from
time to time by the board of directors of the Corporation consistent with the
officer of the Executive. Without limitation of the foregoing, the Executive
shall occupy the office of Vice-President and Chief Financial Officer of the
Corporation.
1
<PAGE> 2
The Executive shall:
(a) devote his full time and attention and his best efforts during
normal business hours to the business and affairs of the
Corporation;
(b) perform those duties that may reasonably be assigned to the
Executive diligently and faithfully to the best of the Executive's
abilities and in the best interests of the Corporation; and
(c) use his best efforts to promote the interests and goodwill of the
Corporation.
The Executive shall not during the period that the Executive is an employee of
the Corporation have any interest either directly or indirectly in any party
that is a supplier or customer to the Corporation or any affiliates or
associates of the Corporation.
3. REPORTING PROCEDURES
The Executive shall report to Mr. Michael A. Steele, President of the
Corporation. The Executive shall report fully on the financial affairs of the
Corporation and its affiliates and advise to the best of his ability and in
accordance with reasonable business standards on matters that may arise from
time to time during the term of this Agreement.
4. SALARY
The salary payable to the Executive for his services hereunder for the Term
shall be at the rate of One Hundred and Twenty-Five Thousand Dollars
($125,000.00) per annum, exclusive of benefits as provided in this Agreement.
The annual salary payable to the Executive pursuant to the provisions of this
Section 4 shall be payable in arrears in such manner as may be mutually agreed
upon, less such deductions or withholdings required by law.
The fiscal year of the Corporation ends on December 31. The remuneration shall
be reviewed each year during the thirty day period following the completion of
the audited financial statements for the Corporation commencing for the fiscal
year ending December 31, 1999. The remuneration will then be determined for the
fiscal year commencing on the January 1 prior to such determination. The
appropriate adjustment for the period from January 1 to the date of
determination shall be made for the review will be undertaken by assessing the
Employee's achievement of the over-all objectives established by the Corporation
and by having regard to the market rates of remuneration paid in Canada for
similar duties and responsibilities. Provided that in no event shall the
Executive's remuneration be adjusted to an amount less than the prior year's
remuneration.
5. BENEFITS
The Executive shall have the right to participate in the Corporation's group
insurance plan.
2
<PAGE> 3
The Corporation shall provide to the Executive during the calendar year 1999 a
stock option plan substantially in the form provided in the attached Schedule
"A", but subject to compliance with applicable securities laws and listing
requirements, the particulars of which will be determined by the board of
directors of International Menu Solutions Corporation. Such options shall be
commensurate with options granted within other operating divisions of
International Menu Solutions Corporation and its affiliates.
6. VACATION
The Executive shall be entitled during the first year of the Term to four (4)
weeks annual vacation and thereafter to six (6) weeks during each year of the
Term provided that only two (2) weeks shall be taken consecutively in any one
year. A vacation of more than two (2) consecutive weeks shall require the prior
approval of the President of the Corporation.
In the event that the Executive decides not to take all the vacation to which he
is entitled in any fiscal year, the Executive shall be entitled to take the
unused portion of such vacation in the next following fiscal year at a time
approved in advance by the President.
7. AUTOMOBILE
The Corporation shall pay to the Executive an automobile expense allowance in
the amount of Eight Hundred Dollars ($800.00) plus applicable taxes per month
for the cost to lease an automobile. The Corporation shall pay or reimburse the
Executive for all reasonable operating costs of this vehicle, including leasing
costs, insurance, maintenance, gas and oil, properly incurred or to be incurred
in connection with the Executive carrying out his duties hereunder. The
Executive shall supply the Corporation with the originals of all invoices or
statements in respect of which the Executive seeks reimbursement.
8. EXPENSES
The Executive shall be reimbursed for all reasonable travel and other
out-of-pocket expenses actually and properly incurred by the Executive from time
to time in connection with carrying out his duties hereunder. For all such
expenses the Executive shall furnish to the Corporation originals of all
invoices or statements in respect of which the Executive seeks reimbursement.
9. TERMINATION
(a) For Cause
The Corporation may terminate the employment of the Executive without
notice or any payment in lieu of notice for cause which, without limiting the
generality of the foregoing, shall include:
3
<PAGE> 4
(i) if there is a repeated and demonstrated failure on the part of
the Executive to perform the material duties of the Executive's position
in a competent manner and where the Executive fails to substantially
remedy the failure within a reasonable period of time after receiving
written notice of such failure from the Corporation;
(ii) if the Executive is convicted of a criminal offence involving
fraud or dishonesty;
(iii) if the Executive or any member of his family makes any
personal profit arising out of or in connection with a transaction to
which the Corporation is a party or with which it is associated without
making disclosure to and obtaining the prior written consent of the
Corporation;
(iv) if the Executive fails to honour his fiduciary to the
Corporation, including the duty to act in the best interests of the
Corporation; or
(v) if the Executive disobeys reasonable instructions given in the
course of employment by the Chairman or the board of directors of the
Corporation that are not inconsistent with the Executive's management
position and not remedied by the Executive within a reasonable period of
time after receiving written notice of such disobedience.
(b) For Disability/Death:
This Agreement may be immediately terminated by the Corporation by notice
to the Executive if the Executive becomes permanently disabled. The Executive
shall be deemed to have become permanently disabled if in any year during the
employment period, because of ill health, physical or mental disability, or for
other causes beyond the control of the Executive, the Executive has been
continuously unable or unwilling or has failed to perform the Executive's duties
for 120 consecutive days, or if, during any year of the employment period, the
Executive has been unable or unwilling or has failed to perform his duties for a
total of 180 days, consecutive or not. The term "any year of the employment
period" means any period of 12 consecutive months during the employment period.
This Agreement shall terminate without notice upon the death of the Executive.
10. SEVERANCE PAYMENTS
(a) Upon termination of the Executive's employment: (i) for cause; (ii) by
the voluntary termination of employment of the Executive; or (iii) by the
non-renewal of this Agreement, the Executive shall not be entitled to any
severance payment other than compensation earned by the Executive before the
date of termination calculated pro rata up to and including the date of
termination, together with any amount to which the Executive is entitled under
the Employment Standards Act (Ontario), as amended and in force from time to
time.
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(b) if the Executive's employment is terminated for any other reason other
than the reason set forth subsection 10(a), the Executive shall be entitled to
receive the lesser of:
(i) the total of:
(A) 24 months' salary at the then applicable base salary rate;
(B) the present value, as determined by the Chairman, acting
reasonably, of the benefits described in section 5 that would be
enjoyed by the Executive during the next 24 months assuming his
employment was not terminated and assuming the then current level of
benefits were continued for those 24 months; and
(C) the present value, as determined by the Chairman, acting
reasonably, of the amounts that would have been paid by the
Corporation or reimbursed to the Executive pursuant to section 7
during the next 24 months assuming that his employment had not been
terminated; and
(ii) the salary otherwise payable to the Executive for the unexpired
term of this Agreement together with the other amounts described in clause
10(b)(i), mutatis mutandis, provided that in no case will the Executive
receive less than the amount to which he is entitled under the Employment
Standards Act (Ontario).
The payment described in this subsection 10(b) is the only severance payment the
Executive will receive in the event of the termination of this Agreement for
reasons contemplated in this subsection 10(b).
(c) If the Executive's employment is terminated as result of the permanent
disability or death of the Executive, the Executive or his estate, as
applicable, shall be entitled to receive, within 30 days of the date of such
termination, the balance of the base salary that would otherwise be paid to the
Executive during the remainder of the term of this Agreement. The Executive
agrees to reasonably comply with all requirements necessary for the Corporation
to obtain life insurance for the term of this Agreement.
(d) For the purposes of this section 10, whenever a payment is to be
determined with reference to the remaining term of this Agreement, if less than
six months remain in the term of this Agreement and no party has given notice of
its intention not to renew this Agreement as contemplated by section 1, the
"remaining term of this Agreement" shall include the remainder of the then
existing term of this Agreement plus the renewal period.
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11. CONFIDENTIALITY
The Executive acknowledges and agrees that:
(a) in the course of performing his duties and responsibilities as an
officer of the Corporation, he has had and will continue in the
future to have access to and has been and will be entrusted with
detailed confidential information and trade secrets (printed or
otherwise) concerning past, present, future and contemplated
products, services, operations and marketing techniques and
procedures of the Corporation and its subsidiaries, including,
without limitation, information relating to addresses, preferences,
needs and requirements of past, present and prospective clients,
customers, suppliers and employees of the Corporation and its
subsidiaries (collectively, "Trade Secrets"), the disclosure of any
of which to competitors of the Corporation or to the general public,
or the use of same by the Executive or any competitor of the
Corporation or any of its subsidiaries, would be highly detrimental
to the interests of the Corporation;
(b) in the course of performing his duties and responsibilities for the
Corporation, the Executive has been and will continue in the future
to be a representative of the Corporation to its customers, clients
and suppliers and as such has had and will continue in the future to
have significant responsibility for maintaining and enhancing the
goodwill of the Corporation with such customers, clients and
suppliers and would not have, except by virtue of the employment
with the Corporation, developed a close and direct relationship with
the customers, clients and suppliers of the Corporation;
(c) the Executive, as an officer of the Corporation, owes fiduciary
duties to the Corporation, including the duty to act in the best
interests of the Corporation; and
(d) the right to maintain the confidentiality of the Trade Secrets, the
right to preserve the goodwill of the Corporation and the right to
the benefit of any relationships that have developed between the
Executive and the customers, clients and suppliers of the
Corporation by virtue of the Executive's employment with the
Corporation constitute proprietary rights of the Corporation, which
the Corporation is entitled to protect.
In acknowledgment of the matters described above and in consideration of the
payments to be received by the Executive pursuant to this Agreement, unless
otherwise agreed in writing by the Executive and the Corporation, the Executive
hereby agrees that he will not, directly or indirectly, disclose to any person
or in any way make use of (other than for the benefit of the Corporation), in
any manner, any of the Trade Secrets, provided that such Trade Secrets shall be
deemed not to include information that is or becomes generally available to the
public other than as a result of disclosure by the Executive.
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12. INVENTIONS
(a) Original Development. The Executive represents and warrants to the
Corporation that all work that he performs for or on behalf of the Corporation
and all work product that he produces, including but not limited to receipts,
documentation, memoranda, ideas, designs, inventions, processes, etc. ("Work
Products"), will not knowingly, other than where the Corporation has the right
and license to do so, infringe upon or violate any patent, copyright, trade
secret or other property right of any former employer or of any other third
party.
(b) Disclosure. The Executive will promptly disclose to the Corporation
all Work Products developed by him within the scope of his employment with the
Corporation or which relate directly to or involve the use of any Trade Secrets,
including but not limited to all software, all concepts, ideas and designs and
all documentation, manuals, letters, pamphlets, drafts, memoranda and other
documents, writings or tangible things of any kind.
(c) Copyright Ownership. The Executive acknowledges and agrees that all
copyrightable Work Products prepared by him within the scope of his employment
with the Corporation are "works made for hire" and, consequently, that the
Corporation owns all rights and copyrights thereto; provided that, where the
Work Products are derivative work of works licensed to the Corporation by third
parties, such third parties will continue to own all right and copyright to
their work.
(d) Assignment. The Executive hereby assigns to the Corporation all of his
other rights, title and interest (including but not limited to all patent,
copyright and trade secret rights) in and to all Work Products prepared by him,
whether patentable or not, made or conceived in whole or in part by him within
the scope of his employment by the Corporation or that relate directly to or
involve the use of Trade Secrets.
(e) Documents. The Executive will execute all documents reasonably
requested by the Corporation to further evidence the foregoing assignment and to
provide all reasonable assistance to the Corporation (at the Corporation's
expense) in perfecting or protecting any or all of the Corporation's rights in
his Work Products.
(f) Pre-existing Inventions Not Assigned. The Executive represents that
all inventions, expressions of ideas or other Work Products not related to the
Corporation's business and created prior to the date of this Agreement in which
the Executive has any right, title or interest are not assigned to the
Corporation.
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13. NON-COMPETITION
(a) The Executive recognizes and acknowledges that in the course of his
services with the Corporation he may obtain knowledge of confidential and
proprietary information of a special and unique nature and value and become
familiar with Trade Secrets of the Corporation relating to the conduct and
details of the Corporation's business. Therefore, it is possible that he could
cause grave and irreparable harm to the Corporation which could not be
adequately compensated by monetary damages if he entered into the services of a
rival competitive concern or entered into the business of the Corporation
himself anywhere in North America.
(b) After the termination of the Executive's services for any reason, the
Executive will not compete with the Corporation in the retail food home meal
replacement and associated food replacement services as undertaken by the
Corporation at the time of the termination of the Executive's services in North
America, directly or indirectly, in any manner whatsoever, including without
limitation, either individually or in a partnership or jointly, or in
conjunction with any other person or persons, as principal, agent, shareholder,
Executive, contractor, co-venturer, officer or otherwise within the period of
two (2) years.
(c) The Executive acknowledges and agrees that the foregoing geographical
and time limits are reasonable and properly required for the adequate protection
of the business of the Corporation and, in the event that any geographical or
time limitation is deemed to be unreasonable by a court of competent
jurisdiction, the Executive agrees and submits to the reduction of the
geographical or time limitation to a limit as the court shall deem to be
reasonable.
(d) The Executive agrees that, in the event of a breach or threatened
breach by him of any of the provisions of this paragraph, the Corporation, in
addition to and not in limitation of any of the rights, remedies or damages
available to the Corporation, at law or in equity, shall be entitled to an
injunction in order to prevent or to restrain any breach by the Executive or by
any or all of his partners, co-venturers, employers, Executives, servants,
agents, representatives and any and all persons directly or indirectly acting
for, on behalf of or with the Executive.
(e) The Executive agrees that the restrictions and covenants contained in
this paragraph shall be construed independently of all other provisions of this
Agreement and the existence of any claim or cause of action by the Executive
against the Corporation, whether predicated on this Agreement or otherwise,
shall nor constitute a defence to the enforcement by the Corporation of the
covenants or restrictions; provided, however, if any provision shall be held to
be illegal, invalid or unenforceable in any jurisdiction, the decision shall not
affect any other covenant or provision of this Agreement or the application of
any other covenant or provision.
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14A. OTHER INTERESTS
Save and except an interest of less than 5% of the voting shares of a
corporate entity offering its securities to the public, the Executive covenants
and agrees that so long as he is employed by the Corporation he will not acquire
any interest, either directly or indirectly in any supplier or customer of the
Corporation. In the event that at the date hereof the Executive has such an
interest, either directly or indirectly in any supplier or customer of the
Corporation, then the Executive agrees to dispose of such interest to a party
being arm's length (as such term is defined in the Income Tax Act (Canada)) to
the Executive on or before May 31, 1999.
14. NON-SOLICITATION
The Executive hereby agrees that he will not, during the period commencing on
the date hereof and ending two years following the expiration of the term of
this Agreement, be a party to or abet any solicitation of customers, clients or
suppliers of the Corporation or any of its subsidiaries, to transfer business
from the Corporation or any of its subsidiaries, to any other person, or seek in
any way to persuade or entice any employee of the Corporation or any of its
subsidiaries to leave that employment or to be a party to or abet any such
action.
15. PLACE OF EMPLOYMENT
The Corporation's place of business and the Executive's place of employment is
within the Greater Toronto Area provided that it is understood that the
Executive as part of his duties will undertake extensive travel for the
Corporation.
16. RETURN OF MATERIALS
All files, forms, brochures, books, materials, written correspondence,
memoranda, documents, manuals, computer disk, software products and lists
(including lists of customers, suppliers, products and prices) pertaining to the
business of the Corporation or any of its subsidiaries and associates that may
come into the possession or control of the Executive shall at all times remain
the property of the Corporation or such subsidiary or associate, as the case may
be. On termination of the Executive's employment for any reason, the Executive
agrees to deliver promptly to the Corporation all such property of the
Corporation in the possession of the Executive or directly or indirectly under
the control of the Executive. The Executive agrees not to make for his personal
or business use or that of any other party, reproductions or copies of any such
property or other property of the Corporation.
17. GOVERNING LAW
This agreement shall be governed by and construed in accordance with the laws of
the Province of Ontario.
18. SEVERABILITY
If any provision of this agreement, including the breadth or scope of such
provision, shall be held by any court of competent jurisdiction to be invalid or
unenforceable, in whole or in part, such
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invalidity or unenforceability shall not affect the validity or enforceability
of the remaining provisions, or part thereof, of this agreement and such
remaining provisions, or part thereof, shall remain enforceable and binding.
19. ENFORCEABILITY
The employee hereby confirms and agree that the covenants and restrictions
pertaining to the Executive contained in this agreement, including, without
limitation those contained in Section 11 hereof, are reasonable and valid and
hereby further acknowledges and agree that the Corporation would suffer
irreparable injury in the event of any breach by the Executive of his
obligations under any such covenant or restriction. Accordingly, the Executive
hereby acknowledges and agrees that damages would be an inadequate remedy at law
in connection with any such breach and that the Corporation shall therefore be
entitled in lieu of any action for damages, temporary and permanent injunctive
relief enjoining and restraining the Executive from any such breach.
20. NO ASSIGNMENT
The Executive may not assign, pledge or encumber the Executive's interest in
this agreement nor assign any of the rights or duties of the Executive under
this agreement without the prior written consent of the Corporation.
21. SUCCESSORS
This agreement shall be binding on and enure to the benefit of the successors
and assigns of the Corporation and the heirs, executors, personal legal
representatives and permitted assigns of the Executive.
22. NOTICES
Any notice or other communication required or permitted to be given hereunder
shall be in writing and either delivered by hand or mailed by prepaid registered
mail. At any time other than during a general discontinuance of postal service
due to strike, lock-out or otherwise, a notice so mailed shall be deemed to have
been received three business days after the postmarked date thereof or, if
delivered by hand, shall be deemed to have been received at the time it is
delivered. If there is a general discontinuance of postal service due to strike,
lock-out or otherwise, a notice sent by prepaid registered mail shall be deemed
to have been received three business days after the resumption of postal
service. Notice shall be addressed as follows:
(a) If to the Corporation:
International Menu Solutions Inc.
172 King Street
Toronto, Ontario
M5A 1J3
Attention: Michael A. Steele
Telecopier No.: (416) 366-6368
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(b) If to the Executive:
Larry Hoffman
51 Abbotsford Road
Gormley, Ontario
L0H 1G0
23. LEGAL ADVICE
The Executive hereby represents and warrants to the Corporation and acknowledges
and agrees that he had the opportunity to seek and was not prevented nor
discouraged by the Corporation from seeking independent legal advice prior to
the employee and delivery of this agreement and that, in the event that he did
not avail himself of that opportunity prior to signing this agreement, he did so
voluntarily without any undue pressure and agrees that his failure to obtain
independent legal advice shall not be used by him as a defence to the
enforcement of his obligations under this agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the date first above written.
INTERNATIONAL MENU SOLUTIONS INC.
Per: /s/ [ILLEGIBLE]
-------------------------------
Title: President
-----------------------------
/s/ [ILLEGIBLE] /s/ Larry Hoffman
- - ---------------------------------- ------------------------------------
Witness Larry Hoffman
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THIS IS SCHEDULE "A" TO THE AGREEMENT DATED AS OF THE 1ST DAY OF DECEMER, 1998
BETWEEN INTERNATIONAL MENU SOLUTIONS INC. and LARRY HOFFMAN
STOCK OPTION Plan Particulars
Stock Option Plan
The Executive shall participate in the IMSC stock option plan which shall be
available for the fiscal period commencing ___________ with the number of
options for common shares of IMSC ("Shares") to be available to the Executive to
be as follows:
Year 1. _________ to _________ : _______ Shares
Year 2: _________ to _________ : _______ Shares
Year 3: _________ to _________ : _______ Shares
Year 4: _________ to _________ : _______ Shares
Options shall be earned based on the__________ (the "Division") meeting or
exceeding the budget targets for each of such four (4) years as follows:
(a) less than eighty-five percent (85%) of the operating budget for the
Division for the relevant year, no additional options;
(b) between eighty-five percent (85%) and one hundred percent (100%) of
the operating budget for the Division for the relevant year, the
options for the number of Shares stated above for the relevant year
at the option price being the then current market price as
determined by the Board of Directors of IMSC; and
(c) greater than one hundred percent (100%) of the operating budget for
the Division for the relevant year, options for the number of Shares
stated above for the relevant year times the percentage achievement
at the option price being the then current market price as
determined by the Board of Directors. For example if the achievement
is one hundred and twenty percent (120%), then the Executive will
receive options for the number of Shares stated for the relevant
year X 1.20.
For greater certainty, in the event that eighty-five percent (85%) or more of
the operating budget for the Division for the relevant year of the Corporation
is achieved, the entitlement of the Executive shall be either under (b) or (c)
as is applicable, but not both. The "operating budget" means the operating
budget of the Division approved by the board of directors of IMSC for the
Corporation.
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Options granted shall vest as follows:
(a) twenty percent (20%) of the Options granted on the date that the
Board of Directors approve the resolution for the grant of the
Options; and
(b) twenty percent (20%) of the Options granted on each of the first,
second, third, and fourth anniversaries of the last day of the
financial year to which the Options relate.
The dates upon which the options vest are hereinafter referred to individually
as a "Vesting Date" and collectively as the "Vesting Dates".
The foregoing rights are cumulative and, while the Executive continues to be
under contract by the Corporation, may be exercised on and after the respective
Vesting Date up to and including the date which is five (5) years after that
respective Vesting Date. All of the foregoing rights are subject to the terms of
the IMSC Stock Option Plan, if the Executive ceases to be an Executive of the
Corporation or dies or becomes disabled while an Executive of the Corporation.
13
