SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
DIPPY FOODS, INC.
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 33-076348
(State or other jurisdiction of (IRS Employer Identification)
incorporation or organization)
1161 KNOLLWOOD CIRCLE (714) 816-0150
ANAHEIM, CALIFORNIA 92801 (Issuer's area code and telephone number)
(Address of principal offices)
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
<PAGE>
DIPPY FOODS, INC.
Table of Contents
ITEM 1. DESCRIPTION OF BUSINESS.......................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........ 8
ITEM 3. DESCRIPTION OF PROPERTY.......................................... 10
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 10
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS..... 11
ITEM 6. EXECUTIVE COMPENSATION........................................... 12
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 13
ITEM 8. LEGAL PROCEEDINGS................................................ 13
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......... 13
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.......................... 13
ITEM 11. DESCRIPTION OF SECURITIES........................................ 14
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS........................ 14
ITEM 13. FINANCIAL STATEMENTS............................................. 14
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.................... 14
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS................................ 15
SIGNATURES.......................................................
<PAGE>
Dippy Foods, Inc. Form 10-SB 3 / 15
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-SB, particularly under Items 1 and 2,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve known and unknown risks, uncertainties, and other factors that may cause
the actual results, performance or achievements of the Issuer to be materially
different from any future results, performance or achievements, expressed or
implied by the forward-looking statements.
BUSINESS DEVELOPMENT
Dippy Foods, Inc. (the "Issuer") was incorporated as Sweetbrier Corporation
under the laws of Nevada on February 23, 1998, for the purpose of developing
mineral properties. Sweetbrier abandoned its mining claims and changed its name
to Dippy Foods, Inc. on September 17, 1998, upon completing a reverse
acquisition with Dippy Foods, Inc., a California corporation in the business of
developing, processing and distributing packaged dipping foods for snacks,
school lunch programs, and disaster relief programs ("Dippy CA"). Dippy CA was
incorporated under the laws of California on May 30, 1997, and began its
operations in January, 1998. The Issuer and Dippy CA together are referred to as
the Company in this Form 10-SB.
The Issuer agreed to acquire all of the outstanding stock of Dippy CA in a
reverse merger in which the total consideration was 6,638,533 shares of Dippy CA
exchanged for 4,569,266 shares of the Issuer under and agreement dated
September, 1998. For accounting purposes, the acquisition has been treated as a
reverse acquisition with Dippy CA as the accounting acquirer. In a reverse
acquisition, the stock issued goes to the accounting acquirer. Since reverse
acquisition accounting is the reverse of normal accounting, the fair market
value of the issuer's stock at the date of the acquisition is valued with a
write up or write down of the issuer's net assets depending on whether the stock
is trading at more or less than book value. If the stock's fair market value
cannot be determined, and the cost is based on the fair market value of the
issuer's net assets, then goodwill is not recognized and the transaction is
valued at the issuer's net tangible assets. The Issuer had no tangible assets
and a very limited trading history. The fair market value of the stock issued
could not be determined. Accordingly, goodwill was not recognized and the
transaction was recorded as a recapitalization of Dippy CA.
The Company has not been involved in any bankruptcy, receivership or similar
proceedings, has not undergone any material reclassification, merger or
consolidation, and has not purchased or sold any significant assets not in the
ordinary course of its business other than as described in this Form 10-SB.
BUSINESS OF THE COMPANY
PRINCIPAL PRODUCTS
The Company develops and produces packaged, nutritious, single-serving meals and
sells them to institutional food- service providers, specifically schools. The
meals are packaged in single-serving, heat-sealed, recyclable trays with colored
labels listing the flavor, nutritional information and manufacturer's bar code.
All meals are shelf-stable for sixty days and require no freezing,
refrigeration, heating or preparation, and can be eaten without utensils. The
products are known as Dippers.
The Company has four Dippers meals--one nacho meal containing corn chips, salsa
and cheese; and three fruit flavored meals containing cinnamon and sugar corn
chips, peanut butter, and a specially blended fruit sauce.
Each lunch meal meets the nutritional requirements of the Food and Drug
Administration for three food groups: bread, protein, and fruits and vegetables.
Combined with a single serving of milk, supplied to all children daily as part
of a federal program, the meals are eligible for the National School Lunch
Program. The program sets out weekly nutritional standards. The schools choose
each week's meals to meet these standards. The Company's meals typically are
served once a month in this program.
<PAGE>
Dippy Foods, Inc. Form 10-SB 4 / 15
The Company is designing Dippers meals to meet the requirements of correctional
facilities and plans to introduce five new Dippers products during 2000: three
for the school market and two for the federal, state and county correctional
facilities market. One school breakfast will contain a bagel chip, cream cheese
and a fruit blend. The other three will contain a breakfast bar and cereal, each
in a different flavor. One corrections breakfast will contain a peanut butter
and jelly combination, 1/2 cup of cereal, 3 slices of bread, and a spoon. The
other will contain a nutrition bar, 2 hard-boiled eggs and 1 cup of cereal.
The Company plans to develop at least four new products each year.
THE MARKET
The Company has targeted the school food-services market, which enables it to
take advantage of the National School Lunch Program offered by the United States
Department of Agriculture. The USDA has been providing assistance for school
lunches under this program since 1946. The program was established to provide
low-cost or free meals to children who meet the financial criteria set by the
USDA. Schools that participate in the program receive cash reimbursement from
the USDA for each meal they serve. The meals must meet the federal nutrition
requirements and must be served free or at reduced prices to eligible children.
The reimbursement program is administered by the department of education in each
state.
The market for school lunches is very large and growing. Roughly 45 million
meals are served in schools each school day, of which 27 million lunches and 6.5
million breakfasts are free or cost-reduced under the National School Lunch
Program and the School Breakfast Program. The number of breakfasts served is
expected to double by 2002.
Schools are having difficulty keeping up with increasing demand. The number of
eligible children is increasing, causing long cafeteria lines, and the schools'
aging kitchens are unable to produce the high number of meals demanded in the
short time available. The Company's packaged meals can help solve these
problems.
Schools must adhere to the Dietary Guidelines for Americans, which took effect
in the beginning of the 1996-7 school year. These guidelines are often difficult
for food manufacturers to meet, minimizing competition.
The Company can provide meals to schools cost effectively and at an aggressive
price point.
The Company has the ability to develop virtually any product that can be
packaged in a tray. Preliminary investigations indicate a strong interest in the
Company's meals in several other markets, including:
o Federal, state and county correctional facilities
o Major stadium operators (college and pro football, baseball and basketball)
o The military
o Club store retailers and retail grocery chains
o Hospitals
o International exporters
o Major theme parks (e.g. Disneyland, MGM and Knotts Berry Farm)
o Airlines
Correctional Food Service Management, which manages more than 100 facilities
nationwide, has expressed an interest in large orders to service its
institutions, and Ogden Foods and Airmark, both of which operate stadium
concessions, have initiated discussions with the Company.
MARKETING AND DISTRIBUTION
The Company has an oral distribution agreement with U.S. Foodservice to
distribute Dippers. U.S. Foodservice is a major national food distribution
company, with sales of approximately $6 billion per year. U.S. Foodservice has
granted the Company slotting status in its warehouses and stocks the Company's
products at its La Mirada branch near Los Angeles. Slotting (obtaining space on
warehouse racks) is a significant milestone for a food manufacturer, which can
take years to obtain. Broadly speaking, the working agreement includes the
following provisions:
<PAGE>
Dippy Foods, Inc. Form 10-SB 5 / 15
o The Company's sales representative attends monthly U.S. Foodservice local
area sales meetings to generate leads from U.S. Foodservice's agents and to
train the agents in the Company's products. This process began in December,
1998, in Southern California and will continue through 1999 for the
remainder of California.
o The Company's sales representative will accompany U.S. Foodservice's agents
on a "ride along" program to make an initial presentation to potential
customers. The Company's sales rep will follow up these presentations to
take orders and will give the purchase orders to the appropriate U.S.
Foodservice agent.
o The Company will charge U.S. Foodservice $0.85 per meal, FOB the Company's
docks. U.S. Foodservice will charge schools a minimum price equal to the
Company's price to U.S. Foodservice plus 8%. The Company's payment terms
are net 14 days of the Company's shipment to U.S. Foodservice. These
arrangements apply to smaller orders, subject to minimum delivery policies.
The price for products delivered on large orders varies depending on the
services rendered and the volume ordered.
o U.S. Foodservice's sales representative will maintain ongoing service
relationships with Foodservice's directors.
o U.S. Foodservice will pursue other markets, such as hotels, the military,
amusement parks, child care facilities, retail delis and similar
institutions.
U.S. Foodservice has indicated a strong interest in selling or distributing the
Company's products nationwide. Discussions to define this opportunity have been
on hold until production could match orders from large accounts. Now that
significant capacity is on-stream, the Company has begun training U.S.
Foodservice's sales agents and will actively support their efforts. The Company
will closely monitor its expected ramp up in sales activity and production
capacity and will ensure that significant increases in capacity are implemented
as seamlessly and with as few bottlenecks as possible.
The ride along program has resulted in sales. Since the last food show in
October, 1998, this program has resulted in sales to ten additional accounts,
from as little as six cases to a deli to more than 1,200 cases (48,000 units) to
Bakersfield City Schools. The program has generated sales of more than 1,500
cases (60,000 meals) in the first quarter of its implementation.
The Company distributes through ASR Food Service Distributors, Swift Produce
Distributors, Hestbecks, Joseph Web, Goldstar, Pinco, Otay Distributors, and
Giuliano's, all of whom specialize in school distribution in Southern and
Central California. In the school markets, smaller distributors represent a
larger percentage of the industry. These distribution arrangements are important
as major distributors such as U.S. Foodservice generally focus on the largest
customers. Additional arrangements with smaller regional firms will enable the
Company to cover the entire spectrum of the school system. The Company will deal
with distributors as its customers prefer or require.
Until very recently, the Company handled all distribution internally: either the
sales representative handled the shipments or, for larger orders, the Company
hired a common carrier. The Company will continue to drop ship all orders that
are not handled through distribution agreements and will use common carriers for
larger orders. The Company bills these costs to the customer.
SOURCES, RAW MATERIALS AND PRINCIPAL SUPPLIERS
The Company has agreements with several food suppliers to provide high-quality
ingredients and specially blended products required by the Company's recipes. In
particular, the co-branding agreement with Hunt-Wesson, Inc. and ConAgra Brands,
Inc. provides for low prices for peanut butter, fruit blends, and salsa under
the brand names of Peter Pan and Knott's Berry Farm. Refer to "Patents, Trade
Marks, Licences and other Agreements or Labor Contracts" under this item.
In July, 1999, the Company was approved as a Donated Food Processor for the
1999-2000 school year in an agreement between the California Department of
Education and the Company. This agreement enables the Company to participate in
the USDA's Commodity School Program, which donates agricultural commodities to
schools participating in the National School Lunch Program. School districts can
exchange these commodity foods for credits on finished products. The school
districts and companies that participate in the program both benefit.
<PAGE>
Dippy Foods, Inc. Form 10-SB 6 / 15
Some items such as peanut butter have limited menu-planning alternatives and can
be effectively used by the Company, which can realize significant cost savings
under this program. The schools prefer to buy meals by exchanging commodities
because their facilities and resources are not adequate to handle food storage,
preparation and distribution.
As the Company expands into the national arena, it anticipates signing
agreements with major co-packers. Discussions with large food processors such as
Phillchic, American CoPack, and Overhill Farms have indicated that they would be
interested in production contracts once the Company's production reaches two to
three million units per month.
As an alternative to contracting with co-packing companies, the Company is
investigating the possibility of purchasing and installing its own tray-line, a
"horizontal form fill and seal" unit, with a view to reducing production costs,
particularly from lower tray costs. Such a production line could easily be
accommodated in the Company's Knollwood warehouse or in the Signal Hill plant.
Refer to Item 3. Description of Property for a description of the Knollwood and
Signal Hill properties.
COMPETITION
Although other companies produce frozen and refrigerated meals, no other company
with fresh meals participates in the school lunch or corrections programs. For
example, Oscar Meyer makes "Lunchable" products including nachos, a pizza pack,
cold hamburger and hot dog packs, and a cheese and cracker product. Jimmy Dean
makes similar refrigerated products leverage their sausage products. Neither
company has entered the school food-service or corrections markets.
Management believes that additional competition will enter the market at some
point and believes that the following factors will mitigate the competition:
Flavor Combinations. The Company has designed its products with the school
market specifically in mind. The low margins in this market do not offer a
strong incentive for larger food distributors.
New Flavors. The Company will introduce new meals on a regular basis.
Packaging Well-tailored to Consumer. The Company's packaging appeals directly to
the younger school audience, where the Company hopes to build brand loyalty, and
its co-branding arrangement with Hunt-Wesson and ConAgra give it brand
recognition, enhancing its marketing appeal generally.
Price Point. Dippers are priced attractively for schools--from $0.85 to $1.20
per meal. These prices represent a low margin for the Company. The Company's
management believes that the economics of the school lunch program work in its
favor and that other producers of fresh products that compete directly with
Dippers will focus on other, more profitable markets. For example, the Oscar
Meyer nachos product is available in supermarkets and sells for two or three
times the price of Dippers. Even after discounts for supermarket markups,
Dippers prices are more attractive than mainstream products.
Nutrition. To date, producers of similar fresh meals (e.g. Oscar Meyer, Jimmy
Dean) do not qualify for the National School Lunch Program because these
products contain too much fat and sodium and not enough bread, protein, and
fruit.
Customer Support. The school niche is specialized and requires a considerable
amount of customer service. The Company intends to maintain its high level of
service. Major food suppliers have limited interest in pursuing these accounts,
preferring to service the low-maintenance national retailers and distributors.
Management believes that most major manufacturers are set up to pursue and
service the traditional, mass-market retailers. Penetrating the school lunch
market would require that potential competitors undertake a major overhaul of
their products and revise their price points and marketing techniques.
STATUS OF PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
<PAGE>
Dippy Foods, Inc. Form 10-SB 7 / 15
The Company has not publicly announced any new products or services.
PATENTS, TRADE MARKS, LICENCES AND OTHER AGREEMENTS OR LABOR CONTRACTS
The Company has a licence agreement with ConAgra Brands, Inc. and Hunt-Wesson,
Inc. dated May 19, 1999. Under the agreement, Hunt-Wesson and ConAgra granted
the Company a non-exclusive, royalty-free licence to use the trademarks PETER
PAN and KNOTT'S BERRY FARMS until December 31, 2008. The Company annually must
buy certain minimum quantities of the licensor's fruit fillings and peanut
butter and use them exclusively in all of its products except those products
destined for the school districts that are part of the Commodity School Program.
The licensor has the right to cancel the contract if the Company does not buy
the minimum amounts.
The Company has an oral contract for production labor with the Feedback
Foundation, which participates in the national Meals on Wheels program. The
Feedback Foundation charges between $0.10 and $0.25 per unit produced depending
upon the monthly volume. The contract may be ended by either party at any time.
Jon Stevenson has registered copyrights to the cover art that the Company uses
on its packaged meals. Mr. Stevenson, a director and the president of the
Company, has assigned his interest in the copyright to the Company under an oral
agreement in consideration of shares in the Company's common stock. The Company
intends to formalize the agreement in writing.
The Company has no other copyrights, patents or trade marks and is not a party
to any other licence or franchise agreements, concessions, royalty agreements or
labor contracts.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
The Company had two major customers in the fiscal year ended 1999. These were
the Bakersfield City Schools and US Foodservice, who generated 29.2% and 14.7%
of the Company's sales revenue respectively, for a total of 43.9%, down from
five major customers in the prior period. These were Bellflower Unified School
District, Carlsbad, Covina Valley School District, Paramount Unified School
District and South Whittier School District, who generated 91.6% of the
Company's sales revenue. The Company now has more than thirty customers and is
increasing this number monthly and lessening its dependence on a few major
customers.
REQUIREMENT FOR GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES
The Company is not required to obtain government approval of its products unless
it wants to participate in government programs. The Company's products meets the
standards of the National School Lunch Program and the Company has been approved
for participation in the Commodity School Program.
EFFECT OF GOVERNMENTAL REGULATIONS ON THE COMPANY'S BUSINESS
The National School Lunch Program and the Commodity School Program are central
to the Company's business strategy. The elimination of these programs could have
a materially adverse affect on the Company's operations.
EXPENDITURES ON RESEARCH AND DEVELOPMENT DURING THE LAST TWO FISCAL YEARS
The Company has spent approximately $16,710 on research and development during
the last two fiscal years.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company is not required to comply with any environmental laws but is
sensitive to environmental concerns and uses recyclable materials whenever
possible.
NUMBER OF EMPLOYEES
The Company has a total of five full-time employees.
<PAGE>
Dippy Foods, Inc. Form 10-SB 8 / 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Table 1 sets out the percentage of total revenues represented by certain items
reflected in the Company's income statement for the fiscal periods indicated and
the percentage increase or decrease in the items over the prior period.
<TABLE>
<CAPTION>
Table 1
Percentage Changes in Operations
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PERCENTAGE OF TOTAL REVENUE PERCENTAGE CHANGE
------------------------------- ------------------------
FISCAL PERIODS ENDED APRIL
--------------------------------------------------------
1999 1998 1998 vs. 1999
----------------- ---------------- ---------------------
<S> <C> <C> <C>
Total revenues 100.00% 100.00% 550.82
Cost of goods 95.61 86.00 623.57
---------------- ----------------
Gross profit 4.39 14.00 103.95
Selling, general and administrative expenses 418.33 269.04 911.94
---------------- ----------------
Loss from operations 413.95 255.04 956.30
Interest expense 2.51 -- --
---------------- ----------------
Net loss 416.46 255.04 962.71
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</TABLE>
Revenues. Revenues for the year ended April 30, 1999, were $191,933,
representing a 550.82% increase over the $29,491 the Company realized in revenue
during period ended April 30, 1998. The Company spent its first year on product
development and market research. Any sales during this period were incidental.
The Company's first sales of any significance began in August, 1998, for the
1998-9 school year. The Company has increased its customer base among school
districts in Southern California. Its orders by August, 1999, alone for the
1999-2000 school year exceed all of last year's sales to school districts. The
Company believes that its sales growth will continue on this trend as more
schools look for more convenience foods to satisfy their free and subsidized
meal programs.
The Company intends to continue its focus on the National School Lunch Program
and the School Breakfast Program. It believes that the size of the school market
and the lack of competition for this market create potential for growth, but is
also developing a retail strategy for inventory that is not sold to schools.
Costco's broker initiated discussions with the Company in the spring of 1999 and
expressed an interest in Dippers. Costco has approved the Company's proposed
point-of-sale packaging for retail outlets and agreed that any order must be a
certain minimum in order for the Company to afford the start-up costs. Although
its margins on sales to retailers such as Costco are higher than its margins on
sales to school districts, management believes that the school districts present
a greater potential for growth.
Cost of Goods. The cost of goods increased to 95.61% of revenue in the year
ended April 30, 1999, from 86% in the period ended April 30, 1998. This 9.61%
increase is due primarily to the increase in the cost of the cheese package
included in the Dippers nachos. The cost of the individual packages of cheese is
approximately $0.31 per meal compared to a total cost of approximately $0.75 per
nacho meal. The Company intends to buy a tray-line that will enable it to seal
the cheese in the Dippers tray, eliminating the need to buy the sealed packages
of cheese that it is now using, and believes that its costs will decrease by
approximately $0.20 per nacho meal for ingredients and 50% for labor.
The Company is planning to buy its own manufacturing facility to reduce
production costs and to increase sales, both of which will enable it to increase
its production volume and realize economies of scale from the increase in its
demand for raw materials. Refer to "Liquidity and Capital Resources" below for a
discussion of the Company's plans to buy the production facility.
Selling, General and Administrative Expenses. These costs for the year ended
April 30, 1999, were $802,916, or 418.33% of revenue, compared to $79,344, or
269.04% of revenues for the period ended April 30, 1998. The Company believes
that its selling, general and administrative costs can remain fairly static and
decrease as a percentage of revenue as its sales volume grows. These costs
include a one-time wage settlement of cash and stock valued at $372,000 and
$100,000 of non-cash compensation, which represent 46.33% and 12.45%
<PAGE>
Dippy Foods, Inc. Form 10-SB 9 / 15
respectively of the Company's administrative costs for the year, and the
research and development costs that the Company incurred developing its products
and marketing program.
Deferred Tax Assets. The Company has deferred tax assets of $181,131 in the year
ended April 30, 1999, and $36,054 in period ended April 30, 1998. Management has
established a valuation allowance equal to the full amount of the deferred tax
assets because the Company's ability to carry the net operating losses forward
is uncertain. The net operating losses incurred before the reverse merger on
September 17, 1998, are limited annually due to the change of ownership (as
defined in Section 382 of the Internal Revenue Code) that resulted from the
reverse merger. Unused annual limitations may be carried over to future years
until the net operating losses expire.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations principally from private placements and
loans from related parties. Management believes that increasing sales will
increase its cash flow from operations in the current fiscal year but the
Company continues to depend upon private placements or public offerings to fund
its operations. If the Company completes its purchase of the Signal Hill plant
and the tray-line, it believes that its ingredients and materials costs will
decrease by approximately $0.20 per unit and its labor costs will decrease by
$0.07 to $0.12 per unit, for an average cost reduction of approximately $0.30
per unit, compared to current total costs of $0.75 per unit for the nacho
Dippers and $0.64 per unit for the peanut butter and jam Dippers.
The Company intends to finance its acquisition of the Signal Hill property with
cash and debt. Under the terms of the proposed purchase agreement, the price is
$1,075,000, the down payment required is $250,000, and the Company must buy the
installed production equipment for $50,000, for a total cost of $1,125,000. The
Company is discussing mortgage terms with several lenders and anticipates that
it can borrow approximately $800,000 against the appraised value of the
property, leaving a shortfall of $325,000. The price of the tray-line is
$500,000 and the required down payment is $125,000. The Company is negotiating
with several leasing companies for the financing of the $375,000 shortfall. Both
of these agreements are conditional upon the finalization of the acquisition
terms and the arrangement of the mortgage and lease financing and are not yet
fixed obligations. The Company's cash requirements to complete these purchases
is approximately $500,000, including estimated closing costs. The Company
intends to rely on the equity capital markets for this amount but there is no
assurance that the Company can raise the required capital.
The Company intends to sub-let the Knollwood property for the remainder of the
term, which ends December 31, 2001, if it completes its purchase of the Signal
Hill property and has a tentative agreement with a tenant for $0.15 more pre
square foot than its lease obligation.
The Company had a working capital deficiency of $208,972 at the year ended April
30, 1999, compared to $39,305 in the period ended April 30, 1998. The deficiency
is largely attributable to the increase in wages, travel and trade show
attendance, and to the considerable research, development and other start-up
costs that the Company incurred developing the characters and scenarios on its
labels and the costumes used to represent the characters when the marketing team
visits schools and other end users. The Company believes that the operation of
the Signal Hill property and the sub-letting of the Knollwood property will
decrease the Company's monthly fixed overhead by approximately $2,800.
Cash used in operating activities for the year ended April 30, 1999, was
$282,622, an increase of approximately $248,993 over the cash used in the prior
period. The increase in cash used is due primarily to a higher net operating
loss of $799,317, offset by depreciation and amortization, a settlement accrual,
and non-cash compensation. Cash invested in the year ended April 30, 1999, was
$36,614, an increase of approximately $26,000 over the cash invested in the
prior period. This increase was due primarily to the purchase of equipment and
an investment in a certificate of deposit. Cash flows from financing activities
for the year ended April 30, 1999, were $316,955, an increase of approximately
$270,000 over the prior period. This increase represents the proceeds from
shares issued and notes payable.
The Company's capital expenditures to date have been limited to a delivery
vehicle, production equipment and office equipment. It proposes to spend
$1,625,000 to buy and upgrade its production facilities during the current year,
which the Company believes will reduce its production costs.
<PAGE>
Dippy Foods, Inc. Form 10-SB 10 / 15
The independent certified public accountants opinion included going concern
language due the Company's limited operating history, negative working capital,
and deficit accumulated since inception. Management plans to increase its cash
flow to finance its business plan by raising capital through private placements,
reducing its production costs by owning its own production facility, and by
increasing its sales to new school districts and to the retail market through
retailers such as Costco, but cannot be sure that this plan will succeed.
YEAR 2000 ISSUES
The Company has assessed its internal systems and inquired of third parties
whose systems might present a Year 2000 risk to determine whether the Year 2000
presents issues that will affect its operations. The Company's Knollwood plant
and the proposed Signal Hill plant are mechanical and rely on human labor. The
Signal Hill plant is approximately 25 years old, and neither plant has any parts
that, to the best of the Company's knowledge, are vulnerable to Year-2000
issues. The Company's office computers and other hardware and software have been
tested and found to be Year-2000 compliant but can easily be replaced should
unanticipated issues arise.
The Company has contacted or is in the process of contacting its suppliers and
other providers of goods and services to determine their ability to do business
in the year 2000 and takes these issues into consideration when it selects its
suppliers, but is considering contingency plans should problems arise. The
Company can buy its ingredients and other supplies from any number of different
suppliers and is not reliant on one specific supplier. The Company believes, as
a result of its inquiries to date, that the Year 2000 will not disrupt its
supply of ingredients or other supplies and services.
The Company's costs to date in connection with Year-2000 issues have been
immaterial. The Company does not anticipate that it will incur any material cost
or that Year-2000 issues will materially affect its operations, however the
Company cannot be sure that Year-2000 issues will not adversely affect its
operations.
ITEM 3. DESCRIPTION OF PROPERTY
KNOLLWOOD PROPERTY
The Company operates from a leased warehouse with offices at 1161 Knollwood
Circle, Anaheim, California. The property consists of a concrete tilt-up
building of approximately 10,524 square feet located in a light industrial area.
The rent is $5,788 per month and escalates annually to $5,999 in the final year.
The lease expires December 31, 2001. The Company intends to sub-let the
Knollwood property if it completes its purchase of the Signal Hill Property
described below.
SIGNAL HILL PROPERTY
The Company has an agreement dated August 13, 1999, to buy a production plant in
Signal Hill, California, for $1,075,000. The property consists of 15,297 square
feet of industrial warehouse with offices on approximately 43,995 square feet of
land. The purchase price is $1,075,000 for the land and buildings. The agreement
requires a down payment of $250,000 and is subject to the Company's obtaining a
mortgage for the balance and signing an agreement with the seller for the
Company's purchase of the production equipment located in the building for
$50,000.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Table 2 lists the persons who are known to the Company to be the beneficial
owners of more than five percent of the Issuer's equity securities.
<PAGE>
Dippy Foods, Inc. Form 10-SB 11 / 15
<TABLE>
<CAPTION>
Table 2
Beneficial Owners of more than 5%
- --------------------------------------------------------------------------------------------------------
(2) (3) (4)
(1) Name and address of Number and nature of Percent
Title of class beneficial owner beneficial ownership of class
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares Jon Stevenson 4,000,000*
379 Newport Avenue, #9
Long Beach, California 90814 direct 20.43%
- --------------------------------------------------------------------------------------------------------
Common shares Philip Yee 4,000,000
Vancouver, B.C. direct+ 20.43%
- --------------------------------------------------------------------------------------------------------
*Upon the completion of the share exchange. Refer to Item 10. "Recent Sales of Unregistered Securities".
+Mr. Yee is on the list of shareholders, but whether he is a beneficial owner is not known to the Company.
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
Table 3 lists the Company's directors and executive officers who are the
beneficial owners of the Issuer's equity securities.
<TABLE>
<CAPTION>
Table 3
Beneficial Ownership of Management
- -----------------------------------------------------------------------------------------------------
(2) (3) (4)
(1) Name and address of Number and nature of Percent
Title of class beneficial owner beneficial ownership of Class
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jon Stevenson 4,000,000*
Common shares 379 Newport Avenue, #9 20.43%
Long Beach, California 90814 direct
- -----------------------------------------------------------------------------------------------------
*Upon the completion of the share exchange. Refer to Item 10. "Recent Sales of Unregistered Securities".
</TABLE>
CHANGE IN CONTROL
The Company is not aware of any arrangements that may result in a change of
control of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
IDENTIFY DIRECTORS AND EXECUTIVE OFFICERS
Jon Stevenson and Munjit Johal are the directors of the Issuer. Jon Stevenson
and Erin Stevenson are the directors of Dippy CA. The Company's management and
development team are listed in Table 4.
<TABLE>
<CAPTION>
Table 4
Directors and Officers
- ------------------------------------------------------------------------------------------------
Office
----------------------------------------------------------------------------
Officer The Issuer Dippy CA
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Jon Stevenson CEO, President, Chairman CEO, President, Chairman
Munjit S. Johal Chief Financial Officer, Secretary Chief Financial Officer
Erin Stevenson Corporate Secretary, Executive
VP, Director of Trade Show
Services
- ------------------------------------------------------------------------------------------------
</TABLE>
Jon Stevenson, 37, has been with the Company since its inception. He is involved
in all aspects of product development and packaging. His responsibilities
include direct sales, sales development, public relations and developing the
marketing program for the Company. He is also responsible for the training
program developed for the distributors' representatives and the sales broker
representatives contracted to the Company.
Mr. Stevenson has been in the food service industry for more than sixteen years.
He was formerly employed by Rykoff and U.S. Foodservice Company, one of the
largest broadline distribution companies in the world. Jon left U.S. Foodservice
in November, 1997, to focus his full energies on the Company.
<PAGE>
Dippy Foods, Inc. Form 10-SB 12 / 15
Munjit S. Johal, 44, has been with the Company since September, 1998, and is
responsible for all aspects of the Company's financial management. He has a
Master of Business Administration degree from the University of San Francisco
and a Bachelor of Arts degree from the University of California, Los Angeles.
Mr. Johal was the chief financial officer of Bengal Recycling, Inc., a
California corporation, from February, 1996, to July, 1997; a senior vice
president and compliance officer and an asset manager for Pacific Heritage Bank
in Torrance, California, from 1990 to 1995; a vice president and compliance and
consulting associate for banks in Glendale and Newport Beach, California; and an
analytical manager and financial analyst for Federal Home Loan Bank of San
Francisco from 1981 to 1987.
Erin Stevenson, 35, has been with the Company for two years. She worked in sales
and marketing with major retail stores for ten years from 1982 to 1992, as a
manager or owner of small retailers from 1992 to 1994, and as a self-employed
massage therapist from 1994 to 1997. She is responsible for show selections and
product sales and participates in designing the customer service program for the
Company.
SIGNIFICANT EMPLOYEES
No other employees are expected to make significant contributions to the
business of the Company.
FAMILY RELATIONSHIPS
Erin Stevenson is Jon Stevenson's sister.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None of the Company's directors, officers, promoters or control persons officer
during the past five years:
1. Was a general partner or executive officer of a business that had a
bankruptcy petition filed by or against it either at the time of the
bankruptcy or within the two years before the bankruptcy, except for Munjit
Johal, who was the chief financial officer for seventeen months until July,
1997, of Bengal Recycling, Inc., a California corporation that filed under
chapter 7 of the United States Bankruptcy Code on September 4, 1998;
2. Was convicted in a criminal proceeding or been subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
3. Was subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities; and
4. Was found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or vacated.
ITEM 6. EXECUTIVE COMPENSATION
The Company has three executive officers, only one of whose total annual salary
has exceeded $100,000 since its inception in May, 1997. The Company does not
have an employee stock option plan and has granted no other form of compensation
to its executive officers. The Company does not have written employment
contracts with its executive officers. Table 5 sets out the annual executive
compensation of the Company's chief executive officer for the fiscal periods
ended April 30, 1999, and 1998.
Table 5
Executive Compensation
- --------------------------------------------------------
Annual compensation
----------------------------
Name of executive 1999 1998
- --------------------------------------------------------
Jon Stevenson, CEO $125,793 $ 4,500
- --------------------------------------------------------
<PAGE>
Dippy Foods, Inc. Form 10-SB 13 / 15
Mr. Stevenson's compensation includes $100,000 which was contributed to capital.
The Company does not compensate its directors for acting as directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIPS WITH INSIDERS
No member of management, executive officer or security holder has had any direct
or indirect interest in any transaction to which the Company was a party other
than Mr. Stevenson's agreement to assign the copyrights to the Company.
TRANSACTIONS WITH PROMOTERS
The Company's promoters have not received anything of value from the Company nor
are they entitled to receive anything of value from the Company.
ITEM 8. LEGAL PROCEEDINGS
The Company is not a party to any pending or threatened legal proceedings.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Issuer has been quoted on the NASD OTC Bulletin Board since September, 1998,
under the symbol DPPI. Table 6 gives the high and low bid information for each
fiscal quarter since the Issuer's common shares have been quoted. The bid
information was obtained from mytrack.com, the Internet site of Track Data
Corporation, and reflects inter-dealer prices, without retail mark-up, mark-down
or commission, and may not represent actual transactions.
Table 6
Bid Information
- ------------------------------------------------
Fiscal quarter ended High Low
- ------------------------------------------------
31 Oct 1998 $1.25 $0.65
31 Jan 1999 $0.99 $0.65
30 Apr 1999 $0.77 $0.38
31 Jul 1999 $1.03 $0.25
- ------------------------------------------------
HOLDERS
The Issuer has approximately 1,200 holders of common shares.
DIVIDENDS
The Issuer has declared no dividends on its common shares and is not subject to
any restrictions that limit its ability to pay dividends on its common shares.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The Issuer was incorporated on February 23, 1998, and issued 6,000,000 common
shares to seven corporate shareholders and 4,000,000 common shares to the former
president for a total offering price of $24,000 in March, 1998; 30,000 common
shares to thirty persons for a total offering price of $30,000 in April, 1998;
and 4,980,000 common shares to eight subscribers for a total offering price of
$249,000 in July, 1999. All of these shares were issued in reliance on Rule 504
of the Securities Act of 1933. The Issuer is in the process of issuing 4,569,266
common shares to the shareholders of Dippy CA in exchange for all of their
shares of Dippy CA under an agreement dated September, 1998, accepted by the
shareholders of Dippy CA at its annual general meeting held on February 27,
1999. These shares are subject to the trading restrictions of Rule 144. Upon the
completion of the share
<PAGE>
Dippy Foods, Inc. Form 10-SB 14 / 15
exchange, the Issuer will have 19,579,266 common shares outstanding. The Issuer
paid no underwriting discounts or commissions in connection with any of its
share offerings.
The Issuer agreed to issue 400,000 common shares to a former director at and
executive officer the rate of 100,000 shares a year for four years under a
settlement agreement dated February 1, 1999. None of these shares has been
issued.
ITEM 11. DESCRIPTION OF SECURITIES
COMMON OR PREFERRED STOCK
The Company has one class of common stock. All common shares participate equally
in dividends, voting and preemption rights.
The Company's charter documents contain no provision that would delay, defer or
prevent a change in control of the Company.
DEBT SECURITIES
The Company has no debt securities.
OTHER SECURITIES TO BE REGISTERED
The Issuer is not registering any other securities.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company will indemnify its directors and officers from any action, suit or
proceeding, whether civil, criminal, administrative, or investigative to the
extent that indemnification is legally permissible under the laws of Nevada and
California. No director or officer is personally liable to the Company or its
stockholders for damages for breach of fiduciary duty as a director or officer.
Directors and officers may be held liable to the Company or its stockholders for
acts or omissions that involve intentional misconduct, fraud, a knowing
violation of law, or the payment of dividends in violation of the Nevada Revised
Statutes. The directors may cause the Company to buy and maintain insurance on
behalf of any person who is or was a director of the Company.
No controlling person, director or officer of the Company is otherwise insured
or indemnified by any statute, charter provisions, by-laws, contract or other
arrangement.
ITEM 13. FINANCIAL STATEMENTS
See Index to Financial Statements on page F-1.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company's first independent certified public accountants, Andersen Andersen
& Strong, were appointed by the former management of the Issuer. The Company's
current independent certified public accountants, BDO Seidman, LLP, were
appointed by the current management on August 1999.
The Issuer has had no disagreements with Andersen Andersen & Strong within the
meaning of Item 304 of Regulation SB on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure in
connection with the audit of the Issuer's financial statements for the year
ended April 30, 1999, and the period from February 23, 1998 (the date of the
Issuer's formation) to April 30, 1998, that would have caused Andersen Andersen
& Strong to issue an adverse opinion or disclaimer of opinion, or to modify
their report as to uncertainty, audit scope or accounting principles if the
disagreements had not been resolved to their satisfaction.
No reportable events (as defined in Item 304 or Regulation SB) occurred with
Andersen Andersen & Strong during
<PAGE>
Dippy Foods, Inc. Form 10-SB 15 / 15
the period audited. The Company has not consulted with BDO Seidman, LLP
regarding the application of accounting principles to a specific transaction or
the type of audit opinion that might be rendered on the financial statements
during the period audited by Andersen Andersen & Strong.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS 1
1. Financial Statements
2. Articles of Incorporation
3. Certificate of Amendment to Articles of Incorporation changing the
Issuer's name to Dippy Foods, Inc.
4. Bylaws
5. Amended Exchange Agreement dated September, 1998, among Dippy Foods, Inc.
(Nevada), Dippy Foods, Inc. (California) and the shareholders of Dippy
Foods, Inc. (California) for the Issuer's acquisition of Dippy Foods,
Inc., (California)
6. Standard Industrial/Commercial Single-tenant Lease--Gross dated December
16, 1998, between Ae Sil Park as lessor and Dippy Foods, Inc. as lessee
for the lease of the Knollwood Circle property
7. License Agreement dated May 19, 1999, between ConAgra Brands, Inc. and
Hunt-Wesson, Inc. as licensor and Dippy Foods, Inc. as licensee
8. Financial data schedule
<PAGE>
DIPPY FOODS, INC.
(FORMERLY SWEETBRIER CORPORATION)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Deficit F-5
Consolidated Statements of Cash Flows F-6
Summary of Accounting Policies F-7
Notes to Consolidated Financial Statements F-10
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Dippy Foods, Inc.
We have audited the accompanying consolidated balance sheets of Dippy
Foods, Inc. (formerly Sweetbrier Corporation) as of April 30, 1999 and 1998, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for the year ended April 30, 1998 and the period May 30, 1997 (date
of incorporation) to April 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dippy Foods,
Inc. as of April 30, 1999 and 1998, and the results of its operations and its
cash flows for the year ended April 30, 1999 and the period May 30, 1997 (date
of incorporation) to April 30, 1998, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed In Note 1 of
the consolidated financial statements, the Company has limited operating history
resulting in an accumulated deficit of $874,532 since inception, negative
working capital of $208,972, and a stockholders' deficit of $428,399 at April
30, 1999. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
BDO SEIDMAN, LLP
Los Angeles, California
August 27, 1999
F-2
<PAGE>
DIPPY FOODS, INC.
(FORMERLY SWEETBRIER CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30,
-------------------------------
1999 1998
--------------- ------------
<S> <C> <C>
ASSETS (Note 1)
Current assets:
Cash $ -- $ 2,281
Restricted cash (Note 2) 10,000 --
Accounts receivable 48,852 22,264
Inventory 6,149 6,396
Prepaid expenses 2,572 --
--------------- ------------
Total current assets 67,573 30,941
--------------- ------------
Fixed assets, net (Notes 3 and 5) 29,404 10,653
Deposits 12,532 --
--------------- ------------
$ 109,509 $ 41,594
=============== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank overdraft $ 9,229 $ --
Accounts payable 107,571 70,246
Accrued expenses 10,254 --
Loans from related parties (Note 4) 30,698 --
Current portion of note payable (Note 5) 1,793 --
Current portion of settlement payable (Note 4) 117,000 --
--------------- ------------
Total current liabilities 276,545 70,246
Note payable, net of current portion (Note 5) 14,363 --
Settlement payable, net of current portion (Note 4) 247,000 --
--------------- ------------
Total liabilities 537,908 70,246
--------------- ------------
Commitments and contingencies (Notes 4 and 7)
Stockholders' deficit:
Common stock, authorized 200,000,000 shares, at $0.001 par value;
19,579,266 and 4,264,597 common shares subscribed or issued and
outstanding 19,579 4,265
Additional paid-in capital 426,554 42,298
Accumulated deficit (874,532) (75,215)
--------------- ------------
Total stockholders' deficit (428,399) (28,652)
--------------- ------------
$ 109,509 $ 41,594
=============== ============
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-3
<PAGE>
DIPPY FOODS, INC.
(FORMERLY SWEETBRIER CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period
May 30, 1997
(date of
Year ended incorporation) to
April 30, 1999 April 30, 1998
------------------ --------------------
<S> <C> <C>
Revenues $ 191,933 $ 29,491
Cost of goods sold 183,512 25,362
------------------ --------------------
Gross profit 8,421 4,129
Selling, general and administrative expenses 802,916 79,344
------------------ --------------------
Loss from operations (794,495) (75,215)
Interest expense (4,822) --
------------------ --------------------
Net loss $ (799,317) $ (75,215)
================== =====================
Basic and diluted weighted average shares outstanding 11,644,580 3,936,551
================== =====================
Basic and diluted loss per share $ (.07) $ (.02)
================== =====================
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-4
<PAGE>
DIPPY FOODS, INC.
(FORMERLY SWEETBRIER CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED APRIL 30, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Issued Common Stock Subscription
----------------------------------- -------------------------
Number Additional Number Total
of Common Paid-In of Accumulated Stockholders'
Shares Stock Capital Shares Amount Deficit Deficit
----------- ---------- ---------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 30, 1997 -- $ -- $ -- -- $ -- $ -- $ --
Issuance of common
stock 4,264,597 4,265 42,298 -- -- -- 46,563
Net loss -- -- -- -- -- (75,215) (75,215)
----------- ---------- ---------- ------------ ---------- ------------ -------------
Balance, April 30, 1998 4,264,597 4,265 42,298 -- -- (75,215) (28,652)
Issuance of common
stock 304,669 304 50,266 -- -- -- 50,570
Effect of reverse
merger 10,030,000 10,030 (10,030) -- -- -- --
Common stock
subscribed -- -- -- 4,980,000 249,000 -- 249,000
Contributed services -- -- 100,000 -- -- -- 100,000
Net loss -- -- -- -- -- (799,317) (799,317)
----------- ---------- ---------- ------------ ---------- ------------ -------------
Balance, April 30, 1999 14,599,266 $ 14,599 $ 182,534 4,980,000 $ 249,000 $ (874,532) $ (428,399)
=========== ========== ========== ============ ========== ============ =============
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5
<PAGE>
DIPPY FOODS, INC.
(FORMERLY SWEETBRIER CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period
May 30, 1997
(date of
Year ended incorporation) to
INCREASE (DECREASE) IN CASH April 30, 1999 April 30, 1998
-------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (799,317) $ (75,215)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 7,863 --
Non-cash settlement payable to former director
(Note 4) 372,000 --
Non-cash compensation 100,000 --
Increase (decrease) from changes in:
Accounts receivables (26,588) (22,264)
Inventory 247 (6,396)
Prepaid expenses (2,572) --
Deposits (12,532) --
Accounts payable and accruals 47,579 70,246
Due to related parties 30,698 --
-------------- -----------------
Net cash used in operating activities (282,622) (33,629)
-------------- -----------------
Cash flows from investing activities:
Purchase of property and equipment (26,614) (10,653)
Restricted cash invested in certificate of deposit (10,000) --
-------------- -----------------
Net cash used in investing activities 36,614 10,653
-------------- -----------------
Cash flows from financing activities:
Bank overdraft 9,229 --
Proceeds from stock issuance 299,570 46,563
Proceeds from note payable 17,862 --
Principal payments of notes payable (9,706) --
-------------- -----------------
Net cash provided by financing activities 316,955 46,563
-------------- -----------------
Increase (decrease) in cash (2,281) 2,281
Cash, beginning of period 2,281 --
-------------- -----------------
Cash, end of period $ -- $ 2,281
============== =================
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-6
<PAGE>
SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS
Cash paid:
During the periods ended April 30, 1999 and 1998, the Company paid no
income taxes.
During the periods ended April 30, 1999 and 1998, the Company paid $4,822
and $0 in interest.
Non-cash financing activities:
On September 19, 1998, the Company exchanged 6,638,538 shares of stock for
4,569,266 shares of Dippy-NV stock pursuant to a share exchange agreement.
On February 1, 1999, the Company accrued a settlement payable to a former
director in the amount of $372,000 consisting of $276,000 payable in common
shares and $96,000 payable in cash. (Note 4). On October 11, 1998, the Company
acquired a vehicle for a note payable in the amount of $17,862 (Note 5). During
1999 the Company recorded non-cash compensation of $100,000 in respect of a
director's uncompensated services.
F-7
<PAGE>
DIPPY FOODS, INC.
(FORMERLY SWEETBRIER CORPORATION)
SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Dippy Foods, Inc. ("Dippy" or "Dippy-CA"), a California corporation, was
incorporated on May 30, 1997. Dippy is in the business of developing, processing
and distributing, packaged dipping foods for snacks, school lunch programs and
disaster relief programs. Dippy commenced operations from its California offices
in January 1998. The Company currently distributes products to customers in
California.
On September 17, 1998, the Company merged with and into Sweetbrier
Corporation ("Sweetbrier") (see "Merger"). Sweetbrier was incorporated in Nevada
on February 23, 1998 for the purpose of developing mineral properties.
Sweetbrier abandoned its mining claims after completing the merger with
Dippy-CA.
Subsequent to the merger the Company raised $249,000 through the sale of
4,980,000 shares of common stock.
MERGER
On September 17, 1998, Sweetbrier entered into a share exchange agreement
whereby it acquired all of the outstanding common stock of Dippy. Total
consideration for the acquisition was a share exchange of 6,638,533 shares of
Dippy for 4,569,266 shares of Sweetbrier. For accounting purposes the
acquisition has been treated as a reverse acquisition with Dippy as the
accounting acquirer. In a reverse acquisition, the stock issued goes to the
accounting acquirer. Since reverse acquisition accounting is the reverse of
normal, it is the fair market value ("FMV") of the issuer's stock at date of
acquisition that is valued with a write up (write down) of the issuer's net
assets depending on whether the stock is trading in excess (less than) book
value. If a FMV cannot be determined for the stock, and cost is determined based
on the FMV of the issuer's net assets, then goodwill is not recognized and the
transaction is valued at the issuer's net tangible assets. Sweetbrier had no
tangible net assets and very limited trading history. The FMV of the stock
issued could not be determined. Accordingly, goodwill was not recognized and the
transaction was recorded as a recapitalization of Dippy-CA. Upon consummation of
the merger, Sweetbrier changed its name to Dippy Foods, Inc. ("Dippy-NV").
BASIS OF PRESENTATION
The accompanying financial statements include accounts of Dippy-California
for all periods presented and the accounts of Dippy-Nevada for the period
September 17, 1998 through April 30, 1999. Pro forma information giving effect
to the merger is not presented because the operating results of Sweetbrier are
not material. All significant intercompany accounts and transactions have been
eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recorded when products are shipped to customers.
F-8
<PAGE>
DIPPY FOODS, INC.
(FORMERLY SWEETBRIER CORPORATION)
SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes". SFAS 109 requires a company to use the asset and liability method of
accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized
for the tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. A valuation allowance is provided when management cannot determine
whether it is more likely than not that the deferred tax asset will be realized.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market
(net realizable value).
FIXED ASSETS
Fixed Assets are stated at cost.
Depreciation is provided on the straight-line method over the estimated
useful lives, which are generally not greater than five years. Fixed assets are
reviewed each year to determine whether any events or circumstances indicate
that the carrying amount of the assets may not be recoverable. Such review
includes estimating future cash flows. The costs are expensed when determined
not realizable.
ACCOUNTING 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, liabilities, contingent
liabilities, revenues, and expenses at the date and for the periods that the
financial statements are prepared. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of restricted cash, accounts receivable, bank
overdraft, and accounts payable approximate their fair values because of the
short maturity of these instruments. The fair value of the notes payable
approximate the carrying amount and are estimated based on the current rates
offered to the Company for debt of the same remaining maturities. The fair value
of the notes payable to shareholders is estimated to be $30,698.
CONCENTRATION OF CREDIT RISK AND OFF-BALANCE SHEET RISK
The Company primarily sells to school districts. These school districts are
located throughout California. The Company conducts business based on periodic
evaluations of its customers' financial condition and generally does not require
deposits. The Company does not believe a significant risk of loss from
concentration of credit exists because these customers are funded by the state
or county.
F-9
<PAGE>
DIPPY FOODS, INC.
(FORMERLY SWEETBRIER CORPORATION)
SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
The Company primarily deals with a few suppliers for purchases of its
products and supplies. The Company does not believe a significant risk of loss
exists because it can obtain these products and supplies from other sources at
comparable prices.
The Company's products meet the standards of the National School Lunch
Program and the Company has been approved for participation in the Commodity
School Program. The National School Lunch Program and the Commodity School
Program are central to the Company's business strategy. The elimination of these
programs could have a materially adverse effect on the Company's operations.
NET LOSS PER SHARE
Basic loss per share includes no dilution and is computed by dividing net
loss available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could occur if securities or other
contracts (such as stock options and warrants) to issue common stock were
exercised or converted into common stock. The Company has no outstanding stock
options or warrants.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations in the year
incurred. During 1999 and 1998, $13,535 and $3,175 in research and development
costs were charged to operations.
F-10
<PAGE>
DIPPY FOODS, INC.
(FORMERLY SWEETBRIER CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern which contemplates
the realization of the assets and the satisfaction of liabilities in the normal
course of business. The carrying amounts of assets and liabilities presented in
the financial statements do not purport to represent realizable or settlement
values. However, the Company has limited operating history resulting in an
accumulated deficit of $874,532 since inception, negative working capital of
$208,972, and a stockholders' deficit of $428,399 at April 30, 1999. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of those uncertainties.
Management is planing to improve cash flow and operating results in
three ways. First, by raising additional capital through private placements of
stock. Second, reducing cost of sales by bringing the processing and packaging
in-house. Third, increasing sales arising from sales to a number of new school
districts and upon final approval of a purchase order by a major wholesaler,
which will mark the Company's entry into the retail market place. However, there
is no assurance that such plans will be successful.
NOTE 2--RESTRICTED CASH
Based on a sales agreement, the Company invested $10,000 in a certificate
of deposit which matures within one year and is used as security in the event of
the loss of inventory supplied to the Company by the customer.
NOTE 3--FIXED ASSETS
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Vehicles $ 20,862 $ -
Equipment 16,405 10,653
------------- -------------
37,267 10,653
Less accumulated depreciation and amortization 7,863 -
------------- -------------
$ 29,404 $ 10,653
============= =============
</TABLE>
NOTE 4--RELATED PARTY TRANSACTIONS
At April 30, 1999, the Company had loans payable to four shareholders
totaling $30,698. These loans bear no interest, are unsecured and are payable on
demand.
On February 1, 1999, the Company entered into a settlement agreement with a
former director whereby the Company agreed to pay the director $96,000 at $4,000
per month for 24 months, plus interest at 5% payable on the final payment. The
Company also agreed to issue 400,000 shares to the former director at 100,000
shares per year for four years. None of these shares have been issued. In
respect of this stock award, the Company recorded a liability and compensation
expense of $276,000, based on the then current fair value of the awarded stock.
During 1999, the Company recognized $100,000 in compensation expense
arising from services contributed by a significant shareholder.
F-11
<PAGE>
DIPPY FOODS, INC.
(FORMERLY SWEETBRIER CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 5--NOTE PAYABLE
Note payable consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Note payable to bank, interest at 22%, secured by vehicle, payable in
sixty monthly payments of $493, including principal and interest $ 16,156 $ --
------------ ------------
16,156 --
Less: current portion 1,793 --
------------ ------------
Note payable due after one year $ 14,363 $ --
============ ============
Annual future minimum payments under note payable consist of:
2000 $ 1,793
2001 3,056
2002 3,801
2003 4,729
2004 2,777
-----------
$ 16,156
===========
</TABLE>
NOTE 6--INCOME TAXES
As of April 30, 1999 and 1998, deferred tax assets consist of the
following:
<TABLE>
<CAPTION>
April 30,
-----------------------------
1999 1998
------------- ------------
<S> <C> <C>
Federal loss carryforwards $ 145,342 $ 28,614
State loss carryforwards 37,789 7,440
------------- ------------
183,131 36,054
Less: valuation allowance (183,131) (36,054)
------------- -------------
$ -- $ --
============= =============
</TABLE>
F-12
<PAGE>
DIPPY FOODS, INC.
(FORMERLY SWEETBRIER CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--INCOME TAXES (CONTINUED)
At April 30, 1999 and 1998, the Company has net operating loss
carryforwards (NOL's) of approximately $427,476 and $84,159, respectively, for
both federal and state tax purposes. At April 30, 1999 and 1998, the Company has
deferred tax assets of approximately $183,131 and $36,054, respectively, which
primarily relate to net operating losses. A 100% valuation allowance has been
established as management cannot determine whether it is more likely than not
that the deferred tax assets will be realized. The federal and state NOL's begin
to expire on April 30, 2018 and April 30, 2013, respectively.
NOL incurred prior to September 19, 1998 are subject to an annual
limitation due to the ownership change (as defined under Section 382 of the
Internal Revenue Code of 1986) which occurred as a result of the merger. Unused
annual limitations may be carried over to future years until the net operating
losses expire. Utilization of net operating losses may also be limited in any
one year by alternative minimum tax rules.
NOTE 7--COMMITMENTS
LEASE OBLIGATIONS
The Company leases premises for $5,788 per month. This lease escalates
annually to $5,999 in the final year and expires December 31, 2001.
Annual future minimum lease payments under operating lease commitments as
of April 30, 1999 are as follows:
Fiscal Year Amount
----------- ----------
2000 $ 69,456
2001 69,456
2002 46,304
----------
Total minimum lease payments $ 185,216
==========
Rent expense was $22,686 and $0 for the years ended April 30, 1999 and
1998, respectively.
NOTE 8--SUBSEQUENT EVENT
On May 19,1999, the Company entered into a license agreement with a
supplier. The Company was granted a non-exclusive, royalty-free license to use
certain trademarks until December 31, 2008. The Company annually must buy
certain minimum quantities of the licensor's fruit fillings and peanut butter
and use them exclusively in all of its products except those products destined
for the school districts that are part of the Commodity School Program. The
licensor has the right to cancel the contract if the Company does not buy the
minimum amounts.
On July 6,1999 the Company entered into an agreement with a supplier. The
Company agreed to pickup and distribute food items containing United States
Department of Agriculture (USDA) donated foods to eligible recipient agencies in
California.
F-13
<PAGE>
DIPPY FOODS, INC.
(FORMERLY SWEETBRIER CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--SUBSEQUENT EVENT (CONTINUED)
On August 13, 1999, the Company entered into an agreement to buy a
production plant (including land and buildings) for $1,075,000. The agreement
requires a down payment of $250,000 and is subject to the Company's obtaining a
mortgage for the balance and the signing of an agreement with the seller for the
Company's purchase of the production equipment located in the building for
$50,000.
NOTE 9--MAJOR CUSTOMERS
The following table is a listing of all customer with sales exceeding 10%
of total revenue.
<TABLE>
<CAPTION>
Period from May 30, 1997
Year Ended (Date of Incorporation) to
Customer April 30, 1999 April 30, 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
A - % 25.3%
B - 21.1
C - 18.9
D - 15.0
E - 12.0
F 29.2 -
G 14.7 -
</TABLE>
The Company had two suppliers who accounted for approximately 36.6% of cost
of goods sold for the year ended April 30, 1999. The Company had four suppliers
who accounted for 88.2% of the cost of goods sold for the period from May 30,
1997 to April 30, 1998.
F-14
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, who are duly authorized.
Dated August 31, 1999
DIPPY FOODS, INC.
a Nevada corporation
/s/ Jon Stevenson
- --------------------------------------------
Jon Stevenson
Chief Executive Officer, President
/s/ Munjit Johal
- --------------------------------------------
Munjit Johal
Chief Financial Officer
EXHIBIT 2
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
FEB 23 1998
No. 3622-98
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
SWEETBRIER CORPORATION
* * * * *
The undersigned, acting as incorporator, pursuant to the provisions of the
laws of the State of Nevada relating to private corporations, hereby adopts the
following Articles of Incorporation:
ARTICLE ONE. [NAME]. The name of the corporation is:
SWEETBRIER CORPORATION
ARTICLE TWO. [RESIDENT AGENT]. The initial agent for service of process is
Nevada Agency and Trust Company, 50 West Liberty Street, Suite 880, City of
Reno, County of Washoe, State of Nevada 89501.
ARTICLE THREE. [PURPOSES]. The purposes for which the corporation is
organized are to engage in any activity or business not in conflict with the
laws of the State of Nevada or of the United States of America, and without
limiting the generality of the foregoing, specifically:
I. [OMNIBUS]. To have to exercise all the powers now or hereafter
conferred by the laws of the State of Nevada upon corporations organized
pursuant to the laws under which the corporation is organized and any and
all acts amendatory thereof and supplemental thereto.
II. [CARRYING ON BUSINESS OUTSIDE STATE]. To conduct and carry on its
business or any branch thereof in any state or territory of the United
States or in any foreign country in conformity with the laws of such state,
territory, or foreign country, and to have and maintain in any state,
territory, or foreign country a business office, plant, store or other
facility.
III. [PURPOSES TO BE CONSTRUED AS POWERS]. The purposes specified
herein shall be construed both as purposes and powers and shall be in no
wise limited or restricted by reference to, or inference from, the terms
<PAGE>
of any other clause in this or any other article, but the purposes and
powers specified in each of the clauses herein shall be regarded as
independent purposes and powers, and the enumeration of specific purposes
and powers shall not be construed to limit or restrict in any manner the
meaning of general terms or of the general powers of the corporation; nor
shall the expression of one thing be deemed to exclude another, although it
be of like nature not expressed.
ARTICLE FOUR. [CAPITAL STOCK]. The corporation shall have authority to
issue an aggregate of TWO HUNDRED MILLION (200,000,000) COMMON CAPITAL SHARES,
PAR VALUE ONE MILL ($0.001) per share for a total capitalization of TWO HUNDRED
THOUSAND DOLLARS ($200,000).
The holders of shares of capital stock of the corporation shall not be
entitled to pre-emptive or preferential rights to subscribe to any unissued
stock or any other securities which the corporation may now or hereafter be
authorized to issue.
The corporation's capital stock may be issued and sold from time to time
for such consideration as may be fixed by the Board of Directors, provided that
the consideration so fixed is not less than par value.
The stockholders shall not possess cumulative voting rights at all
shareholders meetings called for the purpose of electing a Board of Directors.
ARTICLE FIVE. [DIRECTORS]. The affairs of the corporation shall be
governed by a Board of Directors of no more than eight (8) nor less than one
(1) person. The names and addresses of the first Board of Directors are:
<TABLE>
<CAPTION>
NAME ADDRESS
- ---- -------
<S> <C>
Robert George Krushnisky 5025 - 10 A Avenue
Delta, B.C., Canada V4L 2T8
Michael Kennaugh 42 - 2951 Panorama Drive
Coquitlam, B.C., Canada V3E 2W3
Philip Yee 2652 Dundas Street
Vancouver, B.C., Canada V5K 1P9
</TABLE>
ARTICLE SIX. [ASSESSMENT OF STOCK]. The capital stock of the corporation,
after the amount of the subscription price or par value has been paid in, shall
not be subject to pay debts of
2
<PAGE>
the corporation, and no paid up stock and no stock issued as fully paid up shall
ever be assessable or assessed.
ARTICLE SEVEN. [INCORPORATOR]. The name and address of the incorporator of
the corporation is as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
- ---- -------
<S> <C>
Amanda Cardinalli 50 West Liberty Street, Suite 880
Reno, Nevada 89501
</TABLE>
ARTICLE EIGHT. [PERIOD OF EXISTENCE]. The period of existence of the
corporation shall be perpetual.
ARTICLE NINE. [BY-LAWS]. The initial By-laws of the corporation shall be
adopted by its Board of Directors. The power to alter, amend, or repeal the
By-laws, or to adopt new By-laws, shall be vested in the Board of Directors,
except as otherwise may be specifically provided in the By-laws.
ARTICLE TEN. [STOCKHOLDERS' MEETINGS]. Meetings of stockholders shall be
held at such place within or without the State of Nevada as may be provided by
the By-laws of the corporation. Special meetings of the stockholders may be
called by the President or any other executive officer of the corporation, the
Board of Directors, or any member thereof, or by the record holder or holders of
at least ten percent (10%) of all shares entitled to vote at the meeting. Any
action otherwise required to be taken at a meeting of the stockholders, except
election of directors, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by stockholders having at
least a majority of the voting power.
ARTICLE ELEVEN. [CONTRACTS OF CORPORATION]. No contract or other
transaction between the corporation and any other corporation, whether or not a
majority of the shares of the capital stock of such other corporation is owned
by this corporation, and no act of this corporation shall in any way be
affected or invalidated by the fact that any of the directors of this
corporation are pecuniarily or otherwise interested in, or are directors or
officers of such other corporation. Any director of this corporation,
individually, or any firm of which such director may be a member, may be a
party to, or may be pecuniarily or otherwise interested in any contract or
transaction of the corporation; provided, however, that the fact that he or
such firm is so interested shall be disclosed or shall have been known to the
Board of Directors of this corporation, or a majority thereof; and any director
of this corporation who is also a director or officer of such other
corporation, or who is interested, may be counted
3
<PAGE>
in determining the existence of a quorum at any meeting of the Board of
Directors of this corporation that shall authorize such contract or transaction,
and may vote thereat to authorize such contract or transaction, with like force
and effect as if he were not such director or officer of such other corporation
or not so interested.
ARTICLE TWELVE. [LIABILITY OF DIRECTORS AND OFFICERS]. No director or
officer shall have any personal liability to the corporation or its
stockholders for damages for breach of fiduciary duty as a director or officer,
except that this Article Twelve shall not eliminate or limit the liability of a
director or officer for (I) acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or (ii) the payment of
dividends in violation of the Nevada Revised Statutes.
IN WITNESS WHEREOF, the undersigned incorporator has hereunto affixed her
signature at Reno, Nevada this 20th of February, 1998.
/s/ Amanda Cardinalli
----------------------------------------
AMANDA CARDINALLI
STATE OF NEVADA }
: SS.
COUNTY OF WASHOE }
On the 20th day of February, 1998, before me, the undersigned, a NOTARY
PUBLIC in and for the State of Nevada, personally appeared AMANDA CARDINALLI,
known to me to be the person described in and who executed the foregoing
instrument, and who acknowledged to me that she executed the same freely and
voluntarily for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/ Margaret A. Oliver
----------------------------------------
NOTARY PUBLIC
Residing in Reno, Nevada
My Commission Expires:
October 10, 1998
4
EXHIBIT 3
F I L E D
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
SEP 17 1998
NO. C 3622-98
/S/ DEAN HELLER
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
SWEETBRIER CORPORATION
The undersigned certify that, pursuant to the provisions of the Nevada Revised
Statutes, Sweetbrier Corporation, a Nevada corporation, adopted the following
resolutions to amend its articles of incorporation:
1. All of the directors consented in writing to the following resolution dated
September 2, 1998:
RESOLVED that the secretary of the corporation is directed to obtain from
the stockholders owning at least a majority of the voting power of the
outstanding stock of the corporation their written consent to the amendment
of article one of the articles of incorporation to change the name of the
corporation from SWEETBRIER CORPORATION TO DIPPY FOODS, INC.
2. A majority of the stockholders holding seventy percent of the common shares
outstanding of Sweetbrier Corporation consented in writing to the following
resolution dated September 2, 1998:
RESOLVED that article one of the Company's articles of incorporation be
amended as follows:
ARTICLE ONE [NAME] The name of the corporation is:
DIPPY FOODS, INC.
The undersigned president and secretary of Sweetbrier Corporation, a Nevada
corporation, signed below on September 12, 1998.
Sweetbrier Corporation
/s/ Munjit Johal
--------------------------------------
Munjit Johal, President
/s/ Al Diamond
--------------------------------------
Al Diamond, Secretary
State of California ACKNOWLEDGEMENT
County of ATTACHED
On September 12, 1998, before me, the undersigned notary public, personally
appeared Munjit Johal, President, and Al Diamond, Secretary, known to be the
persons described in and who executed the foregoing instrument and who
acknowledged to me that they executed it voluntarily for the purpose described.
I have set my hand and affixed my official seal on September 12, 1998.
--------------------------------------
Notary Public
Residing in
---------------------------
My commission expires: ---------------------
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT
State of California
------------
County of Los Angeles
-----------
On 9/12/98 before me, Marsha Jeffer, Notary Public,
------- ---------------------------------------------------------
DATE NAME, TITLE OF OFFICER -- E.G., "JANE DOE, NOTARY PUBLIC"
personally appeared Al Diamond,
-----------------------------------------------------------
NAME(S) OF SIGNER(S)
[ ] personally known to me - OR - [ ] proved to me on 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 be
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/ Marsha Jeffer
--------------------------------------------
SIGNATURE OF NOTARY
- ----------------------------------
MARSHA JEFFER
COMMISSION # 1130994
[SEAL] NOTARY PUBLIC -- CALIFORNIA
LOS ANGELES COUNTY
MY COMM. EXPIRES MAY 2, 2001
- ----------------------------------
- --------------------------- OPTIONAL -------------------------------------------
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER DESCRIPTION ATTACHED DOCUMENT
[ ] INDIVIDUAL Certificate of Amendment
[X] CORPORATE OFFICE to the Articles of Incorporation
of Sweetbrier Corp.
/s/ Secretary
- ---------------------------- --------------------------------
TITLE(S) TITLE OR TYPE OF DOCUMENT
[ ] PARTNER(S) [ ] LIMITED
[ ] GENERAL 1
[ ] ATTORNEY-IN-FACT --------------------------------
[ ] TRUSTEE(S) NUMBER OF PAGES
[ ] GUARDIAN/CONSERVATOR
[ ] OTHER: -----------------
------------------------ 9/12/98
------------------------ --------------------------------
DATE OF DOCUMENT
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
/s/ Munjit Johal
- ---------------------------- --------------------------------
- ---------------------------- SIGNER(S) OTHER THAN NAMED ABOVE
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT
State of CALIFORNIA
----------
County of ORANGE
---------
On 9/12/98 before me, WILLIAM P BERNARD NOTARY PUBLIC,
------- --------------------------------------------------------
Date Name and Title of Officer (e.g., "Jane Doe, Notary Public")
personally appeared Munjit Johal, President,
------------------------------------------------------------
Name(s) of Signer(s)
[ ] personally known to me - OR - [ ] proved to me on 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 be 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/ William P. Bernard
-------------------------------------
Signature of Notary
- --------------------------------
WILLIAM P. BERNARD
COMM...1162191
[SEAL] NOTARY PUBLIC--CALIFORNIA
ORANGE COUNTY
MY TERM EXP. NOV. 21, 2001
- --------------------------------
- ---------------------------- OPTIONAL ------------------------------------------
Though the information below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent removal and
reattachment of this form to another document.
DESCRIPTION OF ATTACHED DOCUMENT
Title or Type of Document: Certificate of Amendment
-----------------------------------------------------
Document Date: 9-12-98 Number of Pages: 1
-------------------------- -----------------------
Signer(s) Other Than Named Above: Al Diamond
-----------------------------------------------
CAPACITY(IES) CLAIMED BY SIGNER(S)
Signer's Name: Signer's Name:
-------------------- ------------------------
[ ] Individual [ ] Individual
[X] Corporate Officer [X] Corporate Officer
Title(s): President Title(s):
-------------------- -----------------------------
[ ] Partner -- [ ] Limited [ ] General [ ] Partner -- [ ] Limited [ ] General
[ ] Attorney-in-Fact [ ] Attorney-in-Fact
[ ] Trustee [ ] Trustee
[ ] Guardian or Conservator [ ] Guardian or Conservator
[ ] Other: [ ] Other:
------------- RIGHT THUMBPRINT ---------- RIGHT THUMBPRINT
------------------- OF SIGNER OF SIGNER
Top of thumb here Top of thumb here
Signer is Representing: Signer is Representing:
- ------------------------ -----------------------
- ------------------------ -----------------------
EXHIBIT 4
BY LAWS
OF
SWEETBRIER CORPORATION
A NEVADA CORPORATION
ARTICLE 1
OFFICES
SECTION 1. The registered office of this corporation shall be in the City of
Reno, State of Nevada.
SECTION 2. The Corporation may also have offices at such other places both
within and without the State of Nevada as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
SECTION 1. All annual meetings of the stockholders shall be held at the
registered office of the corporation or at such other place within or without
the State of Nevada as the Directors shall determine. Special meetings of the
stockholders may be held at such time and place within or without the State of
Nevada as shall be stated in the notice of the meeting, or in a duly executed
waiver of notice thereof.
SECTION 2. Annual meetings of the stockholders shall be held on the anniversary
date of incorporation each year if not a legal holiday, and if a legal holiday,
then on the next secular day following, or at such other time as may be set by
the Board of Directors from time to time, at which the stockholders shall elect
by vote a Board of Directors and transact such other business as may properly be
brought before the meeting.
SECTION 3. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the Articles of Incorporation, may
be called by the President or the Secretary, by the resolution of the Board of
Directors or at the request in writing of the stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose of the proposed meeting.
SECTION 4. Notices of meetings shall be in writing and signed by the President
or Vice-President or the Secretary or an Assistant Secretary or by such other
person or persons as the Directors shall designate. Such notice shall state the
purpose or purposes for which the meeting is called and the time and place,
which may be] within or without this state, where it is to be held. A copy of
such notice shall be either delivered personally or shall be mailed, postage
prepaid, to each stockholder of record entitled to vote at such meeting not less
than ten nor more than sixty days before such meeting. If mailed, it shall be
directed to a stockholder at his address as it appears upon the records of the
corporation and upon such mailing of any such notice, their service thereof
shall be made complete and the time of the notice shall begin to run from the
date upon which such notice is deposited in the mail for transmission to such
stockholder. Personal delivery of any such notice to an officer of the
corporation or association, or to any member of a partnership shall constitute
delivery of such notice to such corporation, association or partnership. In the
event of the transfer of stock after delivery of such notice and prior to the
holding of the meeting, it shall not be necessary to deliver or mail such notice
of the meeting to the transferee.
SECTION 5. Business transactions at any special meeting of stockholders shall be
limited to the purpose stated in the notice.
SECTION 6. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Articles of
Incorporation. If, however, such
<PAGE>
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcements at the meeting, until a quorum shall be presented or
represented. At such adjourned meetings at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
SECTION 7. When a quorum is present or represented at any meeting, the vote of
the holders of 10% of the stock having voting power present in person or
represented by proxy shall be sufficient to elect Directors or to decide any
question brought before such meeting, unless the question is one upon which by
express provision of the statute or of the Articles of Incorporation, a
different vote shall govern and control the decision of such question.
SECTION 8. Each stockholder of record of the corporation shall be entitled at
each meeting of the stockholders to one vote for each share standing in his name
on the books of the corporation. Upon the demand of any stockholder, the vote
for Directors and the vote upon any question before the meeting shall be by
ballot.
SECTION 9. At any meeting of the stockholders any stockholder may be represented
and vote by a proxy or proxies appointed by an instrument in writing. In the
event that any such instrument in writing shall designate two or more persons to
act as proxies, a majority of such persons present at the meeting, or if only
one shall be present, then that one shall have and may exercise all the powers
conferred by such written instruction upon all of the persons so designated
unless the instrument shall otherwise provide. No proxy or power of attorney to
vote shall be voted at a meeting of the stockholders unless it shall have been
filed with the secretary of the meeting when required by the inspectors of
election. All questions regarding the qualifications of voters, the validity of
proxies and the acceptance of or rejection of votes shall be decided by the
inspectors of election who shall be appointed by the Board of Directors, or if
not so appointed, then by the presiding officer at the meeting.
SECTION 10. Any action which may be taken by the vote of the stockholders at a
meeting may be taken without a meeting if authorized by the written consent of
stockholders holding at least a majority of the voting power, unless the
provisions of the statute or the Articles of Incorporation require a greater
proportion of voting power to authorize such action in which case such greater
proportion of written consents shall be required.
ARTICLE 3
DIRECTORS
SECTION 1. The business of the corporation shall be managed by its Board of
Directors which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the Articles of Incorporation
or by these Bylaws directed or required to be exercised or done by the
stockholders.
SECTION 2. The number of Directors which shall constitute the whole board shall
be not less than one and not more than eight. The number of Directors may from
time to time be increased or decreased to not less than one nor more than eight
by action of the Board of Directors. The Directors shall be elected at the
annual meeting of the stockholders and except as provided in section 2 of this
Article, each Director elected shall hold office until his successor is elected
and qualified. Directors need not be stockholders.
SECTION 3. Vacancies in the Board of Directors including those caused by an
increase in the number of Directors, may be filed by a majority of the remaining
Directors, though less than a quorum, or by a sole remaining Director, and each
Director so elected shall hold office until his successor is elected at the
annual or a special meeting of the stockholders. The holders of a two-thirds of
the outstanding shares of stock entitled to vote may at any time peremptorily
terminate the term of office of all or any of the Directors by vote at a meeting
called for such purpose or by a written statement filed with the Secretary or,
in his absence, with any other officer. Such removal shall be effective
immediately, even if successors are not elected simultaneously and the vacancies
on the Board of Directors resulting therefrom shall only be filled from the
stockholders.
A vacancy or vacancies on the Board of Directors shall be deemed to exist
in case of death, resignation or removal of any Director, or if the authorized
number of Directors be increased, or if the stockholders fail at any annual or
special meeting of stockholders at which any Director or Directors are elected
to elect the full authorized number of Directors to be voted for at that
meeting.
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The stockholders may elect a Director or Directors at any time to fill any
vacancy or vacancies not filled by the Directors. If the Board of Directors
accepts the resignation of a Director tendered to take effect at a future time,
the Board or stockholders shall have power to elect a successor to take office
when the resignation is to become effective.
No reduction of the authorized number of Directors shall have the effect
of removing any Director prior to the expiration of his term office.
ARTICLE 4
MEETING OF THE BOARD OF DIRECTORS
SECTION 1. Regular meetings of the Board of Directors shall be held at any
place within or without the State which has been designated from time to time
by resolution of the Board or by written consent of all members of the Board.
In the absence of such designation regular meetings shall be held at the
registered office of the corporation. Special meetings of the Board may be held
either at a place so designated or at the registered office.
SECTION 2. The first meeting of each newly elected Board of Directors shall be
held immediately following the adjournment of the meeting of stockholders and
at the place thereof. No notice of such meeting shall be necessary to the
Directors in order legally to constitute the meeting, provided a quorum be
present. In the event such meeting is not so held, the meeting may be held at
such time and place as shall be specified in a notice given as provided for
special meetings of the Board of Directors.
SECTION 3. Regular meetings of the Board of Directors may be held without call
or notice at such time and at such place as shall from time to time be fixed
and determined by the Board of Directors.
SECTION 4. Special meetings of the Board of Directors may be called by the
Chairman or the President nor by the Vice-President or by any two Directors.
Written notice of the time and place of special meetings shall be delivered
personally to each Director, or sent to each Director by mail or by other form
of written communication, charges prepaid, addressed to him at his address as it
is shown upon the records or if not readily ascertainable, at the place in which
the meetings of the Directors are regularly held. In case such notice is mailed
or telegraphed, it shall be deposited in the postal service or delivered to the
telegraph company at least forty-eight (48) hours prior to the time of the
holding of the meeting. In case such notice is delivered or faxed, it shall be
so delivered or faxed at least twenty-four (24) hours prior to the time of the
holding of the meeting. Such mailing, telegraphing, delivery or faxing as above
provided shall be due, legal and personal notice of such Director.
SECTION 5. Notice of the time and place of holding an adjourned meeting need
not be given to the absent Directors if the time and place be fixed at the
meeting adjourned.
SECTION 6. The transaction of any meeting of the Board of Directors, however
called and noticed or wherever held, shall be as valid as though transacted at
a meeting duly held after regular call and notice, if a quorum be present, and
if, either before or after such meeting, each of the Directors not be present
signs a written waiver of notice, or a consent of holding such meeting, or
approvals of the minutes thereof. All such waivers, consents or approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
SECTION 7. The majority of the authorized number of Directors shall be
necessary to constitute a quorum for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the Directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors, unless a
greater number be required by law or by the Articles of Incorporation. Any
action of a majority, although not a regularly called meeting, and the record
thereof, if assented to in writing by all of the other members of the Board
shall be as valid and effective in all respects as if passed by the Board in
regular meeting.
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SECTION 8. A quorum of the Directors may adjourn any Directors meeting to meet
again at stated day and hour; provided, however, that in the absence of a
quorum, a majority of the directors present at any Directors meeting, either
regular or special, may adjourn from time to time until the time fixed for the
next regular meeting of the Board.
ARTICLE 5
COMMITTEES OF DIRECTORS
SECTION 1. The Board of Directors may, by resolution adopted by a majority of
the whole Board, designate one or more committees of the Board of Directors,
each committee to consist of two or more of the Directors of the corporation
which, to the extent provided in the resolution, shall and may exercise the
power of the Board of Directors in the management of the business and affairs
of the corporation and may have power to authorize the seal of the corporation
to be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may be determined from time to time by the
Board of Directors. The members of any such committee present at any meeting
and not disqualified from voting may, whether or not the constitute a quorum,
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. At meetings of such
committees, a majority of the members or alternate members at any meeting at
which there is a quorum shall be the act of the committee.
SECTION 2. The committee shall keep regular minutes of their proceedings and
report the same to the Board of Directors.
SECTION 3. Any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting
if a written consent thereto is signed by all members of the Board of Directors
or of such committee, as the case may be, and such written consent is filed
with the minutes of proceedings of the Board or committee.
ARTICLE 6
COMPENSATION OF DIRECTORS
SECTION 1. The Directors may be paid their expenses of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as Director. No such
payment shall preclude any Director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like reimbursement and compensation for attending
committee meetings.
ARTICLE 7
NOTICES
SECTION 1. Notices to Directors and stockholders shall be in writing and
delivered personally or mailed to the Directors or stockholders at their
addresses appearing on the books of the corporation. Notices to Directors may
also be given by fax and by telegram. Notice by mail, fax or telegram shall be
deemed to be given at the time when the same shall be mailed.
SECTION 2. Whenever all parties entitled to vote at any meeting, whether of
Directors or stockholders, consent, either by a writing on the records of the
meeting or filed with the Secretary, or by presence at such meeting or oral
consent entered on the minutes, or by taking part in the deliberations at such
meeting without objection, the doings of such meeting shall be as valid as if
had at a meeting regularly called and noticed, and at such meeting any business
may be transacted which is not excepted from the written consent to the
consideration of which no objection for want of notice is made at the time, and
if any meeting be irregular for want of notice or such consent, provided a
quorum was present at such meeting, the proceedings of said meeting may be
ratified and approved and rendered likewise valid and the irregularity or defect
therein waived by a writing signed by all parties having the right to vote at
such meeting; and such consent or approval of stockholders may be by proxy or
attorney, but all such proxies and powers of attorney must be in writing.
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SECTION 3. Whenever any notice whatever is required to be given under the
provisions of the statute, of the Articles of Incorporation or of these Bylaws,
a waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE 8
OFFICERS
SECTION 1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a President, a Secretary and a Treasurer. Any person may
hold two or more offices.
SECTION 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a Chairman of the Board who shall be a
Director, and shall choose a President, a Secretary and a Treasurer, none of
whom need be Directors.
SECTION 3. The Board of Directors may appoint a Vice-Chairman of the Board,
Vice-Presidents and one or more Assistant Secretaries and Assistant Treasurers
and such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 4.The salaries and compensation of all officers of the corporation
shall be fixed by the Board of Directors.
SECTION 5. The officers of the corporation shall hold office at the pleasure of
the Board of Directors. Any officer elected or appointed by the Board of
Directors may be removed any time by the Board of Directors. Any vacancy
occurring in any office of the corporation by death, resignation, removal or
otherwise shall be filled by the Board of Directors.
SECTION 6. The CHAIRMAN OF THE BOARD shall preside at meetings of the
stockholders and the Board of Directors, and shall see that all orders and
resolutions of the Board of Directors are carried into effect.
SECTION 7. The VICE-CHAIRMAN shall, in the absence or disability of the Chairman
of the Board, perform the duties and exercise the powers of the Chairman of the
Board and shall perform other such duties as the Board of Directors may form
time to time prescribe.
SECTION 8. The PRESIDENT shall be the chief executive officer of the
corporation and shall have active management of the business of the
corporation. He shall execute on behalf of the corporation all instruments
requiring such execution except to the extent the signing and execution thereof
shall be expressly designated by the Board of Directors to some other officer
or agent of the corporation.
SECTION 9. The VICE-PRESIDENTS shall act under the direction of the president
and in absence or disability of the President shall perform the duties and
exercise the powers of the President. They shall perform such other duties and
have such other powers as the President or the Board of Directors may from time
to time prescribe. The Board of Directors may designate one or more Executive
Vice-Presidents or may otherwise specify the order of seniority of the
Vice-Presidents. The duties and powers of the President shall descend to the
Vice-Presidents in such specified order of seniority.
SECTION 10. The SECRETARY shall act under the direction of the President.
Subject to the direction of the President he shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record the
proceedings. He shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and will perform
other such duties as may be prescribed by the President or the Board of
Directors.
SECTION 11. The ASSISTANT SECRETARIES shall act under the direction of the
President. In order of their seniority, unless otherwise determined by the
President or the Board of Directors, they shall, in the absence or
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disability of the Secretary, perform the duties and exercise the powers of the
Secretary. They shall perform other such duties and have such other powers as
the President and the Board of Directors may from time to time prescribe.
SECTION 12. The TREASURER shall act under the direction of the President.
Subject to the direction of the President he shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all money
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the corporation as may be ordered by the President or the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the corporation.
If required by the Board of Directors, the Treasurer shall give the
corporation a bond in such sum and with such surety as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the corporation.
SECTION 13. The ASSISTANT TREASURERS in order of their seniority, unless
otherwise determined by the President or the Board of Directors, shall, in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer. They shall perform such other duties and have such
other powers as the President or the Board of Directors may from time to time
prescribe.
ARTICLE 9
CERTIFICATES OF STOCK
SECTION 1. Every stockholder shall be entitled to have a certificate signed by
the President or a Vice-President and the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary of the corporation, certifying the
number of shares owned by him in the corporation. If the corporation shall be
authorized to issue more than one class of stock or more that one series of any
class, the designations, preferences and relative, participating, optional or
other special rights of the various classes of stock or series thereof and the
qualifications, limitations or restrictions of such rights, shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such stock.
SECTION 2. If a certificate is signed (a) by a transfer agent other than the
corporation or its employees or (b) by a registrar other than the corporation
or its employees, the signatures of the officers of the corporation may be
facsimiles. In case any officer who has signed or whose facsimile signatures
have been placed upon a certificate shall cease to be such officer before such
certificate is issued, such certificate may be issued with the same effect as
though the person had not ceased to be such officer. The seal of the
corporation, or a facsimile thereof, may, but need not be, affixed to
certificates of stock.
SECTION 3. The Board of Directors may direct a new certificate or certificates
to be issued in place of any certificate or certificates theretofore issued by
the corporation alleged to have been lost or destroyed upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost or
destroyed.
SECTION 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation, if it is satisfied that all provisions of the laws and
regulations applicable to the corporation regarding transfer and ownership of
shares have been compiled with, to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
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SECTION 5. The Board of Directors may fix in advance a date not exceeding sixty
(60) days nor less than ten (10) days preceding the date of any meeting of
stockholders, or the date of the payment of any dividend, or the date of the
allotment of rights, or the date when any change or conversion or exchange of
capital stock shall go into effect, or a date in connection with obtaining the
consent of stockholders for any purpose, as a record date for the termination of
the stockholders entitled to notice of and to vote at any such meeting, and any
adjournment thereof, or entitled to receive payment of any such dividend, or to
give such consent, and in the such case, such stockholders, and only such
stockholders as shall be stockholders of record on the date so fixed, shall be
entitled to notice of and to vote as such meeting, or any adjournment thereof,
or to receive such payment of dividend, or to receive such allotment of rights,
or to exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation after
such record date fixed as aforesaid.
SECTION 6. The corporation shall be entitled to recognize the person registered
on its books as the owner of the share to be the exclusive owner for all
purposes including voting and dividends, and the corporation shall not be bound
to recognize any equitable or other claims to or interest in such shares or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Nevada.
ARTICLE 10
GENERAL PROVISIONS
SECTION 1. Dividends upon the capital stock of the corporation, subject to the
provisions of the Articles of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of the capital stock,
subject to the provisions of the Articles of Incorporation.
SECTION 2. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends or for
repairing and maintaining any property of the corporation, or for such other
purpose as the Directors shall think conducive to the interests of the
corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 3. All checks or demands for money and notes of the corporation shall
be signed by such officer or officers or such other person or persons as the
Board of Directors may from time to time designate.
SECTION 4. The fiscal year of the corporation shall be fixed by resolution of
the Board of Directors.
SECTION 5. The corporation may or may not have a corporate seal, as may be from
time to time determined by resolution of the Board of Directors. If a corporate
seal is adopted, it shall have inscribed thereon the name of the corporation
and the words "Corporate Seal" and "Nevada". The seal may be used by causing it
or a facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE 11
INDEMNIFICATION
Every person who was or is a party or is threatened to be made a party to
or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a Director or officer of the
corporation or is or was serving at the request of the corporation or for its
benefit as a Director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless to the fullest legally permissible under
the General Corporation Law of the State of Nevada from time to time against
all expenses, liability and loss (including attorney's fees, judgments, fines
and amounts paid or to be paid in settlement) reasonably incurred or suffered
by him in connection therewith. The expenses of officers and Directors incurred
in defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of
the
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Director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. Such right of indemnification shall be a contract right which may
be enforced in any manner desired by such person. Such right of indemnification
shall not be exclusive of any other right which such Directors, officers or
representatives may have or hereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any bylaw, agreement, vote of stockholders, provision
of law or otherwise, as well as their rights under this Article.
The Board of Directors may cause the corporation to purchase and maintain
insurance on behalf of any person who is or was a Director or officer of the
corporation, or is or was serving at the request of the corporation as a
Director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out
of such status, whether or not the corporation would have the power to
indemnify such person.
The Board of Directors may form time to time adopt further Bylaws with
respect to indemnification and amend these and such Bylaws to provide at all
times the fullest indemnification permitted by the General Corporation Law of
the State of Nevada.
ARTICLE 12
AMENDMENTS
SECTION 1. The Bylaws may be amended by a majority vote of all the stock issued
and outstanding and entitled to vote at any annual or special meeting of the
stockholders, provided notice of intention to amend shall have been contained
in the notice of the meeting.
SECTION 2. The Board of Directors by a majority vote of the whole Board at any
meeting may amend these Bylaws, including Bylaws adopted by the stockholders,
but the stockholders may from time to time specify particulars of the Bylaws
which shall not be amended by the Board of Directors.
APPROVED AND ADOPTED FEBRUARY 23, 1998.
CERTIFICATE OF THE SECRETARY
I, Michael Kennaugh, hereby certify that I am the Secretary of SWEETBRIER
CORPORATION, and the foregoing Bylaws, consisting of 8 pages, constitute the
code of Bylaws of this company as duly adopted at a regular meeting of the
Board of Directors of the corporation held on February 23, 1998.
IN WITNESS WHEREOF, I have hereunto subscribed my name on February 23, 1998.
/s/ Michael J. Kennaugh
- ---------------------------------
Secretary
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EXHIBIT 5
AMENDMENT
EXCHANGE AGREEMENT
THIS AMENDED EXCHANGE AGREEMENT ("Agreement"), dated effective as of
September 9, 1999 is by and between DIPPY FOODS, INC., a Nevada corporation
("Dippy Nevada") DIPPY FOODS, INC., a California corporation ("Dippy
California"), and certain shareholders of Dippy Nevada as listed on Exhibit "A"
attached hereto and incorporated herein by reference (the "Dippy Nevada
Shareholders") (collectively, the "Parties").
WITNESSETH
WHEREAS, as of the date hereof, Dippy California has 10,000,000 shares of
common stock authorized, of which 6,400,000 are outstanding and held by the
Shareholders listed in Section 1.1 hereof ("the Dippy California
Shareholders");
WHEREAS, Dippy Nevada is a publicly traded company;
WHEREAS, the Dippy California Shareholders agree and desire to exchange
their shares of Dippy California for shares of common stock of Dippy Nevada on
the terms and conditions set forth in this Exchange Agreement (hereinafter
called the "Agreement");
WHEREAS, Dippy Nevada desires to exchange newly issued shares of common
stock of Dippy Nevada for all of the shares of common stock of Dippy California
("the Shares") held by the Dippy California Shareholders on the terms and
conditions set forth herein;
WHEREAS, Dippy California desires to become a wholly-owned subsidiary of
Dippy Nevada;
WHEREAS, Dippy Nevada desires to conduct a private offering after the
Exchange occurs (the "Private Offering") as set forth below; and
WHEREAS, the Parties hereby set forth the generally proposed terms of the
transaction set forth herein, but intend to undertake the final transaction, if
applicable, under one the various provisions of the Internal Revenue Code
(including without limitation Sections 351, 368 and 721 of the Code) such that
cash payable hereunder, including the funds raised in the Private Offering,
shall be used to retire debt of Dippy California and such that securities
transferred herein qualify as tax free transactions.
NOW THEREFORE, in consideration of the premises and respective mutual
agreements, covenants, representations and warranties herein contained, it is
agreed by and among the Parties as follows:
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THE EXCHANGE
1.1 Exchange of Shares. Upon execution of this Agreement as provided in
Section 5.1 hereto (the "Closing"), subject to the terms and conditions herein
set forth, and on the basis of the representations, warranties and agreements
herein contained, the Dippy California Shareholders listed below will exchange
their shares of common stock of Dippy Nevada in the following denominations
("Exchange"):
<TABLE>
<CAPTION>
NEVADA SHARES OF DIPPY CALIFORNIA SHARES OF DIPPY
NAME OF SHAREHOLDER TO BE SURRENDERED TO BE RECEIVED
- -------------------------- ---------------------------- ----------------
<S> <C> <C>
Jon Stevenson 5,500,000 4,000,000
Bromley Howser 250,000 125,000
Dan Williams 250,000 125,000
Steven and Vicki Johnson 11,428 5,714
Sarah Ellis 12,000 6,000
James Meyer & Marguerite 24,000 12,000
Sadovski
Ronald and Julie Kewish 12,000 6,000
Joe Vivalacqua 14,400 7,200
David and Janice Burks 57,140 28,570
Michelle Ambrosio 11,428 5,714
Diana Hrechdaikian 12,000 6,000
Patricia and Kenneth Loer 12,000 6,000
John and Virginia Vanore 11,428 5,714
Michael Alan Craig 11,428 5,714
Shirley Cohen 11,428 5,714
Dominic Ioffrida 250,000 125,000
Stuart James Deakyne 11,428 5,714
Mells and Nahrin Lachin 12,000 6,000
Ronald Gray 31,428 15,714
Jeffrey and Naomi Rockenmacher 16,000 8,000
Michael and Judy Falk 13,428 6,714
Harriet Hill 22,856 11,428
Arthur Linderman 11,428 5,714
Jeremy Mason 26,428 13,214
Wendy Klatzker 11,428 5,714
Shirley Cohen 20,000 10,000
Shirleen Jones 11,428 5,714
------- -------
TOTAL 6,638,532 4,569,266
</TABLE>
Upon completion of the Exchange, Dippy California shall be a wholly owned
subsidiary of Dippy Nevada. (The combined companies shall hereafter be referred
to simply as "Dippy Nevada.")
1.2 Instruments of Conveyance and Transfer. At the Closing, the Dippy
California Shareholders shall deliver a certificate or certificates
representing their entire share ownership in Dippy California to Dippy Nevada
sufficient to transfer all right, title, and interest in the share to Dippy
Nevada. Concurrently at the closing, Dippy Nevada shall deliver to the Dippy
California Shareholders a certificate or certificates representing
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shares of common stock of Dippy Nevada in the same denominations as set forth in
Section 1.1 hereof sufficient to transfer all right, title, and interest in
those shares to the Dippy California Shareholders.
1.3 Consideration for the Exchange. In consideration for the Exchange,
Dippy California shall receive a total amount of $200,000 ("Exchange Price")
from Dippy Nevada prior to the Closing. Dippy California hereby acknowledges
receipt of $200,000 having been paid in full as agreed.
ARTICLE TWO
THE PRIVATE OFFERING
2.1 The Private Offering. Upon completion of the Exchange as set forth in
Article One of this Agreement, Dippy Nevada shall use its best efforts to issue
and sell shares in a Private Offering under Regulation D of the Securities Act
of 1933, as amended (the "Act"), to raise a minimum of $700,000 and a maximum
$885,000. The Private Offering shall be conducted in accordance with all rules
and regulations of the Act as well as with any and all rules and regulations of
any state in which the Private Offering is sold
2.2 Consideration by Dippy Nevada Shareholders. Certain individuals and
entities own freely tradable shares of common stock of "Dippy Nevada (the
"Dippy Nevada Shareholders").
ARTICLE THREE
USE OF PROCEEDS AND CAPITALIZATION
3.1 Use of Proceeds. Dippy Nevada hereby agrees that to the following uses
of proceeds received under this Agreement and in the Private Offering:
a. $115,000 gross proceeds to be received prior to Closing, shall
first be used to pay or pre-pay any required fees and expenses of
accountants to prepare audited financial statements of Dippy Nevada and of
attorneys to prepare the Private Offering documents. Any remaining proceeds
of the $115,000 shall be used primarily to retire debt of Dippy California,
with 10% of the remaining proceeds to be available for working capital.
b. The gross proceeds to be received from the Private Offering, if
any, or, alternatively, from the sale of the Pledge Shares, shall first be
used to pay any additional fees and expenses of accountants, attorneys, and
other required professionals. After the professional fees are paid, the
remaining proceeds shall be used primarily to retire debt of Dippy
California, with 10% of the remaining proceeds to be available for working
capital.
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ARTICLE FOUR
REPRESENTATIONS AND COVENANTS OF
THE PARTIES
4.1 Representations and Warranties of Dippy California. Dippy California
hereby represents and warrants that:
a. Dippy California is a corporation duly organized, validly existing,
and in good standing under the laws of the State of California. It has all
requisite corporate power, franchises, licenses, permits, and authority to
won its properties and assets and to carry on its business as it has been
and is being conducted. Dippy California is duly qualified and in good
standing to do business in each jurisdiction in which a failure to so
qualify would have a Material Adverse Effect (as defined below) on Dippy
California. For purposes of this Agreement, the term "Material Adverse
Effect" means any change or effect that, individually or when taken
together with all other such changes or effects which have occurred prior
to the date of determination of the occurrence of the Material Adverse
Effect, is or is reasonably likely to be materially adverse to the
business, assets (including intangible assets), financial condition, or
results of operations of the entity.
b. The Dippy California Shares were duly authorized by the appropriate
corporate action of Dippy California.
4.2 Representations and Warranties of the Dippy California Shareholders.
The Dippy California Shareholders hereby represent and warrant that, on the
Closing Date as defined in Section 5.1 below, the Dippy California Shareholders
shall transfer title, in and to the Dippy California Share, to Dippy Nevada free
and lear of all liens, security interests, pledges, encumbrances, charges,
restrictions, demands and claims, of any kind and nature whatsoever, whether
direct or indirect or contingent, other than any legends required by the
securities laws.
4.3 Representations and Warranties of Dippy Nevada. Dippy Nevada hereby
represents and warrants that:
a. Dippy Nevada is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Nevada. It has all
requisite corporate power, franchises, licenses, permits, and authority to
own its properties and assets and to carry on its business as it has been
and is being conducted. Dippy Nevada is duly qualified and in good standing
to do business in each jurisdiction in which a failure to so qualify would
have a Material Adverse Effect on Dippy Nevada.
b. Dippy Nevada is an "Accredited Investor" as defined in Regulation D
of the Securities Act of 1933 (the "Act").
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c. Dippy Nevada's own account as principal, for investment purposes
only and not with a view to the resale or distribution thereof, in whole or
in part, and no other person or entity has a direct or indirect beneficial
interest in such Shares.
d. Dippy Nevada will not sell or otherwise transfer the Dippy
California Shares without registration under the Act or an exemption
therefrom and fully understands and agrees that Dippy Nevada must bear the
economic risk of Dippy Nevada's purchase for an indefinite period of time
because, among other reasons, the Shares have not been registered under the
Act or under the securities laws of any state and, therefore, cannot be
resold, pledged, asigned or otherwise disposed of unless they are
subsequently registered under the Act and under the applicable securities
laws of such states or unless an exemption from such registration is
available.
e. On the Closing Date as defined in Section 5.1 below, Dippy Nevada
shall transfer title, in and to the newly issued Dippy Nevada Shares to
Dippy California Shareholders free and clear of all liens, security
interests, pledges, encumbrances, charges, restrictions, demands and
claims, of any kind and nature whatsoever, whether direct or indirect or
contingent, other than any legends required by the securities laws.
4.4 Representations and Warranties of the Dippy Nevada Shareholders. The
Dippy Nevada Shareholders hereby collectively represent and warrant that they
each are the sole legal and beneficial owners of the number of shares of common
stock of Dippy Nevada set forth next to their name on Exhibit A and that, if
required by the terms of this Agreement, they can immediately transfer title, in
and to the Dippy Nevada Shares owned by them to the Dippy Nevada free and clear
of all liens, security interests, pledges, encumbrances, charges, restrictions,
demands and claims, of any kind and nature whatsoever, whether direct or
indirect or contingent, other than any legends required by the securities laws.
ARTICLE FIVE
CLOSING AND DELIVERY OF DOCUMENTS
5.1 Closing. The Closing shall be deemed to have occurred upon execution of
this Agreement. Immediately upon such execution, the following shall occur as
single integrated transaction.
5.2 Delivery by Dippy Nevada. Dippy Nevada shall deliver the certificates
representing the shares of common stock to the Dippy California Shareholders as
required by Section 1.1 and shall deliver to Dippy California the Purchase
Price as required in Section 1.3.
5.3 Delivery by Dippy California Shareholders. Dippy California
Shareholders shall deliver to Dippy Nevada the stock certificates and any and
all instruments of conveyance and transfer required by Section 1.2.
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ARTICLE SIX
MISCELLANEOUS
6.1 Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties hereto with respect to the transactions
contemplated hereby, and supersedes all prior agreements, arrangements and
understandings related to the subject matter hereof. No understanding, promise,
inducement, statement of intention, representation, warranty, covenant or
condition, written or oral, express or implied, whether by statute or otherwise,
has been made by any party hereto which is not embodied in this Agreement or the
written statements, certificates, or other documents delivered pursuant hereto
or in connection with the transactions contemplated hereby, and no party hereto
shall be bound by or liable for any alleged understanding, promise, inducement,
statement, representation, warranty, covenant or condition not so set forth.
6.2 Notices. Any notice, request, instruction or other document required by
the terms of this Agreement, or deemed by any of the Parties hereto to be
desirable, to be given to any other Party hereto shall be in writing and shall
be given by facsimile, personal delivery, overnight, delivery, or mailed by
registered or certified mail, postage prepaid, with return receipt requested, to
the following addresses:
If to Dippy California or
The Dippy California Shareholders: Dippy Foods, Inc.
379 Newport Avenue
Long Beach, CA 90814
Attention: Jon Stevenson
Fax: 562/439-7904
If to Dippy Nevada or the
Dippy Nevada Shareholders: Dippy Foods, Inc.
1090 W. Pender, #400
Vancouver, BC V6C 2N7
Attention: Susan Jeffs, Esq.
Fax: 604/682-6509
With copies to: Gary M. Wynn, Esq.
P.O. Box 1652
Big Bear Lake, Ca 92315
Fax: (909) 866-8255
The persons and addresses set forth above may be changed from time to time
by a notice sent as aforesaid. If notice is given by facsimile, personal
delivery, or overnight delivery in accordance with the provisions of this
Section, said notice shall be conclusively deemed given at the time of such
delivery. If notice is given by mail in accordance with the provisions of this
Section, such notice shall be conclusively deemed given seven calendar days
after deposit thereof in the United States mail.
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6.3 Waiver and Amendment. Any term, provision covenant, representation,
warranty of condition of this Agreement may be waived, but only by a written
instrument signed by the party entitled to the benefits thereof. The failure or
delay of any party at any time or times to require performance of any provision
hereof or to exercise its rights with respect to any provision hereof shall in
no manner operate as a waiver of or affect such party's right at a later time to
enforce the same. No waiver by any party of any condition, or of the breach of
any term, provision, covenant, representation or warranty contained in this
Agreement, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or waiver of any
other condition or of the breach of any other term, provision, covenant,
representation or warranty. No modification or amendment of this Agreement shall
be valid and binding unless it be in writing and signed by all parties hereto.
6.4 Choice of Law. This Agreement and the rights of the parties hereunder
shall be governed by and construed in accordance with the laws of the State of
California including all matters of construction, validity, performance, and
enforcement and without giving effect to the principles of conflict of laws.
6.5 Jurisdiction. The parties submit to the jurisdiction of the Courts of
the State of California or a Federal Court empanelled in the State of California
for the resolution of all legal disputes arising under the terms of this
Agreement.
6.6 Counterparts; Facsimile Signatures. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same instrument. The Parties agree
that facsimile signatures of this Agreement shall be deemed a valid and binding
execution of this Agreement.
6.7 Attorneys' Fees. Except as otherwise provided herein, if a dispute
should arise between the parties including, but not limited to arbitration, the
prevailing party shall be reimbursed by the non-prevailing party for all
reasonable expenses incurred in resolving such dispute, including reasonable
attorneys' fees exclusive of such amount of attorneys' fees as shall be a
premium for result or for risk of loss under a contingency fee arrangement.
6.8 Taxes. Any income taxes required to be paid in connection with the
payments due hereunder, shall be borne by the party required to make such
payment. Any withholding taxes in the nature of a tax on income shall be
deducted from payments due, and the party required to withhold such tax shall
furnish to the party receiving such payment all documentation necessary to prove
the proper amount to withhold of such taxes and to prove payment to the tax
authority of such required withholding.
6.9 Shareholder and Director Approval. All of the provisions of this
Agreement, including the Closing, are expressly contingent upon the approval of
the shareholder and directors of both Dippy Nevada and Dippy California. Such
approvals shall be evidenced by an executed Certificate of the Secretary of
Dippy Nevada in
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substantially the form set forth in Exhibit C attached hereto. If any required
approvals are not received, this Attachment shall be automatically and
immediately terminated and of no effect and all Parties shall return or cause to
be returned any documents or items of value received in connection with this
Agreement. Further, the parties agree to keep the terms and subject of this
Agreement confidential and shall not disclose same to any third parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of
the date of first written hereinabove.
DIPPY NEVADA DIPPY CALIFORNIA
DIPPY FOOD, INC. DIPPY FOODS, INC.,
A Nevada corporation a California corporation
/s/ Jon Stevenson /s/ Jon Stevenson
- ----------------------- -------------------------
By: By: Jon Stevenson
President President
8
EXHIBIT 6
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
December 16, 1998, is made between Ae Sil Park ("LESSOR"), Dippy Foods, Inc.
("LESSEE"), Actively the "PARTIES," or individually a "Party").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 1161 Knollwood Circle, Anaheim, located in the County of Orange, State
of CA 92801, and generally described as (describe briefly the nature of the
property and, if applicable, the "PROJECT", if the property is located within a
Project) A concrete tilt-up building consisting of approximately 10,524 sq. ft.
AP number 070-761-14 as recorded in the office of the County Recorder.
("PREMISES"). (See also Paragraph 2).
1.3 TERM: 3 years and -0- months ("ORIGINAL TERM") commencing January 1,
1999 ("Commencement Date") and ending December 31, 2001 ("Expiration Date").
(See also Paragraph 3).
1.4 EARLY POSSESSION: upon execution of leases ("EARLY POSSESSION DATE").
(See also Paragraphs 3.2 and 3.3).
1.5 BASE RENT: $5,788.00 per month ("BASE RENT"), payable on the first day
of the month commencing February 1, 1999. (See also Paragraph 4). [X] If this
box is checked, there are provisions in this Lease for the Base Rent to be
adjusted and/or for common area maintenance charges.
1.6 BASE RENT PAID UPON EXECUTION: $5,788.00 Base Rent for the period
January 1, 1999 to February 1, 1999.
1.7 SECURITY DEPOSIT: $5,999.00 plus $5,893.00 = $11,892.00 ("SECURITY
DEPOSIT"). (See also Paragraph 5 and 53).
1.8 AGREED USE: Warehousing and executive offices of food packaging
business. (See also Paragraph 6).
1.9 INSURING PARTY: Lessor is the "Insuring Party". The Annual "Base
Premium" is $ ________. (See also Paragraph 8).
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction (Check
applicable boxes):
[X] Voit Commercial Brokerage represents Lessor exclusively ("LESSOR'S BROKER");
[X] Matlow-Kennedy Commercial represents Lessee exclusively ("LESSEE'S BROKER");
[ ] ________________________ represents both Lessor and Lessee ("Dual Agency").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by
both Parties, Lessor shall pay to the Broker the fee agreed to in their separate
written agreement (or if there is no such agreement, the sum of per agreement %
of the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by /s/ __________ ("GUARANTOR"). (See also Paragraph 37).
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 53 and exhibits ___________, all of which
constitute a part of this Lease.
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2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of terms,
convenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of size set forth in this Lease, or that may have been
used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises broom clean and free of
debris on the Commencement Date or the Early Possession Date, whichever first
occurs ("START DATE"), and warrants that the existing electrical, plumbing, fire
sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"),
loading doors, if any, and all other such elements of the building, in the
Premises, other than those constructed by Lessee, shall be in operating
condition on said date and that the surface and structural elements of the roof,
bearing walls and foundation of any buildings on the Premises (the "Building")
shall be free of material defects. If a non-compliance with said warranty exists
as of the Start Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance ??? same at Lessor's
expense if, after the start date, Lessee does not give Lessor written notice of
any non-compliance with this warranty within (i) six (6) months as to the HVAC
systems or (ii) thirty (30) days as to the remaining systems and other elements
of the Building, correction of such non-compliance shall be the obligation of
Lessee at Lessee's sole cost and expense, except for the roof, foundations, and
bearing walls which are handled as provided in Paragraph 7.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises
comply with all applicable laws, convenants or restrictions of record, building
codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") its effect on the
Start Date. Said warranty does not apply to the use to which Lessee will put the
Premises or to any Alterations or Utility Installations (as defined in Paragraph
7.3(a)) made or to be made by Lessee. NOTE: Lessee is possible for determining
whether or not the zoning is appropriate for Lessee's intended use, and
acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify the same
at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within six (6) months following the Start
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense. If the Applicable Requirements are hereafter
changed (as opposed to being in existence at the Start Date, which is addressed
in Paragraph 6.2(e) below) so as to require during the term of this Lease the
construction of an addition to or an alteration of the Building, the remediation
of any Hazardous Substance, or the reinforcement or other physical modification
of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the
cost of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific and unique use of the Premises by
Lessee as compared with uses by tenants in general, Lessee shall be fully
responsible for the cost thereof, provided, however, that if such Capital
Expenditures is required during the last two (2) years of this Lease and the
cost thereof exceeds six (6) months' Base Rent, Lessee may instead terminate
this Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' base rent. If Lessee elects termination, Lessee shall immediately cease
the use of the premises which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day the Lessee could legally utilize the premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and
unique use of the Premises by Lessee (such as, governmentally mandated seismic
modifications), then Lessor and Lessee shall allocate the obligation to pay for
such costs pursuant to the provisions of Paragraph 7.1(c); provided, however,
that if such Capital Expenditure is required during the last two years of this
Lease or if Lessor reasonably determines that it is not economically feasible to
pay its share thereof, Lessor shall have the option to terminate this Lease upon
ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor,
in writing, within ten (10) days after receipt of Lessor's termination notice
that Lessee will pay for such Capital Expenditure. If Lessor does not elect to
terminate, and fails to tender its share of any such Capital Expenditure, Lessee
may advance such funds and deduct same, with interest, rent until Lessor's share
of such costs have been fully paid. If Lessee is unable to finance Lessor's
share, or if the balance of the Rent due and payable for the remainder of this
Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee
shall have the right to terminate this Lease upon thirty (30) days' written
notice to Lessor.
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(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have a right to
terminate this Lease.
2.4 ACKNOWLEDGMENTS. Lessee acknowledges that: (a) it has been advised by
Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with applicable
Requirements), and their suitability for Lessee's intended use, (b) Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to its occupancy of the
Premises, and (c) neither Lessor, Lessor's agents, nor any other Broker has made
any oral or written representations or warranties with respect to said matters
other than as set forth in this Lease. In addition, Lessor acknowledges that:(a)
Broker has made no representations, promises or warranties concerning Lessee's
ability to honor the Lease or suitability to occupy the Premises, and (b) it is
Lessor's sole responsibility to investigate the financial capability and/or
suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease shall,
however, be in effect during such period. Any such early possession shall not
affect the Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee by the Start Date and Lessee
does not terminate this Lease, as aforesaid, any period of rent abatement that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus any days of delay caused by the acts
or omissions of Lessee. If possession of the Premises is not delivered four (4)
months after the Commencement Date, this Lease shall terminate unless other
agreements are reached between Lessor and Lessee in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession of
the Premises to Lessee until Lessee complies with its obligation to provide
evidence of insurance (Paragraph 8.6). Pending delivery of such evidence, Lessee
shall be required to perform all of its obligations under this Lease from and
after the Start Date, including the payment of Rent, notwithstanding Lessor's
election to withhold possession pending receipt of such evidence of insurance.
Further, if Lessee is required to perform any other conditions prior to or
concurrent with the Start Date, the Start Date shall occur but Lessor may elect
to withhold possession until such conditions are satisfied.
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4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to rent
("Rent").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in
lawful money of the United States, without offset or deduction (except as
specifically permitted in this Lease), on or before the day on which it is due.
Rent for any period during the term hereof which is for less than one (1) full
calendar month shall be prorated based upon the actual number of days of said
month. Payment of Rent shall be made to Lessor at its address stated herein or
to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. If the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional monies with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. Should the Agreed
use be amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from the
general accounts. Within fourteen (14) days after the expiration or termination
of this Lease, if Lessor ejects to apply the Security Deposit only to unpaid
rent, and otherwise within thirty (30) days after the Premises have been vacated
pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the
Security Deposit not used or applied by Lessor. No part of the Security Deposit
shall be considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use,
or any other legal use which is reasonably comparable thereto, and for no other
purpose. Lessee shall not use or permit the use of the Premises in a manner that
is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to neighboring properties. Lessor shall not
unreasonably withhold or delay its consent to any written request for a
modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, or is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within (5) business
days after such request give written notification of same, which notice shall
include an explanation of Lessor's objections to the change in use.
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6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, or waste whose presence,
use, manufacture, disposal, transportation, or release, either by itself or in
combination with other materials expected to be on the Premises, is either; (i)
potentially injurious to the public health, safety or welfare, the environment
or the Premises, (ii) regulated or monitored by any governmental authority, or
(iii) a basis for potential liability of Lessor to any governmental agency or
third party under any applicable statute or common law theory. Hazardous
Substances shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, and/or crude oil or any products, by-products or express prior written
consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "Reportable Use" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in on, under or about
the Premises, other than as previously consented to by Lessor, Lessee shall
immediately give written notice of such fact to Lessor, and provide Lessor with
a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under, or about the Premises
(including through the plumbing or sanitary sewer system) and shall promptly, at
Lessee's expense, take all investigatory and/or monitoring remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys' and consultants' fees arising out of
or involving any Hazardous Substance brought onto the Premises by or for Lessee,
or any third party (provided, however, that Lessee shall have no liability under
this Lease with respect to underground migration of any Hazardous Substance
under the Premises from adjacent properties). Lessee's obligations shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the time of
such agreement.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns shall
indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees, Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
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(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entitles having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
alterations) of the Premises, in which event Lessee's shall be responsible for
such payment. Lessee shall cooperate fully in any such activities at the request
of Lessor, including allowing Lessor and Lessor's agents to have reasonable
access to the Premises at reasonable times in order to carry out Lessor's
investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee, within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise
provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable requirements.
6.4 INSPECTION: COMPLIANCE. Lessor and Lessor's "Lender" (as defined in
Paragraph 30 below) and consultants shall have the right to enter into Premises
at any time, in the case of an emergency, and otherwise at reasonable times, for
the purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease. The cost of any such inspections shall be
paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.
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7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), Lessee's Compliance
with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage and
Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense,
keep the Premises, Utility Installations, and Alterations in good order,
condition and repair (whether or not the portion of the Premises requiring
repairs, 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, but not limited to, all equipment or facilities,
such as plumbing, heating, ventilating, air-conditioning, electrical, lighting
facilities, boilers, pressure vessels, fire protection system, fixtures, walls
(interior and exterior), ceilings, floors, windows, doors, skylights,
landscaping, driveways, parking lots, fences, signs, sidewalks and parkways
located in, on, or adjacent to the Premises. Lessee is also responsible for
keeping the roof and roof drainage clean and free of debris. Lessor shall keep
the surface and structural elements of the roof, foundations, and bearing walls
in good repair (see Paragraph 7.2). Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices. Lessee's obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair. Lessee shall, during
the term of this Lease, keep exterior appearance of the Building in a
first-class condition (including, e.g., graffiti removal) consistent with the
exterior appearance of other similar facilities of comparable age and size in
the vicinity, including, when necessary, the exterior repainting of the
Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in the maintenance of the
following equipment and improvements ("Basic Elements"). If any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels,
(iii) fire extinguishing systems, including fire alarm and/or smoke detection,
(iv) landscaping and irrigation systems, (v) driveways an parking lots, (vi)
clarifiers, (vii) basic utility feed to the perimeter of the Building, and
(viii) any other equipment, if reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set forth
in Paragraph 8.7 below, and without relieving Lessee of liability thereof
resulting from Lessee's failure to exercise and perform good maintenance
practices. If the Basic Elements described in Paragraph 7.1(b) cannot be ???
other than at a cost which is in excess of 60% of the cost of replacing such
Basic Elements, then such Basic Elements shall be replaced by Lessor, and the
cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is, and the denominator of which is the number of months of the useful life of
such replacement as such useful life is specified pursuant to Federal Income Tax
Regulation or guidelines for depreciation thereof (including interest on the
unamortized balance as is then commercially reasonable in the judgment of
Lessor's accounts), interest on the unamortized balance as is then commercially
reasonable in the judgment of Lessor's accountants), with Lessee reserving the
right to prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 9
(Damage or Destruction) and 14 (Condemnation), it is intended by the Parties
hereto that Lessor have no obligation, in any manner whatsoever, to repair and
maintain the Premises, or the equipment therein, all of which obligations are
intended to be that of the Lessee, except for the surface and structural
elements of the roof, foundations and bearing walls, the repair of which shall
be the responsibility of Lessor upon receipt of written notice that such a
repair is necessary. It is the intention of the Parties that the terms of this
Lease govern the respective obligations of the Parties as to maintenance and
repair of the Premises, and they expressly waive the benefit of any statute now
or hereafter in effect to the extent it is inconsistent with the terms of this
Lease.
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7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems and signs, communication
systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or around
the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and
equipment that can be removed without doing material damage to the Premises. The
term "Alterations" shall mean any modification of the improvements, other than
Utility Installations or Trade Fixtures, whether by addition or deletion.
"Lessee Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Utility Installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with detailed plans. Consent shall be deemed conditioned
upon Lessee's: (i) acquiring all applicable governmental permits, (ii)
furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation and/or upon Lessee's posting an
additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility. If Lessee shall contest the validity of any such
lien, claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof. If Lessor shall require, Lessee shall furnish a surety bond in an
amount equal to one and one-half times the amount of such contested lien, claim
or demand, indemnifying Lessor against liability for the same. If Lessor elects
to participate in any such action, Lessee shall pay Lessor's attorneys' fees and
costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or elect
ownership as hereinafter provided, all Alterations and Utility Installations
made by Lessee shall be the property of Lessee, but considered a part of the
Premises. Lessor may, at any time, elect in writing to be the owner of all or
any specified part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or termination of
this Lease, become the property of Lessor and be surrended by Lessee with the
Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor not
earlier than ninety (90) and not later than thirty (30) days prior to the end of
the terms of this Lease, Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or termination
of this Lease. Lessor may require the removal at any time of all or any part of
any Lessee Owned Alterations or Utility Installations made without the required
consent.
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(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
Expiration Date or any earlier termination date, with all of the improvements,
parts and surfaces thereof broom clean and free of debris, and in good operating
order, condition and state of repair, ordinary wear and tear ??? expected.
"Ordinary wear and tear" shall not include any damage or deterioration that
would have been prevented by good maintenance practice. Lessee shall repair any
damage occasioned by the installation, maintenance or removal of Trade Fixtures,
Lessee Owned Alterations and/or Utility Installations, furnishings, and
equipment as well as the removal of any storage tank installed by or for Lessee,
and the removal, replacement, or remediation of any soil, material or
groundwater contaminated by Lessee. Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate
the Premises pursuant to this Paragraph 7.4(c) without the express written
consent of Lessor shall constitute a holdover under the provisions of Paragraph
28 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES
(a) Lessee shall pay to Lessor any insurance cost increase ("Insurance
Cost Increase") occurring during the term of this Lease. "Insurance Cost
Increase" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), and 8.3(a), 8.3(b) ("Required Insurance"),
over and above the Base Premium as hereinafter defined calculated on an annual
basis. "Insurance Cost Increase" shall include but not be limited to increases
resulting from the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of mortgage or deed of trust covering the Premises,
increased valuation of the Premises and/or a premium rate increase. The Parties
are encouraged to fill in the Base Premium in Paragraph 1.9 with a reasonable
premium for the Required Insurance based on the Agreed Use of the Premises. If
the Parties fail to insert a dollar amount in Paragraph 1.9, then the Base
Premium shall be the lowest annual premium reasonably obtainable for the
Required Insurance as of the commencement of the Original Term for the Agreed
Use of the Premises. In no event, however, shall Lessee be responsible for any
portion of the increase in the premium cost attributable to liability insurance
carried by Lessor under Paragraph 8.1(b) in excess of $2,000,000 per occurrence.
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement or
other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost Increase
attributable only to the Premises showing in reasonable detail the manner in
which such amount was computed. Premiums for policy periods commencing prior to,
or extending beyond the term of this Lease, shall be prorated to correspond to
the term of this Lease.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than 2,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises
Endorsement" and contain the "Amendment of the Pollution Exclusion Endorsement"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance carried by Lessee shall be primary to and not contributory with any
similar insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as
described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.
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8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING IMPROVEMENTS. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor, with loss payable to Lessor,
any groundlessor, and to any Lender(s) insuring loss or damage to the Premises.
The amount of such insurance shall be equal to the full replacement cost of the
Premises, as the same shall exist from time to time, or the amount required by
any Lenders, but in no event more than the commercially reasonably and available
insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations, Trade Fixtures, and Lessee's personal
property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor.
If the coverage is available and commercially appropriate, such policy or
policies shall insure against all risks of direct physical loss or damage
(except the perils of flood and/or earthquake unless required by a Lender or
included in the Base Premium), including coverage for debris removal and the
enforcement of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogration, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in force a
policy or policies in the name of Lessor, with loss payable to Lessor and any
Lender, insuring the loss of the full Rent for one (1) year. Said insurance
shall provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide for
one full year's loss of Rent from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or of a group of buildings owned by Lessor which are adjacent to the premises,
the Lessee shall pay for an increase in the premiums for the property insurance
of such building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of
income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent Lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
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8.5 INSURANCE POLICIES. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, as set forth in the most current issue of "Best
Insurance Guide", or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals of
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages against the other, for loss of or damage to its
property arising out of an incident to the perils required to be insured against
herein. The effect of such releases and waivers is not limited by the amount of
insurance carried or required, or by any deductibles applicable hereto, against
herein. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogration that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful misconduct,
Lessee shall indemnify, protect, defend and hold harmless the premises, Lessor
and its agents, Lessor's master or ground lessor, partners and Lenders, from and
against any and all claims, loss of rents and/or damages, liens, judgments,
penalties, attorneys' and consultants' fees, expenses and/or liabilities arising
out of, involving, or in connection with, the use and/or occupancy of the
Premises by Lessee. If any action or proceeding is brought against Lessor by
reason of any of the foregoing matters, Lessee shall upon notice defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
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9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations, Utility
Installations and Trade Fixtures, which can reasonably be repaired in six (6)
months or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(b) "Premises Total Destruction" shall mean damage or destruction to the
Premises, other than Lessee Owned Alterations and Utility Installations and
Trade Fixtures, which cannot reasonably be repaired in six (6) months or less
from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(c) "Insured Loss" shall mean damage or destruction to improvements on the
Premises, other than Lessee Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or discovery
of a condition involving the presence of, or a contamination by, a Hazardous
Substance as defined in Paragraph 8.2(a), in, on, or under the Premises.
9.2 PARTIAL DAMAGE -- INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, the Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds as and when
required to complete said repairs. In the event, however, such shortage was due
to the fact that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable and
available. Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, the party responsible for making the repairs
shall complete them as soon as reasonably possible and this Lease shall remain
in full force and effect. If such funds or assurance are not received, Lessor
may nevertheless elect by written notice to Lessee within ten (10) days
thereafter to: (i) make such restoration and repair as is commercially
reasonably possible. Lessor paying any shortage and proceeds, in which case this
Lease shall remain in full force as effect; or (ii) have this Lease terminate
thirty (30) days thereafter. Lessee shall not be entitled to reimbursement or
any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial damage due to flood or earthquake shall be subject to Paragraph
9.3, notwithstanding that there may be some insurance coverage, but the net
proceeds of any such insurance shall be made available for the repairs if made
by either Party.
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9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may 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) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixth (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate sixty (60) days
following such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of this Lease there is damage for which the cost to repair exceeds the (1)
month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with an shortage in Insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
expense, repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE's REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises Total
Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not to exceed the proceeds received from the Rental Value Insurance. All other
obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall
have no liability for any such damage, destruction, remediation, repair or
restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration within ninety (90) days after such obligation shall accrue,
Lessee may, at any time prior to the commencement of such repair or restoration,
give written notice to Lessor and to any Lenders of which Lessee has actual
notice, of Lessee's election to terminate this Lease on a date not less than
sixty (60) days following the giving of such notice. If Lessee gives such notice
and such repair or restoration is not commenced within thirty (30) days
thereafter, this Lease shall terminate as of the date specified in said notice.
If the repair or restoration is commenced within said thirty (30) days, this
Lease shall continue in full force and effect. "Commence" shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
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9.7 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real
Property Taxes" shall include any form of assessment; real estate, general,
special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes): improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises. Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "Real Property Taxes" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, including, but not limited to, a change in the ownership
of the Premises.
10.2(a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes
applicable to the Premises provided, however, that Lessee shall pay to Lessor
the amount, if any, by which Real Property Taxes applicable to the Premises
increase over the fiscal tax year during which the Commencement Date occurs
("Tax Increase"). Subject to Paragraph 10.2(b), payment of any such Tax Increase
shall be made by Lessee to Lessor within thirty (30) days after receipt of
Lessor's written statement setting forth the amount due and the computation
thereof. If any such taxes shall cover any period of time prior to or after the
expiration or termination of this Lease, Lessee's share of such taxes shall be
prorated to cover only that portion of the tax bill applicable to the period
that the Lease is in effect.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any
Rent payment, Lessor may, at Lessor's option, estimate the current real Property
Taxes, and require that the Tax Increase be paid in advance to Lessor by Lessee,
either: (i) in a lump sum amount equal to the amount due, at least twenty (20)
days prior to the applicable delinquency date; or (ii) monthly in advance with
the payment of the Base Rent. If Lessor elects to require payment monthly in
advance, the monthly payment shall be an amount equal to the amount of the
estimated installment of the Tax Increase divided by the number of months
remaining before the month in which said installment becomes delinquent. When
the actual amount of the applicable Tax Increase is known, the amount of such
equal monthly advance payments shall be adjusted as required to provide the
funds needed to pay the applicable Tax Increase. If the amount collected by
Lessor is insufficient to pay the Tax Increase when due, Lessee shall pay
Lessor, upon demand, such additional sums as are necessary to pay such
obligations. All monies paid to Lessor under this Paragraph may be intermingled
with other monies of Lessor and shall not bear interest. In the event of a
Breach by Lessee in the performance of its obligations under this Lease, then
any balance of funds paid to Lessor under the provisions of this Paragraph may,
at the option of Lessor, be treated as an additional Security Deposit.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding anything to the contrary
in this Paragraph 10.2, Lessee shall pay to Lessor upon demand herefor the
entirety of any increase in Real Property Taxes assessed by reason of
Alterations or Utility Installations placed upon the Premises by Lessee or
Lessee's request.
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10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Tax Increase for all
of the land and improvements included within the tax parcel assessed, such
proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. 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's property within ten (10) days
after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal 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.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or encumber (collectively, "assign or assignment") or sublet all or any
part of Lessee's interest in this Lease or in the Premises without Lessor's
prior written consent.
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(b) A change in the control of Lessee shall constitute an assignment
requiring consent. The transfer, on a cumulative basis, of twenty-five percent
(25%) or more of the voting control of Lessee shall constitute a change in
control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, transfer,
leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
execution of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, whichever was or is greater, shall be
considered an assignment of this Lessee to which Lessor may withhold its
consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee (excluding any
guarantors) established under generally accepted accounting principles.
(d) An assignment or subletting without consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unapproved assignment or subletting as a noncurable Breach, Lessor may
either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice,
increase the monthly Base Rent to one hundred ten percent (110%) of the Base
Rent than in effect. Further, in the event of such Breach and rental adjustment,
(i) the purchase price of any option to purchase the premises held by Lessee
shall be subject to similar adjustment to one hundred ten percent (110%) of the
price previously in effect, and (ii) all fixed and non-fixed rental adjustments
scheduled during the remainder of the Lease term shall be increased to one
hundred ten percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be
limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee
or sublessee of the obligations of Lessee under this Lease; (ii) release Lessee
of any obligations hereunder; or (iii) alter the primary liability of lease for
the payment of Rent or for the performance of any other obligations to be
performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations from any
person other than Lessee pending approval or disapproval of assignment. Neither
a delay in the approval or disapproval of such assignment nor the acceptance of
Rent or performance shall constitute a waiver or appeal of Lessor's right to
exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not constitute
a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may proceed
directly against Lessee, any Guarantors or anyone else responsible for the
performance of Lessee's obligations under this Lease, including any assignee or
sublessee, without first exhausting Lessor's remedies against any other person
or entity responsible therefore to Lessor, or any security held by Lessor.
(e) each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's termination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a fee of $1,000
or ten percent (10%) of the current monthly Base Rent applicable to the portion
of the Premises which is the subject of the proposed assignment or sublease,
whichever is greater, as consideration for Lessor's considering and processing
said request. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be formed to have
assumed and agreed to conform and comply with each and every term, covenant,
condition and obligation herein to be observed or performed by Lessee during the
term of said assignment or sublease, other than such obligations as are contrary
to or inconsistent with provisions of an assignment or sublease to which Lessor
has specifically consented to in writing.
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12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all Rent payable on any sublease, and Lessor may collect such Rent and apply
same toward Lessee's obligations under this Lease; provided, however, that
until a Breach shall occur in the performance of Lessee's obligations, Lessee
may collect said Rent. Lessor shall not, by reason of the foregoing or any
assignment of such sublease, nor by reason of the collection of Rent, be deemed
liable to the sublessee for any failure of Lessee to perform and comply with
any of Lessee's obligations to such sublessee. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice
from Lessor stating that a Breach exists in the performance of Sublessee's
obligations under this Lease, to pay to Lessor all Rent due and to become due
under the sublease. Sublessee shall rely upon any such notice from Lessor and
shall pay all Rents to Lessor without any obligation or right to inquire as to
whether such Breach exists, notwithstanding any claim from Lessee to contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option, require
sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise
of said option to the expiration of such sublease; provided, however, Lessor
shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or Breaches of such
sublessor.
(c) Any matter requiring the consent of the sublessor under a sublease
shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of
Sublessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES
13.1 DEFAULT; BREACH. A "Default" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants, conditions or rules under
this Lease. A "Breach" is defined as the occurrence of one or more of the
following Defaults, and the failure of Lessee to cure such Default within any
applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises
without providing a commercially reasonable level of security, and/or Security
Deposit or where the coverage of the property insurance described in paragraph
8.3 is jeopardized as a result thereof, or without providing reasonable
assurances to minimize potential vandalism.
(b) The failure of Leases to make any payment of Rent or any Security
Deposit required to be made by Lessee hereunder, whether to Lessor or to a
third party, when due, to provide reasonable evidence of insurance or surety
bond, or to fulfill any obligation under this Lease which endangers or threatens
life or property, where such failure continues for a period of three (3)
business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence of
compliance with Applicable Requirement, (ii) the service contracts, the
rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any Guaranty
and/or Guarantor, (vii) any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice to Lessee.
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(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more
than thirty (30) days are reasonably required for its cure, then it shall not
be deemed to be a Breach if Lessee commences such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of any
general arrangement or assignment for the benefit of creditors; (ii) becoming 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 sixty (60) days; (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the premises or of
Lessee's interest in this Lease, where possession is not restored to Lessee
within thirty (30) days; or (iv) the attachment, execution or other judicial
seizure of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within
thirty (30) days; provided, however, in the event that any provisions of this
subparagraph 13.1(e) is contrary to any applicable law, such provision shall be
of no force or effect, and not affect the validity of the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor; (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty; (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing; (iv) a Guarantor's refusal to honor the Guaranty; or (v) a
Guarantor's Breach of its guaranty obligation on a participatory basis, and
Lessee's failure within sixty (60) days following written notice of any such
event, to provide written alternative assurance or security, which, when coupled
with the
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then existing resources of Lessee, equals or exceeds the combined financial
resources of Lessee and the Guarantors that existed at time of execution of
this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or
obligations, within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including, but not limited to, the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach;
(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 to Lessor. In such event Lessor shall be entitled to
recover from Lessee: (i) the unpaid Rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession and recover the
Rent as it becomes due, in which event Lessee may sublet or assign, subject
only to reasonable limitations. Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws or
judicial decisions of the state wherein the Premises are located. The expiration
or termination of this Lease and/or the termination of Lessee's right to
possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other
charges, or for the giving or paying by Lessor to or for Lessee of any cash or
other bonus, inducement or consideration for Lessee's entering into this Lease,
all of which concessions are hereinafter referred to as "Inducement Provisions,"
shall be deemed conditioned upon Lessee's full and faithful performance of all
of the terms,
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covenants and conditions of this Lease. Upon Breach of this Lease by Lessee,
any such inducement Provision shall automatically be deemed deleted from this
Lease and of no further force or effect, and any rent, other charge, bonus,
inducement or consideration theretofore abated, given or paid by Lessor under
such an inducement Provision shall be immediately due and payable by Lessee to
Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The
acceptance by Lessor of Rent or the cure of the Breach which initiated the
operation of this paragraph shall not be deemed a waiver by Lessor of the
provisions of this paragraph unless specifically so stated in writing by Lessor
at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
of Rent will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any
Rent shall not be received by Lessor within five (5) days after such amount
shall be due, then, without any requirement for notice to Lessee, Lessee shall
pay to Lessor a one-time late charge equal to ten percent (10%) of each 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 such
late payment. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent the exercise of any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of Base Rent,
then notwithstanding any provision of this Lease to the contrary, Base Rent
shall, at Lessor's option, become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor, when due as to scheduled payments (such as
Base Rent) or within thirty (30) days following the date on which it was due
for non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("Interest") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to
the date when due plus four percent (4%), but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph, a reasonable time
shall in no event be less than thirty (30) days after receipt by Lessor, and
any Lender whose name and address shall have been furnished Lessee in writing
for such purpose, of written notice specifying wherein such obligation of
Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such thirty (30) day period thereafter diligently pursued
to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that neither
Lessor nor Lender cures said breach within thirty (30) days after receipt of
said written notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.
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 (collectively "Condemnation"), this Lease shall terminate as to the part
taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building portion
of the premises, or more than twenty-five percent (25%) of the land area
portion of the premises not occupied by any building, is taken by
Condemnation, Lessee may, at Lessee's option, to be exercised in writing within
ten (10) days after Lessor shall have given Lessee written notice of such
taking (or in the absence of such notice, within
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ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. BROKER'S FEE.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant to
Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option; (b) if Lessee
acquires any rights to the Premises or other Premises owned by Lessor and
located within the same project if any, within which the Premises is located,
(c) if Lessee remains in possession of the Premises, without consent of Lessor,
after the expiration of this Lease; or (d) Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then
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Lessor shall pay Brokers a fee in accordance with the schedule of Brokers in
effect at the time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and
Lessor each represent and warrant to the other that it has had no dealings with
any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, and/or attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Estoppel Certificate" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or deliver the Estoppel
Certificate within such ten day period, the Requesting Party may execute an
Estoppel Certificate stating that: (i) the Lease is in full force and effect
without modification except as may be represented by the Requesting Party; (ii)
there are no uncured defaults in the Requesting Party's performance; and (iii)
if Lessor is the Requesting Party, not more than one month's rent has been paid
in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the Premises, or any
part thereof, Lessee and all Guarantors shall deliver to any potential lender
or purchaser designated by Lessor such financial statements as may be
reasonably required by such lender or purchaser, including, but not limited to,
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The Term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or,
if this is a sublease, of the Lessee's interest in the prior lease. In the
event of a transfer of Lessor's title or interest in the Premises or this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor. Except as provided in
Paragraph 15, upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with
respect to the obligations and/or covenants under this Lease thereafter to be
performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only
upon the Lessor as hereinabove defined. Notwithstanding the above, and subject
to the provisions of Paragraph 20 below, the original Lessor under this Lease,
and all subsequent holders of the Lessor's interest in this Lease shall remain
liable and responsible with regard to the potential duties and liabilities of
Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above.
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<PAGE>
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. DAYS. Unless otherwise specifically indicated to the contrary, the
word "days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties under
this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises. Brokers
have no responsibility with respect thereto or with respect to any default or
breach hereof by either Party. The liability (including court costs and
Attorneys' fees), of any Broker with respect to negotiation, execution,
delivery or performance by either Lessor or Lessee under this Lease or any
amendment or modification hereto shall be limited to an amount up to the fee
received by such Broker pursuant to this Lease; provided, however, that the
foregoing limitation on each Broker's liability shall not be applicable to any
gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by courier) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notices. Either Party may by written
notice to the other specify a different address for notice, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown
on the receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail the notice shall be deemed given forty-eight (48) hours
after the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means shall be deemed delivered upon
telephone confirmation of receipt, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday, Sunday or legal holiday,
it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. 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 or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of monies or damages due
Lessor, notwithstanding any qualifying
Page 23
<PAGE>
statements or conditions made by Lessee in connection therewith, which such
statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit of
such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this
Lease. In the event that Lessee holds over, then the Base Rent shall be
increased to one hundred fifty percent (150%) of the Base Rent applicable
during the month immediately preceding the expiration or termination. Nothing
contained herein shall be construed as consent by Lessor to any holding over by
Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both
Parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws in the State in which the Premises are located. Any litigation
between the parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
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<PAGE>
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the Security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lessor's Lender") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon this Lease
and such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior Lessor or with respect to events occurring
prior to acquisition of ownership; (ii) be subject to any offsets or defenses
which Lessee might have against any prior Lessor; or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "Non-Disturbance Agreement") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a
Non-Disturbance Agreement from the holder of any pre-existing Security Device
which is secured by the Premises. In the event that Lessor is unable to provide
the Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees.
Such fees may be awarded in the same suit or recovered in a separate suit,
whether or not such action or proceeding is pursued to decision or judgment.
The term, "PREVAILING PARTY" shall include, without limitation, a Party or
Broker who substantially obtains or defeats the relief sought, as the case may
be, whether compromise, settlement, judgment, or the abandonment by the other
Party or Broker of its claim or defense. The attorneys' fees award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor
shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach.
32. LESSOR'S ACCESS: SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
preparations, repairs, improvements or additions to the Premises as Lessor may
deem necessary. All such activities shall be without abatement of rent or
liability to Lessee. Lessor may at any time place on the Premises any ordinary
"FOR SALE" signs and Lessor may during the last six (6) months of the term
hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any
time place on or about the Premises any ordinary "FOR SUBLEASE" sign.
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<PAGE>
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "FOR SUBLEASE" signs, Lessee shall not place any
sign upon the Premises without Lessor's prior written consent. All signs must
comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the actual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, that Lessor may elect to continue any one or
all existing subtenancies. Lessor's failure within ten (10) days following any
such event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach Lessee of this Lease exists, nor shall such consent be deemed
a waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent. The
failure to specify herein any particular condition to Lessor's consent shall
not preclude the position by Lessor at the time of consent of such further or
other conditions as are then reasonable with reference to the particular matter
for which consent being given. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within ten (10) business days following
such request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty in
the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any Guarantor
fails or refuses, upon request to provide: (a) evidence of the execution of the
guaranty, including the authority of the party signing on Guarantor's behalf to
obligate Guarantor, and in the case of a corporate Guarantor, a certified copy
of a resolution of its board of directors authorizing the making of such
guaranty, (b) current financial statements, (c) a Tenancy Statement, or (d)
written confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance
of all of the covenants, conditions and provisions on Lessee's part to be
observed and performed under this Lease, Lessee shall have quiet possession and
quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "Option" shall mean: (a) the right to extend the term of
or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and, if requested by Lessor, with
Lessee certifying that Lessee has no intention of thereafter assigning or
subletting.
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<PAGE>
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during the
period commencing with the giving of any notice of Default and continuing until
said Default is cured; (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee); (iii) during the
time Lessee is in Breach of this Lease; or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the 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 Option
because of the provisions of Paragraph 39.4(a).
(c) 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 prior to the commencement of the extended term, (i) Lessee fails
to pay Rent for a period of thirty (30) days after such Rent becomes due
(without any necessity of Lessor to give notice thereof), (ii) Lessor gives to
Lessee three (3) or more notices of separate Default during any twelve (12)
month period, whether or not the Defaults are cured, or (iii) if Lessee commits
a Breach of this Lease.
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<PAGE>
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights
dedications that Lessor deems necessary, 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 agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay 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 the 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.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease in behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each Party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonably non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease / / is / / is not attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
- --------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES,
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES IS LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
Page 28
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<PAGE>
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<S> <C>
Executed at: Anaheim, Ca Executed at: Anaheim, Ca
on: 12-28-98 on: 12-28-98
by LESSOR: by LESSEE:
Ae Sil Park Dippy Foods, Inc.
- ------------
By: /s/ Ae Sil Park By: /s/ Jon Stevenson
Name Printed: JON STEVENSON
Name Printed: Ae Sil Park
Title: President/CEO Title: PRESIDENT
By: By:
Name Printed: Ae Sil Park Name Printed: Jon Stevenson
Title: Owner Title: President
Address: 345 Val Verde Avenue, Brea, CA 92621 Address: 203 Argonne Ave., Suite 110, Long
Beach, CA 90803
Telephone: (714) 529-7980 Telephone: (562) 434-4708
Facsimile: ( ) Facsimile: ( )
Federal ID No. Federal ID No.
</TABLE>
CP3\RV4465\al
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call us to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
So. Flower Street, Suite 600, Los Angeles, California 90017. (213)
687-8777. Fax No. (213) 687-8616
Page 29
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE--GROSS
BETWEEN AE SIL PARK AND DIPPY FOODS, INC.
DATED DECEMBER 16, 1998
50. MONTHLY RENTAL SCHEDULE:
January 1, 1999 through December 31, 1999 = $5,788.00 Per Month Industrial
Gross
January 1, 2000 through December 31, 2000 = $5,893.00 Per Month Industrial
Gross
January 1, 2001 through December 31, 2001 = $5,999.00 Per Month Industrial
Gross
51. OPTION TO EXTEND: Lessee shall be granted an option to extend this lease
for an additional three (3) years beginning January 1, 2002 at the then
current market rate.
52. OFFICE FURNISHINGS/EQUIPMENT: Lessor agrees to permit Lessee to use
existing office furnishings and equipment, without warranty, for the
duration of the lease agreement. Lessee shall maintain the
furnishings/equipment in good condition and return same (less normal "wear
and tear") at the termination of the lease agreement.
53. SECURITY DEPOSIT: $5,893.00 security deposit to be credited as January 2000
rent providing all conditions of the lease have been met satisfactorily.
AP
JS
Initials
Page 30
EXHIBIT 7
LICENSE AGREEMENT
This License Agreement is made this 19th day of May 1999 by and between ConAgra
Brands, Inc., a Delaware Corporation with principal offices at One ConAgra
Drive, Omaha, Nebraska, 68102-5001, Hunt-Wesson, Inc., a Delaware Corporation
(Licensor) with principal offices at 1645 W. Valencia Drive, Fullerton,
California 92833-3899, and Dippy Foods, Inc., a California corporation
(Licensee) with principal offices at 1161 N. Knollwood Circle, Anaheim,
California 92801.
Whereas Licensor has an exclusive license to use the marks PETER PAN for peanut
butter and KNOTT'S BERRY FARMS for fruit filling with the right to grant
sublicenses thereunder; and
Whereas Licensee wishes to obtain a license to use such trademarks on the terms
set out below:
NOW THEREFORE, the parties mutually agree as follows:
1. DEFINITIONS -- As used herein the following terms shall have the
meaning set out below:
1.1 Licensed Marks -- shall mean the trademarks "PETER PAN" and "KNOTT'S
BERRY FARMS" and the logos associated with each trademark, as such
trademarks and logos now exist or as they may be amended or revised
hereinafter by Licensor.
1.2 Licensed Products -- shall include only individual food trays
containing fruit filling and peanut butter for use in the school lunch
program or in other institutional feeding programs. Use of the
Licensed Marks in institutional feeding programs in the military and
in export markets shall be subject to Licensor's prior written
approval.
1.3 Territory -- shall mean the United States of America.
2. THE LICENSE
2.1 Grant of License -- Licensor hereby grants to Licensee and Licensee
hereby accepts a non exclusive, royalty-free license to use the
Licensed Marks solely to identify the use of Licensor's products in
connection with the production, marketing, sale and distribution of
Licensed Products to school districts, prisons or other institutions
within the Territory.
1
<PAGE>
2.2 Authority to Grant Sublicense -- Licensor represents that it has the
exclusive license to use the Licensed Marks for peanut butter and
fruit fillings, and has the right to sublicense the Licensed Marks to
Licensee in accordance with the terms of this Agreement.
3. TERM/TERMINATION
3.1 Term -- The term of this Agreement shall commence upon execution of
this Agreement and shall continue until December 31, 2008 unless
sooner terminated in accordance with the terms of this Agreement (the
"Term").
3.2 Termination -- Notwithstanding the provisions of Section 3.1 above,
both Licensee and Licensor shall have the right, independently, to
immediately terminate this Agreement in the following circumstances:
(a) Where the other party has failed to perform or meet any
material term or condition hereof and has failed to correct the
same within thirty (30) days after written notice of such
failure by the terminating party;
(b) Where (A) the other party fails to vacate an involuntary
bankruptcy, insolvency, or reorganization petition or petition
for an arrangement or composition with creditors filed against
it within sixty (60) days after the date of such filing, or
files such a petition on a voluntary basis; or (B) the other
party fails to vacate the appointment of a receiver or trustee
for it or any interest in its business within thirty (30) days
after such appointment; or (C) the other party's interest or
rights under this Agreement, or any part thereof, pass to
another by operation of law; or (D) the other party ceases to
do business as a going concern or ceases to conduct its
operations in the normal course of business; or (E) with
respect to Licensor's termination rights, Licensee either: (i)
permits an attachment to be levied against and remain
outstanding on any of its equipment which is essential to the
production of Product or any plant at which Product is being
produced, for more than thirty (30) days; or (ii) Licensee
changes the nature of its business or there is a change in the
voting control.
4. LICENSEE PURCHASES
4.1 Requirements and Price -- Licensee shall purchase its total
requirements for peanut butter and fruit filing, whether or not
intended for use in the Licensed Products, from Licensor at the prices
set out on Exhibit A hereto; provided however, Licensor acknowledges
that with respect to certain school districts, Licensee will be
required to use "commodity" Peanut Butter which is
2
<PAGE>
provided by said school districts and Licensee shall not use the
Licensed Marks in these situations. The prices shall be firm for the
period specified in Exhibit A, but thereafter, the price of peanut
butter or fruit filling hereunder may be increased: (i) by mutual
agreement of the parties; or (ii) by Licensor upon sixty (60) days
prior written notice to Licensee, provided, however, if Licensor
increases the price of a Licensed Product by more than the amount
necessary to maintain Licensor's percentage profit margin and to
recover increases in the cost of production, warehousing, and
transportation of such product, then in such event, Licensee may
terminate this Agreement by written notice to Licensor, given within
thirty (30) days after Licensee's receipt of the notice of such price
increase.
4.2 Minimum Usage -- Licensee must purchase from Licensor a minimum annual
quantity of peanut butter and fruit filling as follows:
<TABLE>
<CAPTION>
MINIMUM QTY. MINIMUM QTY.
CALENDAR YEAR FRUIT FILLING PEANUT BUTTER
--------------- --------------- --------------
<S> <C> <C>
1999 400,000 lbs. 200,000 lbs.
2000 600,000 lbs. 400,000 lbs.
2001 800,000 lbs. 500,000 lbs.
</TABLE>
The minimum annual quantity for peanut butter and fruit filling shall
each increase ten percent (10%) over the previous year, in each
calendar year after 2001. Licensee's failure to purchase the specified
minimum quantity of each product in any year, shall given Licensor the
right to terminate this Agreement upon thirty (30) days prior written
notice to Licensee.
4.3 Quality of Purchases -- Within thirty (30) days after the date of this
Agreement, Licensor shall furnish to Licensee samples of the peanut
butter and fruit filling to be furnished to Licensee by Licensor under
this Agreement. Licensee shall have ten (10) business days after
receipt of this samples to approve them, which approval shall be
granted or withheld by Licensee in a reasonable manner. Failure of
Licensee to respond within such ten (10) day period shall be deemed an
approval of the sample. All peanut butter and fruit filling sold to
Licensee by Licensor under this Agreement shall comply in all material
respects with the approved samples.
5. APPROVALS BY LICENSOR -- Licensor shall have the right to approve all
packaging and labeling of the Licensed Products, and all advertising,
promotions and other materials containing the Licensed Marks. Such
approval shall be granted or withheld by Licensor in a reasonable manner
and within ten (10) business days of receipt of such packaging and
labeling and such advertising promotional and other
3
<PAGE>
materials containing the Licensed Marks. If Licensor should withhold its
approval of any material delivered by Licensee, Licensor shall in its
response provide in adequate detail the basis for its withholding of
approval and shall, if reasonably feasible, identify the remedial action
that should be taken for Licensor to grant such approval. A legend shall
be placed on all packaging of the Licensed Products which shall state that
the Licensed Products are distributed by Licensee under license from
Licensor and that PETER PAN is a registered trademark of ConAgra Brands,
Inc.
If approval is withheld for any reason whatsoever, Licensee shall be able
to continue business operations using packaging, labeling, advertising,
promotions and other materials that do not contain the Licensed Marks
without incurring any obligation or liability whatsoever to licensor for
non-use of the Licensed Marks provided, however, nothing contained herein
shall excuse Licensee's obligation to meet the minimum annual purchase
requirements set out in Paragraph 4.2 above.
6. RECORDS AND REPORTS
6.1 Records. Licensee shall record all sales of the Licensed Products and
shall keep and maintain accurate records thereof for two (2) years
after the year to which such records relate.
6.2 Inspection and Audit. Licensor shall have the right from time to time,
upon five (5) days' prior written notice, to enter Licensee's premises
or other location where records are maintained during regular business
hours, to inspect, audit, and make copies of any such records relating
to sales of the Licensed Products at Licensor's sole expense.
7. INFRINGEMENT
7.1 Claims by Third Parties. In the event that Licensee receives notice,
or is informed, of any claim, suit or demand against Licensee on
account of any alleged infringement, unfair competition, or similar
matter relating to Licensee's use of the Licensed Marks and used by
Licensee in accordance with the terms of this Agreement, Licensee
shall promptly notify Licensor of any such claim, suit, or demand.
Thereupon, Licensor shall take such action as may be necessary to
protect and defend Licensee against any such claim by any third party
and shall indemnify and hold harmless Licensee against any losses, or
reasonable expenses incurred in connection therewith. Licensee shall
not have power or authority to settle or compromise any such claim by
a third party. Licensor does not know nor does it have any reason to
believe that Licensee's use of the Licensed Marks in accordance with
the terms of this Agreement shall infringe upon another person's use
of intellectual property or cause unfair competition with, or create a
claim in favor of, another person.
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<PAGE>
7.2 Infringement of the Licensed Marks. In the event that Licensee
believes that any third party is improperly using a trademark, trade
name or logotype confusingly similar to the Licensed Marks, Licensee
shall promptly notify Licensor of all facts known to it relating to
such use. Thereupon Licensor shall conduct its own investigation of
such alleged infringing use and shall take such action as Licensor, in
its sole discretion, determines is reasonably necessary or appropriate
to protect the Licensed Marks. Licensor does not know nor does it have
any reason to believe that any third party is improperly using any
intellectual property that is confusingly similar to the Licensed
Marks.
8. QUALITY CONTROL/RECALLS
8.1 Quality Control - Licensee shall obtain from Licensor, before selling
any Licensed Products, the approval of Licensor as to the quality and
nature of such Licensed Products, which approval shall not be
unreasonably withheld, conditioned or delayed. Once a Licensed
Product, approved by Licensor as to quality and nature, has been
developed by Licensee, such Licensed Product may thereafter be
advertised and sold by Licensee in accordance with the terms of this
Agreement, so long as no material change is made in the quality and
nature thereof. Licensee shall furnish to Licensor, at least
quarterly, a reasonable number of samples of all Licensed Products
sold by Licensee, as requested by Licensor.
8.2 Recalls - In the event it becomes necessary to recall any Licensed
Products from distribution, Licensor shall, in consultation with
Licensee, control and manage all aspects of the recall. Furthermore,
subject to the provisions set forth below, Licensee shall reimburse
Licensor for all reasonable costs and expenses incurred by Licensor in
connection with any recall of Licensed Products (whether located in
the distribution system, in stores, in Licensee's warehouses, or
elsewhere) manufactured by Licensee, provided: (i) Licensor shall be
responsible for the costs and expenses of any recall which was caused
by a defect, existing as of the date of delivery to Licensee, in
peanut butter or fruit filling delivered by Licensor to Licensee
hereunder; (ii) licensor shall give Licensee prior notice before
initiating any such recall, which notice shall include the basis for
the recall; and (iii) Licensor shall conduct all recalls in accordance
with its policies and practices applicable to its other products.
9. COMPLIANCE WITH LAWS - Licensee shall manufacture, prepare, promote, market
and distribute the Licensed Products, and Licensor shall manufacture,
prepare and deliver peanut butter sold to Licensee pursuant to this
Agreement, in compliance with all applicable laws, rules and regulations of
all governmental authorities,
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<PAGE>
including, but not limited to, all applicable food, safety, health,
advertising and other laws and regulations of federal, state or local
governments. Each party shall furnish to the other written evidence of its
compliance as such other party may from time to time reasonably request.
10. INSPECTION - Licensor shall have the right to enter and inspect any
premises or facilities used by Licensee for or in connection with the
manufacture, preparation, promotion, marketing and distribution of the
Licensed Products, at any time during normal business hours. Any inspection
conducted by Licensor shall be made in a manner so as to minimize
interference with the operation of Licensee's business.
11. FORCE MAJEURE - It is understood and agreed that each party's obligations
as set forth therein shall be excused to the extent that such party's
performance is prevented by the unavailability of materials or utilities,
strike or labor troubles, action or interference of governmental
authorities, acts of God, or any other cause whether similar or dissimilar
to the foregoing which is reasonably beyond the control of the parties.
12. INSURANCE AND INDEMNIFICATION
12.1 Insurance Obtained by Licensee. Licensee shall purchase from insurance
companies rated not less than A by Best, and shall maintain, at all
times during the Term of this Agreement, policies of product liability
insurance covering the Licensed Products, with minimum combined single
limit coverage of Five Million Dollars ($5,000,000).
12.2 Indemnification by Licensee. Licensee hereby agrees to defend,
indemnify and hold harmless Licensor, and each shareholder, director,
officer, employee and agent of Licensor, from and against any and all
suits, actions, claims, judgments, debts, obligations or rights of
action, of any nature or description, and all reasonable costs
incurred by such indemnified person(s) in connection therewith
(collectively "Licensor's Losses"), arising out of or relating to any
misfeasance, malfeasance, nonfeasance or negligence of Licensee, or to
the rights granted to Licensee hereunder, or Licensee's manufacture,
preparation, promotion, marketing and distribution of the Licensed
Products, or any acts, omissions, statements or representations of any
employee, agent, officer or director of Licensee relating thereto,
except with respect to any of Licensor's Losses which arise out of
Licensor's breach of any of its representations or obligations under
this Agreement.
12.3 Indemnification by Licensor. Licensor hereby agrees to defend,
indemnify and hold harmless Licensee, and each shareholder, director,
officer, employee and agent of Licensee, from and against any and all
suits, actions, claims,
6
<PAGE>
judgments, debts, obligations, or rights of action, of any nature or
description, and all reasonable costs incurred by such indemnified
person(s) in connection therewith, arising out of or relating to any
misfeasance, malfeasance, nonfeasance or negligence of Licensor, or of
any employee, agent, director or officer of Licensor, in connection
with the manufacture and preparation of the products purchased from
Licensor by Licensee pursuant to this Agreement or the representations
made or covenants to be performed by Licensor under this Agreement.
12.4 Indemnification Procedure. An indemnified person shall notify the
indemnifying party of any such suit, action, claim, judgment, debt,
obligation or right of action, promptly upon receiving notice or being
informed of the existence thereof. Upon receipt of such notice from
such indemnified person, the indemnifying party shall promptly take
such action as may be necessary to protect and defend such indemnified
person against such suit, action, claim, judgment, debt, obligation,
or right of action, using counsel of its choice, and shall indemnify
such indemnified person against any losses, costs or expenses
including reasonable attorney's fees, incurred in connection
therewith. An indemnified person shall have no power or authority to
settle or compromise any such suit, action, claim, judgment, debt,
obligation or right of action, and shall cooperate fully with the
indemnifying party in connection with the defense thereof. In the
event that an indemnified party shall choose to employ counsel to
participate in the resolution of any indemnified claim, the cost of
such counsel shall be borne exclusively by the party which has
employed said counsel.
13. ASSIGNMENT
13.1 Assignment by Licensor. Licensor shall have the right to assign this
Agreement, and all of its rights and privileges hereunder, to any
other persons, firm, corporation or entity; provided that, in respect
to any assignment resulting in the subsequent performance by the
assignee of the functions of Licensor (i) the assignee shall be
financially responsible and economically capable of performing the
obligations of Licensor hereunder; (ii) the assignee shall expressly
assume and agree to perform such obligations, (iii) such assignee will
maintain the wholesome image associated with the Licensed Marks as
previously maintained by Licensor and will not diminish the goodwill
of the business symbolized by such marks, and (iv) such assignee will
produce products to maintain the quality currently marketed by
Licensor. This Agreement shall be binding upon and inure to the
benefit of any firm or corporation which shall purchase, acquire or
become the successor in interest of Licensor. However, nothing shall
be deemed to preclude Licensor from
7
<PAGE>
employing co-packers to perform some or all of Licensor's obligations
to supply peanut butter pursuant to Section 5 hereof, for so long as
Licensor shall remain responsible for said obligations under and
pursuant to Section 5.
13.2 Assignment by Licensee. This Agreement is being entered into in
reliance upon and in consideration of the singular experience,
knowledge, skills, and qualifications of, and trust and confidence
reposed by Licensor in Licensee. Therefore, neither Licensee's
interest in this Agreement nor any of its rights or privileges
hereunder shall be assigned, transferred, shared or divided,
voluntarily or involuntarily, by operation of law or otherwise, in any
manner, without the prior written consent of Licensor which may be
granted or withheld by Licensor in its sole judgment, exercised in
good faith. A change in control of Licensee shall be deemed an
assignment by Licensee of this Agreement. For purposes of the previous
sentence, a "change in control of Licensee" shall occur if the
existing shareholders of Licensee cease to own a majority of
Licensee's equity interests or a majority of its present assets.
Without limiting the generality of the foregoing, Licensee shall not
sublicense to any third party the rights licensed to it hereunder, nor
subcontract with any third party respecting any of Licensee's
obligations hereunder.
14. DISCONTINUANCE OF USE OF LICENSED MARKS. In the event of expiration or
termination of this Agreement, whether by reason of default, lapse of time,
or other cause, Licensee shall forthwith discontinue the use of Licensed
Marks, and shall not thereafter use, in any manner, or for any purpose,
directly or indirectly, any of the Licensed Marks or any marks or symbols
deceptively similar thereto.
15. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement, or any breach hereof, including, without limitation, any claim
that this Agreement, or any part hereof, is invalid, illegal or otherwise
voidable or void, shall be submitted to arbitration before an arbitrator in
accordance with the Commercial Rules of Arbitration of the American
Arbitration Association and judgment upon the award may be entered in any
court having jurisdiction thereof; provided, however, that this clause
shall not be construed to limit or to preclude either party from bringing
any action in any court of competent jurisdiction for injunctive or other
provisional relief as such party deems necessary or appropriate to compel
the other party to comply with its obligations hereunder or, in the case of
any action brought by Licensor, to protect the Licensed Marks. In the event
that either party shall make demand for arbitration, such arbitration shall
be conducted in Orange County, California. Any arbitrator shall be
reasonably experienced in the manufacture and/or licensing of food
products. The arbitration shall be governed by the provisions of the
Federal Arbitration Act, 9 U.S.C. sections 1 et seq.
8
<PAGE>
16. GENERAL CONDITIONS AND PROVISIONS.
16.1 Headings. Section headings used in this Agreement are for convenience
only and are not a part of the text hereof.
16.2 Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter (and into which all
prior negotiations, commitments, representations and undertakings of
the parties are merged) and except as herein provided there are no
other oral or written understandings or agreements between the parties
hereto relating to the subject matter hereof.
16.3 Amendments. No amendment or other modification of this AGreement shall
be valid or binding on either party hereto, unless reduced to writing
and executed by the parties hereto.
16.4 Relationship of Parties. The parties hereto are independent and
neither party is the agent, joint venturer, partner or employee of the
other, and neither party shall be obligated by any agreements,
representations or warranties made by the other party to any person,
nor with respect to any other action or omission to act of the other
party, nor shall either party be obligated solely by reason of each
party's entry into this Agreement for any damages to any person
whether caused by the other party's action, failure to act,
negligence, or willful misconduct.
16.5 Waiver. No waiver by either party of any breach or series of breaches
or defaults in performance by the other party, and no failure, refusal
or neglect to exercise any right, power or option given to either
party hereunder or to insist upon strict compliance with or
performance of the obligations under this Agreement, shall constitute
a waiver of the provisions of this Agreement with respect to any
subsequent breach thereof or a waiver by such party of its rights at
any time thereafter to require exact and strict compliance with the
provisions thereof.
16.6 Governing Law. This Agreement shall be governed and construed under
and in accordance with the laws of the State of California.
16.7 Severability. All provisions of this Agreement shall be severable and
no such provision shall be affected by the invalidity of any other
such provision to the extent that such invalidity does not also render
such other provision invalid. In the event of the invalidity of any
provision of this Agreement, it shall be interpreted and enforced as
if all provisions thereby rendered invalid were not contained herein.
If any provision of this Agreement shall be susceptible of
9
<PAGE>
two interpretations, one which would render the provision invalid and
the other of which would cause the provision to be valid, shall be
deemed to have the meaning which would cause it to be valid.
16.8 Attorney's Fees. In the event that any suit, action or arbitration
shall be commenced by either party to enforce any right or obligation
created hereby, the prevailing party in such suit, action or
arbitration shall be entitled to receive the costs incurred by such
party in connection therewith, including reasonable attorneys' fees.
16.9 Notices. All notices permitted or required to be delivered by the
provisions of this Agreement shall be in writing and shall be given by
personal delivery, by confirmed telecopy, by nationally recognized
overnight courier with proof of delivery, or by registered or
certified mail, return receipt requested. Notices shall be deemed
given upon actual receipt if by personal delivery or confirmed
facsimile, next day if by overnight courier, or two (2) days after
delivery if notice is given by mail. Notices shall be addressed to the
parties at the addresess set forth hereinbelow, or to such other
address or addresses as the parties shall from time to time designate
in writing:
If to Licensor: HUNT-WESSON, INC.
1645 W. Valencia Drive
Fullerton, CA 928333-3899
Attn. V.P. Marketing - Peter Pan
cc: Hunt-Wesson Legal Department
1645 W. Valencia Drive
Fullerton, CA 92833-3899
CONAGRA BRANDS, INC.
One ConAgra Drive
Omaha, Nebraska 68102-5001
If to Licensee: DIPPY FOODS, INC.
1161 N. Knollwood Circle
Anaheim, CA 92801
Attn: Jon Stevenson, President
17. CONFIDENTIALITY - The parties recognize that during the term of this
Agreement, Licensee shall disclose to Licensor, and Licensor shall be
given access to, confidential and proprietary information and
documentation relating to Licensee's business, including without
limitation, formulas, processes, marketing and sales data and
promotional information (collectively the "Proprietary Information").
The
10
<PAGE>
Licensor hereby agrees to (i) hold such Proprietary Information in
strict confidence and to take all reasonable precautions to protect
such Proprietary Information from disclosure to third parties,
utilizing all precautions that the Licensor would generally employ
with respect to its most confidential information, (ii) not to divulge
any such Proprietary Information or any information derived therefrom
to any third party and (iii) not to make any use whatsoever at any
time, or attempt to benefit, financially or otherwise, from such
Proprietary Information. The requirement to maintain the
confidentiality of Licensee's Proprietary Information shall not apply
to any information that the Licensor can document is or through no
improper action or inaction by Licensor or any of its affiliates
becomes generally known to the public, was in its possession or known
by it prior to receipt from the Licensee or was rightfully disclosed
to Licensor by a third party having the right to do so.
IN WITNESS WHEREOF, the parties hereto have executed this License Agreement
on the day and year first written above.
HUNT-WESSON, INC., a Delaware Corporation
By: /s/ illegible
-------------------------------------
CONAGRA BRANDS, INC., a Delaware Corporation
By: /s/ illegible
-------------------------------------
DIPPY FOODS, INC., a California Corporation
By: /s/ Jon Stevenson
-------------------------------------
11
<PAGE>
EXHIBIT A
FRUIT FILLING
PRICE F.O.B.
PRODUCT LICENSOR'S PLANT
FLAVOR CODE SIZE PLACENTIA, CA
- ------ ------- ---- ----------------
Apple Cherry 47205 475 lb. drum $332.50
Apple Raspberry 47208 475 lb. drum $332.50
Pineapple Apple 77207 475 lb. drum $327.75
Prices firm till September 30, 1999
PEANUT BUTTER
PRICE DELIVERED
PRODUCT LICENSEE'S PLANT
VARIETY CODE SIZE ANAHEIM, CA
- ------- ------- ---- ----------------
Creamy Reduced Fat 45920 500 lb. drum $442.50
Price firm till December 31, 1999
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001080033
<NAME> Dippy Foods, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> APR-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 48,852
<ALLOWANCES> 0
<INVENTORY> 6,149
<CURRENT-ASSETS> 67,573
<PP&E> 37,267
<DEPRECIATION> 7,863
<TOTAL-ASSETS> 109,509
<CURRENT-LIABILITIES> 276,545
<BONDS> 0
0
0
<COMMON> 19,579
<OTHER-SE> 426,554
<TOTAL-LIABILITY-AND-EQUITY> 109,509
<SALES> 191,933
<TOTAL-REVENUES> 191,933
<CGS> 183,512
<TOTAL-COSTS> 986,428
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,822
<INCOME-PRETAX> (799,317)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (799,317)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
