<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDED
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------
AIR PACKAGING TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4337254
(STATE OF INCORPORATION) (IRS EMPLOYER ID NO.)
25620 RYE CANYON ROAD, VALENCIA, CALIFORNIA 91355
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(661) 294-2222
(REGISTRANT'S TELEPHONE NUMBER)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: 79,664,087
COMMON SHARES
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
TO BE REGISTERED ON WHICH REGISTERED
- ---------------- -------------------
<S> <C>
COMMON STOCK, $0.001 PAR VALUE n/a
</TABLE>
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRATION WAS $8,637,175 AS OF JUNE 30, 1999.
SHARES OF COMMON STOCK OUTSTANDING AS OF JUNE 30, 1999: 79,664,087
<PAGE> 2
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Air Packaging Technologies, Inc., a Delaware corporation ("APTI") is
engaged in the manufacturing, distribution, marketing, and continued development
of inflatable, protective packaging for use in shipment of higher end fragile
products. It holds worldwide patents on a packaging system which utilizes
chambered packing material which provides an Air Box(R) cushion around
shipments. Its Air Box(R) system competes favorably against materials like
bubble wrap, urethane foam, etc., in terms of protection, ease of use and
storage, for shipment of higher value items throughout the world.
A. GENERAL DEVELOPMENT
The Registrant's predecessor was organized as a Canadian corporation
under the British Columbia Company Act in 1985, under the name "MDE Exploration,
Inc.". MDE Exploration made an initial public offering in 1988 in Canada under
the auspices of the Vancouver Stock Exchange, and raised CDN$175,000 (net of
commissions) through the issuance of 500,000 shares of Common Stock at CDN$0.40
per share.
In 1989, MDE Exploration, Inc. was reincorporated in Delaware, and
reorganized and combined with Puff Pac Hold Co. Inc., P&P Industries, Inc., and
Puff Pac Ltd., under the name Puff Pac Industries, Inc.
In September of 1992 Puff Pac Industries, Inc. changed its name to Air
Packaging Technologies, Inc.
The Registrant's stock commenced trading on the NASD Bulletin Board in
April of 1994.
Puff Pac Ltd., a California Limited Partnership, remains in existence
due to ownership by a small minority interest. APTI owns 99.13% of the
beneficial interest in Puff Pac Ltd.
APTI's corporate offices are located at 25620 Rye Canyon Road, Valencia,
California 91355; its telephone number is (661) 294-2222; its facsimile number
is (661) 294-0947.
APTI has one wholly-owned subsidiary:
Puff Pac Industries Canada Inc. ("Canco"), a British Columbia
corporation.
B. FINANCIAL INFORMATION BY
INDUSTRY SEGMENT AND CLASSES OF PRODUCTS
Registrant is in only one industry segment, "protective packaging".
<TABLE>
<CAPTION>
YEAR
------------------------------
1998 1997 1996
---- ---- -----
<S> <C> <C> <C>
Sales of Air Box(R) Protective Packaging 1 2 3
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
to Unaffiliated Customers: $ 722,268 $ 340,624 $ 640,074(1)
Operating Loss $(1,819,872) $(1,827,861) $(1,114,793)(1)
Identifiable Assets, Net $ 1,810,595 $ 1,137,721 $ 643,062
</TABLE>
- --------------
(1) In 1996, a discontinued inventory of Puff Pac Gift Wrap was sold in
connection with the discontinuance of this product, resulting in
nonrecurring sales of $208,419, which are included in this figure.
C. BUSINESS
1. PRODUCTS
APTI manufactures and markets a line of industrial packaging products
under the name "Air Box"(R).
The Air Box(R) provides reusable protective packaging during shipping
and storage for a wide range of higher value items. It provides vastly superior
protection from ESD (electro static discharge) damage, and moisture. It also
provides see-through transparency for visual inspection of the product during
shipment and upon receipt.
The patented design suspends an item within a double-chambered envelope,
which when inflated, surrounds the item with a protective cushion of air,
protected by a double wall of transparent material, made out of a combination of
polyethylene and nylon.
Although not an inexpensive form of packaging, the Air Box provides a
cost-effective packaging solution for higher value items and is environmentally
superior to conventional packaging. When deflated and disposed of, use of the
Air Box reduces the amount of waste by up to 90%, compared with traditional
packaging. The packaging is also easily storable in deflated form, greatly
reducing warehouse space required to be devoted to package material storage.
Air Box(R) is reusable, allowing the package to be deflated and reused.
The Air Box is designed for companies that have substantial round-trip packaging
and shipping requirements.
APTI has also developed and markets a Static Discharge Shielding (SDS)
Air Box(R). This product is designed for electronic products requiring
static-discharge protection (i.e., Wafers and Integrated Circuits). The SDS Air
Box(R) has two layers of anti-static coated film (inner and outer bags) that
dissipate static electricity while the package's air chamber provides full
static shielding. This provides one hundred times the protection of traditional
static shielding bags, and still provides cushion protection, all in one
package.
The SDS Air Box(R) also meets MIL B81705C Type II and Type III and EIA
541 specifications. The Electronics Industry Association (EIN) puts out the
standard which is titled packaging materials standard for Electro-state
discharge sensitive items. Motorola and other electronic semiconductor
manufacturers are presently using the SDS Air Box(R) for shipment of their wafer
and integrated circuits.
3
<PAGE> 4
Air Box(R) products are made in five standard sizes, and are also
available in custom sizes as required by customers.
Air Box(R) quilting is an additional process developed by the Company
which allows the Air Box(R) to take up less space when inflated and to support
heavier items for shipping. Air Boxes can accommodate products up to 15 pounds
in weight.
APTI has created the Air Box(R) Shipping Center as a marketing tool. The
Center is designed for the miscellaneous shipping needs of small businesses. It
is portable, measuring 17"x22"x4", made of corrugated cardboard, and comes with
an assortment of one hundred and twenty (120) Air Boxes in eight different sizes
and a portable air pump. It offers packaging protection equivalent to a closet
full of Styrofoam.
Conventional packaging requires as much as nine times more material
volume than the Air Box, which consists of 90 percent air when inflated. Since
the Air Boxes are stored flat, storage space requirements are greatly reduced.
Designed to be reused as often as five times per Air Box, deflatable Air
Box materials going into a landfill after use represent 45 times less waste
material compared with existing materials.
The see-through film of the Air Box permits instant verification of
contents and allows a humidity indicator card to be read without opening the
package. In some styles bar codes can also be scanned directly through the Air
Box without opening it.
Absence of corrugated dust permits the product to remain sealed in the
package in customer plants right up to point of use; with other packing
materials corrugated dust must be removed upon arrival so as not to travel into
clean rooms, eliminating a considerable degree of protection during in-plant
handling.
In a typical application, the two chambers contain air and are sealed
together at the edges, with the exception of an open end in which the product is
inserted along with a humidity indicator card. An operator applies pressurized
air from an inexpensive regulator, supplied by APTI to the bag's nozzle,
inflating the bag. During inflation, the two chambers, sealed together at the
edges, swell against one another, immobilizing the product trapped between.
The open end is then vacuum-sealed using existing equipment. The
resulting product/package construction, consisting of film/air
gap/film/product/film/air gap/film, is what gives the package its strong static
shielding protection. The air gaps can range anywhere from 1/2 to 1 inch thick,
depending on the contents. The film is coated to provide the required static
dissapative properties, the polyethylene and nylon both provide enhancing
properties to resist puncture and a long shelf life.
After a variety of tests conducted under several different conditions,
independent testing laboratory Fowler Associates confirmed that the combination
of the material and the air gaps "provide a very good ESD package for
essentially all devices under essentially all conditions. In one test, the
package withstood a 20kV discharge while containing integrated circuits that are
rated at 150v maximum.
4
<PAGE> 5
At the point of unpacking in the recipient's plant, Air Boxes are
deflated by pulling up the valve stem on the valve allowing air to escape
through the center of the valve, when the Air Box is ready for reuse the valve
stem will be pushed back down after inflation.
Customers may ship used bags back to APTI, who in turn will refurbish
and test them, and return them to the customer.
In summary, the Company's Air Box(R) product has the following
attributes and advantages:
- A unique packaging system
- Patented products
- Superior drop and vibration protection
- Transparency
- ESD protection
- Custom shapes
- Custom printing
- Re-usable
- Cost effective
- Environmentally friendly
The product's disadvantage is its high unit cost. Further, in some
applications the product's moisture barrier does not meet certain Mil specs,
although the Company's research and development department is working to improve
such protection. The product is also relatively unknown, and there are limits to
size, shapes and weights.
2. MARKETING
The Company has identified and has focused upon four key industries
which management believes can immediately benefit from its products. These are:
- Static Discharge Shielding (SDS)
- Medical
- Dental
- Military
In addition, the Company is continually seeking additional commercial
opportunities for the sale of its Air Box(R) Products in all markets.
SDS
The SDS market is principally the semiconductor market. Manufacturers
are concerned with the shipment of silicon wafers used to manufacture integrated
circuits, and IC's packaged in a Tape and Reel for shipment and further
manufacture. This is a worldwide market.
5
<PAGE> 6
Management believes its products are the only protective packaging with
both static shielding and cushion protection. The Air Box(R) provides superior
static shielding, is cost effective, requires less storage space, allows use of
primary shipment containers (Empak) (reusing the manufacturer's carrier provides
additional cost savings), and is more effective in reducing damage from drops
and vibrations.
The product exceeds all ESD standards, all ISTA and ASTM compression and
transportation standards, and has passed all commercial airline altitude tests.
The product does not particulate - avoiding wafer contamination. The product is
environmentally friendly with 90% less waste going into the landfill after use
as compared to other packaging materials. The Company's customers report the Air
Box(R) is providing cost savings and freight savings, since there is less
shipment weight and the corrugated box is smaller when compared to traditional
cushion packaging.
Another part of the SDS market is the Photomask market. The Photomask
has no efficient nor cost-effective method of shipment, is extremely fragile, is
subject to transit damage, and is particularly sensitive to contamination. SDS
Air Box(R) can be sealed to eliminate contamination during transit and storage.
Prior to the SDS Air Box entering this market, the Photomask manufacturers had
no efficient way to ship their fragile Photomasks. They were getting substantial
damage during shipping and storage, causing them to use such extremes as
packaging them in a five gallon ammo can with bubble wrap or a full size
suitcase lined with polyurethane foam. If the Photomask was extremely fragile,
they had to hand carry it to the customer. In all cases, it was substantially
more expensive to insure the safety of the Photomask prior to the introduction
of the SDS Air Box. APTI has been selling the Photomask Air Box to Photronics
for nine months, and recently began selling the SDS Air Box for Photomasks to
two other companies. These three companies control 60% of the Photomask market.
Other markets for the SDS Air Box(R) include sensitive parts for wafer
making machines, high end disc drives, quartz glassware used in making
semiconductor wafers, and lightweight surface mount boards, among others.
The Company is still working to develop tape and reel SDS Air Box(R)
Products which meet MIL spec for MVTR (moisture vapor transmission rate), a
major requirement of this market.
3. METHODS OF SALES
The Company has one full time sales employee, located in Silicon Valley,
California, who represents APTI in the San Jose, Washington and Oregon areas.
Air Box(R) is also marketed through two independent distributors
throughout Asia and Europe
Air Packaging (Europe) Ltd., England
C-Pak Pte, Singapore
6
<PAGE> 7
Medical
APTI recently successfully designed and sold an Air Box to ship living
human skin in a Petrie dish, combining a temperature controlled environment with
Air Box cushion packaging from the Organogenises laboratory to the hospital.
This skin is called Apligraf, and is made by Organogenises of New England. If
the Apligraf is subject to substantial vibration or shock during the trip to the
hospital, it will form a small bubble under the skin and die very quickly. Many
forms of packaging were tested and the Air Box design is the only FDA approved
method of shipping the Apligraf.
Dental Products
The Dental market is concerned with the shipment of dental impressions
from the dentist's office to the laboratory for the fabrication of dental plates
and apparati and the return trip to the Dentist. Deliveries inside of about 75
miles are now hand delivered, and do not need the Air Box. Dentists who are
outside the 75 mile radius of the laboratory must ship both ways by air courier.
APTI has replaced the corrugated box and foam interior with a simple reusable
Air Box that fits into an overnight courier bag. The laboratory is saving $1.00
per shipment on freight (going both ways) and plans to use the Air Box four
times, giving them additional savings. They also have their packages delivered
up to two hours earlier than if packaged in boxes and foam. The environmental
effect is tremendous and important to the industry; the Air Box is 95% less
dunnage going into the land fill, and if used four times is 98% less dunnage.
U.S. Military
APTI recently completed a series of ISTA (International Safe Transit
Association) transportation tests for the U S Military for several items with
excellent results. The U S Military has advised they wish to purchase the Air
Box to ship sensitive items for the Navy between the ships and repair depots.
APTI is pursuing this at the present time, and although the potential
opportunity is substantial, there is no guarantee APTI will obtain a contract
with the U S Military in the near future.
Discontinued Gift Wraps Line of Products
Formerly, APTI also manufactured a line of gift wrap, utilizing many of
the features of the Air Box(R), under the name "Puff Pac" Gift Wrap. The wrap
was a two-chambered inflatable packaging product resembling a mylar balloon,
that served as a unique alternative to conventional gift wrap. The gift was
inserted in a Puff Pac which was then inflated. As a result, the gift was
suspended and surrounded by air. Puff Pac Gift Wrap was produced in a number of
colorful designs, including holiday and special greetings.
In March of 1995, as a result of a comprehensive study by management and
outside consultants of APTI, its products, markets, patents and business plan,
management determined to terminate the Gift Wrap business, and to focus the
entire energies of the Company on the Air Box(R). In late 1996, APTI liquidated
its inventory of Gift Wrap, and realized nonrecurring sales and profits
therefrom.
7
<PAGE> 8
4. MANUFACTURING
APTI purchases raw materials in the form of extruded or laminated webs
of thin flexible plastic films which have been printed or coated by outside
suppliers. These films are produced for the Company to the Company's film design
specifications and standards.
These films are then formed into the Company's various products on the
Company's custom designed and computer controlled modular converting machines,
which use heat sealing technology to join the multiple layers of plastic film
together. The specific sequence of operations and control parameters is
proprietary to the Company, and is covered by process patents. The Company
currently has two product fabrication converting machines which are capable of
producing a total of five (5) million units per year.
The Company fabricates its patented air inflation valve using extruded
printed thin plastic films which are heat sealed together to form the valve on a
custom designed fabrication machine. In the first half of 1998 APTI designed and
developed an industrially acceptable push-pull hard valve. Field tests were
completed with some of the Company's largest customers, and they
enthusiastically endorsed the change in valves. The new push-pull valve
eliminates the threat of air escaping through the valve. APTI is using the
push-pull valve in all Semiconductor applications and most custom design
applications.
The Company utilizes continuous process quality monitoring raw material,
production lot testing and other elements of Total Quality Management to produce
a high quality of product, which continues to hold air in all usual shipping
environments which may be encountered by the Company's customers in shipping
their products.
The Company packages its products in boxes for shipment to its many
customers and distributors throughout the world. Some of the products are
"standard" items and are produced to forecast and warehoused for quick response
subsequent shipment, while other products are produced only upon specific
customer order for immediate shipment. On large special orders the Company can
provide products with custom printing to the customer's requirements; all other
orders are produced and shipped with the Company's standard logo and patent
information printed thereon.
5. SOURCES AND AVAILABILITY OF RAW MATERIAL
The Company has at least two suppliers fully qualified to produce each
of the raw material films required for its products and several companies
qualified to provide the printing required.
Basic raw materials required by us from our suppliers, such as Jefferson
Smurfitt and Huntsman, are produced and readily available to us. All of the film
raw materials used are produced in the millions of tons currently in other
industries. The Company has adopted industry standard processes to fabricate its
raw materials. As a result, supplies of raw materials are available to the
Company from many sources, though the lead time can be several weeks until
receipt of raw materials into the Company plant.
8
<PAGE> 9
6. PATENTS, TRADEMARKS & LICENSES
The Company has a combination of products, process and application
patents, backed by proprietary and trade secret manufacturing technology.
Management believes the patents and trademarks provide a formidable barrier to
competition. They include 13 U.S. patents and 1 pending with 2 trademarks and 1
pending, with 13 foreign patents with 2 pending and 1 trademark pending - and
further filings continue to protect and strengthen the technology position. The
U.S. and foreign patents have various expiration dates from August 25, 2007
through September 15, 2014. As noted the Company believes that the patents
represent a formidable barrier to competition and are, as a result, important to
the Company's financial operations. Under 35 U.S.C. Section 382, United States
Patents are presumed to be valid and the Company is not aware of any facts or
circumstances which would bring this presumption into question. Under U.S. law,
both trademarks owned by the Company are of perpetual duration. The Company has
no reason to believe that its application for trademark protection for the name
"Airenviro" will not be granted but such protection is not, in the opinion of
the Company, of material importance. The Company is required to pay minor
royalties related to certain patents and trademarks, and in prior years had paid
royalties on both patents and the trademark "Puff Pac", which trademark is no
longer used. Total expense related to these agreements was $3,991 in 1998,
$1,726 in 1997 and $7,674 in 1996. The continuing royalty payment on patents
continues for the life of the original patents, and is fixed at 2% of cost of
goods sold on an annual basis.
7. SEASONAL FACTORS
The season factors in the Company's Air Box product are limited, and
revolve only around industry slow downs.
8. INVENTORY AND OTHER WORKING CAPITAL ITEMS
The Company carries a continuing inventory of its Air Box products,
based on sales forecasts. The book value of this inventory has been
significantly reduced due to the slower than expected sales rate and potential
obsolescence or rework necessitated by the Company's continuing product
development and improvement. The Company had inventory reserves of $63,000 and
$154,000 in 1998 and 1997, respectively.
9. PRINCIPAL CUSTOMERS
Three larger customers, Motorola, The Air Packaging Company (Europe)
Ltd., and C-PAK PTE, LTD (Singapore) accounted for 15%, 31% and 18% of its sales
during its fiscal year ended December 31, 1998. These companies are
independently owned, and are not affiliates of APTI.
10. FIRM BACKLOG
As of April 5, 1999, APTI had $200,000 in backlog orders which are
scheduled to be completed within 90 days. The backlog orders as of April 5, 1998
totaled $216,000. Most orders are non-custom, and are filled and shipped within
14 working days. Custom orders require 6 to 8 weeks to manufacture and ship.
11. GOVERNMENT CONTRACTS
9
<PAGE> 10
We recently completed a series of simulated transportation tests for the
Military-Navy for several items with excellent results. The U.S. Military
advised us they want to purchase the Air Box to ship sensitive items for the
U.S. Navy between the ships and repair depots. We are pursuing this at the
present time, and although the potential opportunity is substantial, there is no
guarantee APTI will have a contract with the U.S. Military in the near future.
12. COMPETITION
APTI has two distinct types of competitors, one in the standard Air
Box(R) market and one in the SDS Air Box(R) market.
The Standard Air Box(R) competes against traditional cushion packaging
such as die cut styrofoam, loose fill, bubble wrap, die cut corrugated,
convoluted foam and other forms of packaging. The Company's products are
competitively priced with most of these competitors. The Company's Air Box
product performs better than all other cushion packaging in transportation
tests.
The second market is the static shielding market. Here, APTI competes
against anti-static foam cushion packaging. Most of the Company's competition is
multi-step packaging, compared to the one step method offered by SDS Air Box(R).
The Company's SDS Air Box(R) is competitively priced, and management expects to
increase its share of this market.
13. RESEARCH, DEVELOPMENT & LABORATORY
The Company maintains an ongoing research and development effort,
striving to develop more effective and efficient packaging products based around
the Air Box technology and design. The Company maintains three full time
researchers, assisted on a part time basis by other employees, and has
established an ISTA Certified testing laboratory within its manufacturing
premises in order to aid its research and development efforts. The Company also
partners with its customers or prospective partners in an effort to develop new
and more creative solutions to the customer's unique packaging needs.
For the years ended December 1998, 1997 and 1996, research and development
expenses were $7,371, $3,322 and $47,010 respectively.
14. ENVIRONMENTAL FACTORS
The Company's manufacturing processes are environmentally "clean", as
they comprise only the use of electrically generated heat at modest temperatures
(300 to 400F) to heat seal the layers of plastic films together. There are no
by-products created by the Company's manufacturing processes other than scrap
plastic films generated when the machines are set up or occasionally require
adjustment. There is no toxic or dangerous fumes emitted by the heat seal
processes as the materials are kept well below their boiling points.
10
<PAGE> 11
15. EMPLOYEES
The Company has 25 full-time employees. Eleven of these are in
management, sales, product development, or administration positions and fourteen
are in production/warehousing/shipping operations.
The production and packaging operations are supplemented by the addition
of temporary personnel when scheduling requires. The operation is a non-union
shop with staffing drawn from the Valencia and Los Angeles metroplex, California
areas. The production workers when hired are typically non-skilled or
semi-skilled, and are trained, by the Company in operation of its converting
fabrication equipment. The Company believes that its relationships with its
employees are good.
16. FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC SALES
Sales to Unaffiliated Customers:
<TABLE>
<CAPTION>
YEAR
--------------------------------------
1998 1997 1996(1)
---- ---- ----
<S> <C> <C> <C>
United States $366,177 $295,116 $547,391
Europe $223,619 $ 45,508 $ 80,629
Asia $132,472 -- $ 12,054
-------- -------- --------
$722,268 $340,624 $640,074
======== ======== ========
</TABLE>
- --------------
(1) In 1996, a discontinued inventory of Puff Pac Gift Wrap was sold in
connection with the discontinuance of this product, resulting in
nonrecurring sales of $208,419, which are included in this figure.
Operating Loss
<TABLE>
<CAPTION>
YEAR
-----------------------------------------------
1998 1997 1996(1)
<S> <C> <C> <C>
United States $ (928,135) $(1,590,239) $ (947,574)
Europe $ (564,160) $ (237,622) $ (144,923)
Asia $ (327,577) -- $ (22,296)
----------- ----------- -----------
$(1,819,872) $(1,827,861) $(1,114,793)
=========== =========== ===========
</TABLE>
All Identifiable Assets of the Company are located within the U.S.
- --------------
(1) In 1996, the entire inventory of Puff Pac Gift Wrap was sold in connection
with the discontinuance of this product, resulting in nonrecurring sales of
$208,419, which are included in this figure.
11
<PAGE> 12
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
ITEM 2. A. FINANCIAL INFORMATION
The following table summarizes certain selected financial data for the
periods presented for the Company. The data for the year ended December 31 1998,
1997 and 1996 should be read in conjunction with the more detailed audited
statements for such years presented elsewhere herein.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 722,268 $ 340,624 $ 640,074 $ 453,107 $ 576,637
Loss: Continuing Operations (1,723,647) (1,824,199) (1,172,840) (1,774,801) (2,785,941)
Net Loss:
Loss per Common Share:
Loss before extraordinary
item (.04) (.06) (.06) (.10) (.16)
Extraordinary item (.01) -- -- -- --
Net loss (.04) (.06) (.06) (.10) (.16)
Dividends Per Share n/a n/a n/a n/a n/a
Weighted Average Shares 45,066,084 30,693,624 19,313,760 18,019,862 17,039,731
Outstanding
BALANCE SHEET DATA
Total Assets $ 1,810,595 $ 1,137,721 $ 643,062 $ 955,722 $ 2,232,424
Long-term Obligations -- 39,500 39,500 1,352,000 1,289,500
Total Liabilities 275,882 1,004,900 2,211,871 2,479,374 2,514,125
</TABLE>
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B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
1. RESULTS OF OPERATIONS
General Marketing Efforts
In 1998, the Company achieved sales of $722,268, which was a 112%
increase over its 1997 total sales of $340,624.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Sales for the year ended December 31, 1998 were $722,268 as compared to
$340,624 for the fiscal year ended December 31, 1997. This represents an
increase of $381,644 or 112% during fiscal 1998. The Company began pilot
programs with prospective customers of the SDS Air Box(R) late in the fourth
quarter of 1996. The positive results of these pilot programs resulted in the
increase in sales that occurred during 1998.
The inventory reserve at December 31, 1998 was approximately $63,000, or
13% of total inventory, compared to a reserve of approximately $154,000 or 50%
at December 31, 1997. The net decrease in the reserve from December 31, 1997 to
December 31, 1998 of $91,000 is due to the write-off of specific inventory items
reserved in prior years. The Company evaluated all inventory items for slow
movement and repair, and fully reserved for all items that did not move for at
least three months or that had been discontinued.
Cost of sales for the year ended December 31, 1998 was $566,837, or 78%
of sales, compared to $592,544 for the year ended December 31, 1997, or 174% of
sales. The decrease in cost of sales as a percentage of sales is partly due to
an additional inventory reserve of approximately $97,000 that was recorded
during 1997. A similar provision was not recorded in 1998, as by the end of
1998, the Company had written off those inventory items that had been fully
reserved in prior years.
Selling, general and administrative expenses increased by $395,313 or
25% during fiscal 1998 as compared to fiscal 1997. The increase in selling,
general and administrative expenses is attributable primarily to increases in
professional fees, consulting fees, travel expenses, public company costs and a
reserve for a claim by a former employee.
The increase in professional fees is primarily due to an increase in
legal expenses of $69,228 during fiscal 1998. The Company de-listed from the
Vancouver Stock Exchange during mid-1998. As a result, the Company had several
discussions with both Canadian and U.S. attorneys to verify that the related
issues were properly handled. The Company also retained an additional attorney
during fiscal 1998 specializing in compliance with labor laws. The increase in
consulting fees during fiscal 1998 of $48,811 is primarily due to consulting
work performed to assist the Company in the restructuring of the Company's debt
through the issuance of common shares of stock in settlement of debt. Travel
expenses increased during fiscal 1998 by $29,613 as a result of increased travel
by an officer of the Company who had previously resided in Canada. Public
company costs increased during fiscal 1998 by $68,635 as the Company expensed
fees associated with raising capital through the exercise of warrants and fees
associated with debt for equity transactions. The increase in selling, general
and administrative expense includes a reserve recorded during fiscal 1998 for a
claim by a former employee of $101,500 for alleged breach of an employment
contract. Based on the current status of this claim, the Company believes that
it has fully reserved for the highest potential liability related to this claim.
Research and development expenses increased by $4,049 or 122% during
fiscal 1998.
Interest and other income were $5,676 for fiscal 1998 as compared to
$21,596 for fiscal 1997. The decrease of 74% in fiscal 1998 is due to the gain
on the disposition of an asset recorded during fiscal 1997.
Interest expense increased by $135,536 for fiscal 1998 as compared to
fiscal 1997 as the Company recorded interest expense of $126,073 due to the
revaluation of its warrants in November 1998.
The Company recorded an Extraordinary Item during fiscal 1998 that was
due to the restructuring of certain outstanding payables and accrued expenses.
The Company paid approximately $190,000 in full settlement of accounts payable
and other accrued expenses during the fourth quarter of 1998. This resulted in
an extraordinary gain of approximately $244,000.
Depreciation and amortization expense increased by $68,664 or 46%
during fiscal 1998 as compared to fiscal 1997. The increase in depreciation
expense of $63,807 is attributable to the net increase in property and equipment
during fiscal 1998 of $818,416 compared to the net increase in property and
equipment during fiscal 1997 of $108,224. The increase in additional property
and equipment during 1998 is primarily due to the cost of the retrofit of one of
the manufacturing machines that approximated $726,500. Depreciation was
calculated beginning in June 1998 for approximately 91% of the additions; the
balance which was added during the last six months of fiscal 1998. The increase
in amortization of $4,857 is due to the increase in additional patent costs from
fiscal 1997 to fiscal 1998.
The Company is currently in a loss carryforward position. The net
operating loss carryforwards balance as of December 31, 1998 was approximately
$16,400,000 compared to $15,000,000 as of December 31, 1997. The net operating
loss carryforward is available to offset future taxable income through 2018. The
Company's net operating loss carryforwards may be limited due to ownership
changes as defined under Section 382 of the Internal Revenue Code of 1986.
13
<PAGE> 14
At December 31, 1998, the Company had a deferred tax asset of
approximately $6,800,000, which primarily relates to the 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.
Year End December 31, 1997 Compared to Year End December 31, 1996
Sales for the year ended December 31, 1997 were $340,624 compared to
$640,074 for the fiscal year ended December 31, 1996. Net sales for fiscal 1996
are divided into sales and sales of discontinued products of $431,655 and
$208,419, respectively. The Company decided to focus on its commercial packaging
product line of Air Box(R). The gift wrap product line, known as Puff Pac, was
liquidated and the related inventory sold. The gift wrap sales related to the
liquidation during 1996 totaled $208,419, for which gross profit was 43%.
The inventory reserve at December 31, 1997 was approximately $154,000,
or 50% of total inventory, compared to a reserve of approximately $361,000 or
73% at December 31, 1996. The net decrease in the reserve is due to write-offs
during 1997 totaling approximately $305,000 for inventory provisions recorded in
prior years, partially offset by an additional provision for inventory of
$97,000 recorded in 1997.
Cost of sales for the year ended December 31, 1997 was $592,544, or
174% of sales, compared to $705,707, or 110% of sales, for the year ended
December 31, 1996. The increase in cost of sales as a percentage of sales is
partly due to an additional inventory reserve of approximately $97,000 that was
recorded during 1997, compared to a provision of approximately $73,000 that was
recorded during 1996.
During 1996 and 1997, the Company was operating at negative gross
profit margins, as the Company's sales volume was not sufficient to cover
minimum fixed costs. In 1998, however, margins turned positive as fixed costs
remained relatively the same while sales level increased.
Selling, general and administrative expenses increased by $570,469 or
57% during fiscal 1997 as compared to fiscal 1996. The increases in selling,
general and administrative expenses were attributable to planned increased
expenditures for salaries, travel and related benefits of new salespeople and
salaries for an engineer, as well as increases in travel, printing and personnel
recruitment fees.
Research and development expenses decreased by $43,688 or 93% during
fiscal 1997. There was consulting work performed during fiscal 1996 consisting
of designing new products, researching new materials and redesigning the Air Box
valve, which was not repeated during 1997.
Interest and other income was $21,596 for fiscal 1997 compared to
$13,880 for fiscal 1996.
Interest expense decreased by $53,993 for fiscal 1997 as compared to
fiscal 1996 as the Company had a decrease in related interest bearing debt
during 1997.
Depreciation and amortization expense decreased by $58,724 or 28%
during fiscal 1997 as compared to fiscal 1996. The decrease in depreciation of
$41,694 is attributable primarily to one asset that became fully depreciated in
June 1997. The Company expensed the full annual amount during fiscal 1996 of
$53,635 as compared to $22,348 that was expensed during fiscal 1997.
2. LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for capital has been to purchase raw
materials, upgrade machinery and continue to develop and enhance patents and
trademarks as well as to achieve computer Y2K compliance.
As of December 31, 1998, the Company's working capital was $430,546
compared to a deficit of $(710,255) as of December 31, 1997. The Company issued
10,639,948 shares of its common stock during 1998 in settlement of outstanding
debt of approximately $1,084,000.
The net receivables were $96,852 at December 31, 1998 compared to
$34,566 at December 31, 1997. The net increase of $62,286 is due to
additional receivables recorded for sales during the last quarter of 1998
partially offset by payments on receivables at December 31, 1997.
Inventories at December 31, 1998 were $408,643 compared to $156,455 at
December 31, 1997. The Company began a retrofit of one of its manufacturing
machines in October 1997 and it was completed in June 1998. The increase during
fiscal 1998 of $252,188 is due to the timing of the retrofit. Also, the Company
was preparing for first quarter sales in fiscal 1999 by purchasing additional
raw materials in December 1998 while in December 1997, the Company was in the
midst of a retrofit of the machine.
Advances and prepaids were $75,134 at December 31, 1998 compared to
$4,662 at December 31, 1997. The increase is due primarily to a prepayment made
in 1998 for materials of $57,892. The balance of the increase is due to an
increase in insurance premium deposits and other advance and prepaid
transactions.
The Company recognized a 22% gross profit during 1998 compared to
negative gross profits of 74% and 10% in 1997 and 1996. The Company has
estimated that sales of $3,500,000 would be required to cover operating costs
and to achieve a gross margin of 40%. The Company will continue to operate at a
deficit or low margins until sales increase substantially. In addition, as sales
increase, additional working capital is required to fund inventory and work in
process. As a result of these factors, the Company has an ongoing and urgent
need for infusion of additional working capital. This
14
<PAGE> 15
need was met in 1998 by selling additional shares of the Company's Common Stock,
primarily offshore to overseas investors. During fiscal 1998 the Company
received $924,593 in net proceeds from private and offshore placements of
10,112,500 Shares of its common stock, and $743,627 in net proceeds from the
private or offshore exercise of previously issued warrants resulting in the
issuance of 5,200,000 Shares of its Common Stock.
The Company will continue to require an infusion of additional working
capital in order to develop its business. The source, timing and costs of such
infusion is uncertain, and there is no certainty that the Company will be
successful in raising additional working capital, either through the sale of
debt or equity securities, or through commercial banking lines of credit. The
Company currently has no banking lines of credit. At April 5, 1999, the Company
had 15,787,539 Warrants outstanding at $0.15 per Warrant. If exercised, it would
bring $2,368,131 to the working capital of the Company. However, there is no
guarantee that these Warrants will continue to be exercised.
The Company had cash outflows of $1,635,054 from operating activities
for the 1998 fiscal year compared to cash outflows of $1,435,384 for the 1997
fiscal year. The change in net outflows of $199,670 from operating activities
between 1998 and 1997 resulted from the following items. There was a decrease in
trade receivables of $66,016, a decrease in inventory of $128,977, a decrease in
advances and prepaids of $70,828, a decrease in accounts payable and accrued
liabilities of $12,675, a decrease in due to related party of $126,000, and a
decrease in other liabilities of $39,500. The total decreases were partially
offset by increases in deposits of $58,368 and accrued officers' salaries of
$23,566, combined with the decrease in the net loss from operations after
adjustments for non-cash items of $162,396 during fiscal 1998.
Net cash used in investing activities was $447,429 during the fiscal
year compared to $558,981 during the 1997 fiscal year. The decrease is due to a
reduction in property and equipment expenditures during 1998.
Cash flows from financing activities were $2,148,820 during the 1998
fiscal year compared to $2,002,221 during fiscal 1997. The change is due to
increased proceeds from the exercise of warrants and notes payable of $868,400,
which was partially offset by a decrease in proceeds from private placements of
$666,126.
The Company has suffered recurring losses from operations and has an
accumulated deficit of ($17,956,980) at December 31, 1998, which raises
substantial doubt about its ability to continue as a going concern. The
Company's continued existence is dependent upon its ability to raise substantial
capital, to increase sales, to significantly improve operations, and ultimately
become profitable. The Company believes that future investments and certain
sales-related efforts will provide sufficient cash flow for it to continue as a
going concern in its present form. However, there can be no assurance that the
Company will achieve such results.
3. SEASONALITY AND INFLATION
The Company's sales do not appear to be subject to any seasonal
fluctuations. The Company does not believe that inflation has had a material
impact on its operations.
15
<PAGE> 16
4. YEAR 2000
The Company has completed an evaluation of Year 2000 (Y2K) computer
information processing problems and Year 2000 program requirements for internal
operations and Company products. With proposed computer and software upgrades in
place by the third quarter of 1999, the Company does not expect to experience
Year 2000 problems in those areas. A survey analysis of external vendors has
been initiated to evaluate their Y2K preparedness. The Company's Year 2000
compliance evaluation will then be complete. The Company does not believe it has
significant exposure to Year 2000 problems with significant vendors, customers
and financial institutions and does not expect that the Year 2000 issue will
have a material cost or impact on Company operations. However, there can be no
assurance that the systems of other companies on which the Company relies will
not have an adverse effect on the Company.
The Company does not have a contingency plan, but is currently working
on one. The Company is evaluating the operational effect, if any, that Y2K
issues will have on the Company.
Forward Looking Statement
The above paragraphs and other parts of this Form 10 Registration
Statement include "Forward Looking Statements". All statements other than
statements of historical fact included herein, including any statements with
respect to sales forecast, future product acceptance or other future matters,
are Forward Looking Statements. Although the Company believes that there is a
reasonable basis for the projections reflected in such Forward Looking
Statements, it can give no assurance that such expectations will prove to be
correct. Certain of the important factors that could cause actual results to
differ materially and negatively from the Company's expectations, among others,
include a slow down in the trend in sales and orders during the remainder of the
year, an inability to obtain sufficient working capital to meet order demand,
and/or a worldwide economic slowdown.
16
<PAGE> 17
Item 3. PROPERTIES
The Issuer has corporate offices, manufacturing, research and
distribution facilities housed in its 17,280 square foot headquarters in
Valencia, California. All products are manufactured at this location. Management
believes its facility is adequate for the Company's current level of operation.
The facility is leased on a long term lease which expires May 31, 2000,
at a current rental of $10,145.00 per month, plus common area expenses. There
are currently similar facilities at similar long term rents available to the
Company in the adjacent area, and management does not anticipate a problem in
replacing this lease in 2000 if required.
17
<PAGE> 18
ITEM 4. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial
ownership as of June 30, 1999, of the Company's Common Stock, by any person who
is known to the Company to be the beneficial owner of more than 5% of the
Company's voting securities and by each director and by officers and directors
of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL(1) PERCENTAGE
NAME AND ADDRESS OWNERSHIP OF CLASS(1)
- ---------------- --------- -----------
<S> <C> <C>
Donald Ochacher, Chairman, CEO and a Director 400,000(3) 0.4%
25620 Rye Canyon Road(2)
Valencia, California 91355
Janet Maxey, Chief Financial Officer 250,000(4) 0.3%
Garry Newman, Vice President 300,000(5) 0.3%
Elwood C. Trotter, Vice President 962,824(6) 1.0%
Wayne Case, Director 2,400,000(7) 2.6%
Carl Stadelhofer, Director 2,400,000(8) 2.6%
Sterling Mason, Director 0 -
--------- ---
All current directors and
officers as a group (7 persons) 6,712,824 7.2%
========== ====
Garvin McMinn(10) 1,960,000(9) 2.1%
Schmitt Industries, Inc. 13,757,156 14.7%
</TABLE>
- --------------
(1) Assumes all outstanding stock options and all outstanding Warrants have
been exercised and the subject shares have been issued and are outstanding.
(2) This address also applies to all persons listed.
(3) Includes 400,000 stock options outstanding and exercisable at 6/30/99.
(4) Includes 250,000 stock options outstanding and exercisable at 6/30/99.
(5) Includes 300,000 stock options outstanding and exercisable at 6/30/99.
(6) Includes 750,000 stock options outstanding and exercisable at 6/30/99.
(7) Includes 400,000 stock options outstanding and exercisable at 6/30/99.
(8) Includes 400,000 stock options outstanding and exercisable at 6/30/99.
(9) Includes 1,150,000 stock options outstanding and exercisable at 6/30/99.
(10) Garvin McMinn, former Chairman, CEO and a Director, left these positions
to pursue other interests on June 4, 1999.
18
<PAGE> 19
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the directors and executive officers of
the Company as of June 30, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position Since
- ---- --- -------- -----
<S> <C> <C> <C>
Donald Ochacher 61 Chairman, CEO & a Director 6/99
Janet Maxey 36 Chief Financial Officer 7/97
Garry Newman 49 Vice President 6/97
Elwood C. Trotter 56 Vice President & a Director 4/89
Wayne Case 58 Director 11/98
Carl Stadelhofer 46 Director 11/98
W. Sterling Mason, Jr. 53 Director 6/99
</TABLE>
The Directors serve until the next annual meeting of shareholders, or
until their successors are elected.
DONALD M. OCHACHER - President and Chief Executive Officer and Chairman
of the Board of Directors of the Company since June, 1999. Mr. Ochacher has been
a member of the New York bar since 1960 and was engaged in the private practice
of law specializing in corporate and tax law until 1973 when he became General
Counsel and Chief Financial and Administrative Officer of The Newark Group Ltd.,
a large privately owned paper company. Since 1985, he has been both an attorney
and business consultant and at various times, has served as President of
privately owned companies engaged in the paper, hazardous waste, real estate and
long distance telephone resale industries. From May 1994 to the present, Mr.
Ochacher is President of The 800 Network, Inc. From August 1997 to August 1998,
he was Chief Financial Officer of Electric Entertainment Corp. Mr. Ochacher
graduated from the New York University School of Law in 1960, receiving a LL.B
degree and received his B.A. degree from Cornell University in 1957.
JANET MAXEY - Ms. Maxey has been an employee of the Company since May
1991, and became Chief Financial Officer in July 1997. Ms. Maxey attended
California State University, Northridge, and earned a Bachelor of Science Degree
in Business Administration.
GARRY NEWMAN - Vice President of Manufacturing and Engineering since
June 1997. Prior to that, Mr. Newman was Engineering & Quality Assurance Manager
for Richmond Technology from October 1994 until he joined the Company. Mr.
Newman attended University of California, Davis, and earned a Bachelor of
Science Degree in Chemical Engineering.
ELWOOD TROTTER - Mr. Trotter has been an employee of the Company since
April 1989 and became Vice President, Special Projects in February 1996. Mr.
Trotter attended Simon Frazer University in British Columbia, Canada.
WAYNE CASE - President and Chairman of the Board of Schmitt Industries,
Inc., since November 1986, when he founded Schmitt Industries, Inc. Mr. Case
holds a Bachelor of Arts Degree in Business and an MBA.
CARL STADELHOFER - Attorney with Rinderknecht Klein & Stadelhofer in
Switzerland since July 1990. Mr. Stadelhofer is a French and Swiss citizen;
admitted in Switzerland 1982. Education: Law Schools of Zurich and Berne
University (lic.jur1979); Harvard Law School, Massachusetts; Georgetown
University, Washington, D.C. Mr. Stadelhofer specializes in banking and
financing, mergers and acquisitions, investment funds, international securities
transactions and international legal assistance.
W. STERLING MASON, JR. - Director of the Company since June 1999. Mr.
Mason has been engaged in the private practice of law in Salt Lake City, Utah
since 1975. His law practice focuses on the business and securities areas of
law. Mr. Mason graduated from the University of Utah Law School in 1975
receiving a Juris Doctor Degree. In addition, Mr. Mason received a Masters in
Business Administration from the University of Utah in 1974 and has a Bachelor
of Science Degree in Finance which he received in 1972. Prior to that time,
Mr. Mason was a stockbroker with various stock brokerage firms, both in Salt
Lake City, Utah and San Francisco, California.
ITEM 6. EXECUTIVE COMPENSATION
19
<PAGE> 20
The following table sets forth the annual compensation paid and accrued
by the Company during its last three fiscal years to the executive officers to
whom it paid in excess of $100,000, including cash and issuance of securities.
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
Annual Compensation Awards Payouts
----------------------------- --------------------- -------
Other
Name Annual Restricted Securities All Other
and Compen- Stock Underlying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) $ ($) SARs(#) ($) ($)
- -------- ---- ------ ---- ------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Garvin McMinn(1) 1998 162,154(2) n/a -- -- 650,000 -- --
Former Chairman 1997 81,346 n/a -- -- 150,000 -- --
of the Bd & CEO 1996 15,000 n/a -- -- -- -- --
Elwood Trotter, 1998 104,260 n/a -- -- 225,000 -- --
Vice President, 1997 97,200 n/a -- -- 25,000 -- --
Special Projects, 1996 90,070 n/a -- -- -- -- --
</TABLE>
- ----------
(1) Garvin McMinn resigned as officer and director effective June 4, 1999 and
entered into an amendment to his employment contract shifting his status
to that of a consultant over a one year term at a flat agreed fee of $5,000
per month, for its term.
(2) $81,000 was paid in stock through the issuance of 810,000 shares of Common
Stock of the Company.
20
<PAGE> 21
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realized Value
At Assumed Rates of Stock
Individual Price Appreciation for
Grants Option Term(a)
---------- --------------------------
No. Of Sec.% of Total
Underlying Options/SARs
Options/ Granted to Exercise
SARs Employees or Base
Granted In Fiscal Price Expiration
Name (#) Year ($/Sh) Date 5%($) 10%($)
- ---- ---------- ---------- -------- ----------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Garvin McMinn
Former Chairman
of the Board
& CEO 250,000 8.8% $0.15 3/5/03 $ 2,400 $12,825
400,000 14.1% $0.15 6/22/03 $21,680 $43,080
Elwood Trotter
Vice President
Special Projects 25,000 0.9% $0.15 3/5/03 $ 240 $ 1,283
200,000 7.1% $0.15 6/22/03 $10,840 $21,540
</TABLE>
- ----------
(a) These amounts, based on assumed appreciation rates of 5% and 10% rates
prescribed by the Securities and Exchange Commission rules are not intended
to forecast possible future appreciation, if any, of the Company's stock
price. The closing price at December 31, 1998 of the Company's Common Stock
was $0.24 per share.
The following table sets forth the number of shares covered by
exercisable and unexercisable options held by such executives on December 31,
1998, as adjusted for a blanket reduction in all exercise prices on all
outstanding options, to $0.15 per share exercise price per resolutions adopted
by the Board of Directors on June 4, 1999, and the aggregate gains that would
have been realized had these options been exercised on December 31, 1998, even
though these options were not exercised, and the unexercisable options could not
have been exercised, on December 31, 1998. The Company did not issue stock
appreciation rights.
21
<PAGE> 22
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying in-the-Money
Unexercised Options/SARs
Shares Options/SARs at at Fiscal Year End(a)
Acquired on Value FY-End(#) ($)
Name Exercise $ Realized $ Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Garvin McMinn -- -- 800,000 -- 72,000 --
Elwood Trotter -- -- 400,000 -- 36,000 --
</TABLE>
- --------------
(a) Market value of shares covered by in-the-money options on December 31, 1998,
less option exercise price. Options are in-the-money if the market value of
the shares covered thereby is greater than the option exercise price based
on the last trading day in 1998 of $0.24 per share at a $0.15 per share
exercise price.
THE COMPANY HAS NO LONG-TERM INCENTIVE PLANS AND NO AWARDS WERE MADE IN ITS LAST
FISCAL YEAR
22
<PAGE> 23
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. Wayne Case, a Director of the Company, also serves as the President
and Chairman of the Board of Schmitt Industries, Inc. Schmitt acquired during
fiscal 1998, and the first quarter of 1999, an aggregate of 13,757,156 Shares of
the Company's Common Stock, from another principal shareholder. Shares of the
Company's Common Stock, on a fully diluted basis, represent 14.8% of the
Company's outstanding Common Stock.
2. In December 1998, the Company issued 810,000 shares of its common
stock in settlement of $81,000 of debt owed to Garvin McMinn.
3. The Company issued 1,312,500 shares of common stock, through a
private placement, to Variety Investments, Ltd., a company owned by Don Farrell
(a former principal shareholder) during 1998. In December of 1998, 2,566,706
shares of common stock were issued in exchange for debt owed to Farrell
Financial in the amount of $282,887, a company owned by Don Farrell.
4. On June 4, 1999, the Board of Directors adopted a 1999 Non Qualified
Key Man Stock Option Plan. This Plan authorized the issuance of up to 5,000,000
options to acquire shares of the Company's common stock at an exercise price of
not less than 100% of fair market value at the date of grant, and with the
addition of such additional terms at the date of grant as the Board of
Directors determines.
5. The Company has written employment agreements with two individuals:
Elwood Trotter and Janet Maxey and a consulting agreement with Garvin McMinn.
Summaries of the provisions under the agreements follow.
Garvin McMinn resigned as officer and director effective June 4, 1999
and entered into a one year consulting agreement to provide consulting services
as needed at a flat agreed fee of $5,000 per month, for its term which expires
May 31, 2000.
Elwood Trotter has a one year employment contract that was amended June
1999 and expires May 31, 2000. He receives $8,000 per month as Vice-President
Special Projects. In the event of his termination, he will receive only the
compensation earned up to the date of termination.
Janet Maxey has a one year employment contract that was amended June
1999 and expires May 31, 2000. She receives $3,574 per month as Chief Financial
Officer. In the event of her termination, she will receive only the compensation
earned up to the date of termination.
6. Donald Ochacher was retained as President and Chief Executive
Officer of the Company on June 4, 1999 at a salary of $6,500 per month. In
addition, the Board of Directors authorized the issuance of 400,000 options to
acquire shares of the Company's common stock at an exercise price of $0.15 per
share and with other terms and conditions as provided in the Company's 1999
Non Qualified Key Man Stock Options Plan. No formal written agreement has been
entered into between the Company and Don Ochacher.
7. Escrowed Shares. In 1991, 29 stockholders of the Company entered into
an escrow agreement under which a total of approximately 4.5 million shares of
the Company's common stock were placed in escrow, in exchange for an assignment
by the 29 stockholders of certain fractional rights they held in the original
Air Box patents to the Company. None of these 29 stockholders currently hold
significant shares, nor are they officers or directors. The shares are entitled
to be released from escrow based on the performance of the Company as measured
by cash flow (as defined by the agreement) and certain other conditions. The
agreement specifies that the shares are to be released from escrow on a pro rata
basis of the Company as measured by the Cumulative Cash Flow of the Company
since January 1, 1990 not previously applied towards a release, divided by the
earn-out price of $0.468 CDN. Cash flow is defined as net income or loss before
tax, adjusted to add back expenses including depreciation, amortization of
goodwill, expensed research and development costs and any other amounts
permitted or required by the Vancouver Stock Exchange. The Cumulative Cash Flow
is, at any time, the aggregate cash flow up to that time from a date no earlier
than the Company's financial year-end immediately preceding, and no later than
the company's financial year-end immediately following, the date the issuance of
the performance shares is finally accepted by the Vancouver Stock Exchange, net
of any negative cash flow. At the time that this agreement was entered into, the
Company's common stock was traded on the Vancouver Stock Exchange. The Company
de-listed itself from the Vancouver Stock Exchange and the last day it traded on
the Vancouver Stock Exchange was July 22, 1998. While the shares are in escrow,
the stockholders have waived their rights to receive dividends or participate in
the distribution of assets upon a winding up of the Company. Any shares
remaining in escrow at December 31, 1999 are to be canceled by the Company. As
of December 31, 1998, all such shares remain in escrow. These shares are
included in the number of shares outstanding in each of the two years ended
1998. However, management believes, although it cannot assure, that the
conditions required in order to release the shares from escrow will not occur
and that all of the shares will ultimately be canceled and returned to the
Company.
8. The Board of Directors proposed to the Company's shareholders and
they adopted at its Annual Meeting held on June 4, 1999, resolutions giving the
Board of Directors the authority and discretion to reverse split the Company's
outstanding Common Stock on a 1 for 10 basis, if and at such time over the
succeeding 12 months, as the Board of Directors determines such a reverse split
would be in the interest of the Company. In such event, the authorized capital
stock would change to 50,000,000 shares of common stock authorized and each 10
shares of the outstanding common stock would automatically convert into a single
share of new common stock.
23
<PAGE> 24
7. The Value of Warrant Exercise Price. During 1998, 1997 and 1996, the
Company issued 10,112,500, 10,375,039 and 7,477,778 shares of Common Stock
through private placements. Each share issued had attached a share purchase
warrant to purchase one additional share of Common Stock for a period of two
years.
During 1998 and 1997, the Company issued a total of 5,200,000 and
2,250,000 shares at various per share prices upon the exercise of warrants by
various shareholders.
In November 1998, the Company's Board of Directors revalued 22,487,539
outstanding warrants based on the fair value of the stock, and amended the
exercise price to $0.15 per share up to the expiration date. From November 1998
to June 30, 1999, 13,150,000 Warrants have been exercised.
8. Conversion of Related Party Debt to Equity. The Company in 1997
converted a debt owed to Donald Farrell, an offshore former Director and through
his offshore company, formerly a principal shareholder of the Company, in the
amount of $126,000, 863,100 shares of the Company's Common Stock. In 1998,
additional fees of $31,500 were incurred, and all remaining outstanding debt was
settled in exchange for 2,566,706 shares of the Company's Common Stock issued in
an offshore transaction, at $0.10 per share.
In January 1997, the Company entered into an agreement with Variety
Investments, Ltd., an offshore affiliate of Donald Farrell, by which the Company
could borrow up to $150,000. Interest payments at 8.5% per annum were due
monthly, and any borrowings are secured by the Company's assets. The outstanding
loan payable became due and payable on June 1, 1998. In December 1998, the
Company issued a total of 435,289 shares of its Common Stock at a value of $0.10
per share, in full settlement of the outstanding debt plus accrued interest, in
an offshore transaction.
Other than discussed above, the Company has no knowledge of any
transaction or series of transactions, since January 1, 1998, or any currently
proposed transaction, or series of transactions, to which the Company was or is
to be party, in which the amount involved exceeds $60,000, involving management,
any person owning 10% or more of the common stock, or any member of the
immediate family of any of the foregoing persons.
Management believes that the transactions with related parties were on
terms as favorable as the Company would have obtained from unaffiliated parties.
ITEM 8. LEGAL PROCEEDINGS
A former employee of the Company is seeking a severance payment of
$101,500 alleging he is entitled to such a payment under terms of an employment
agreement, which was voluntarily terminated in November 1998. The parties have
agreed to arbitration scheduled to take place on a future date. The Company
established a liability for the entire amount on December 31, 1998.
24
<PAGE> 25
Aside from the above, there is no litigation outstanding, and management
is not aware of any potential claims which might be asserted.
25
<PAGE> 26
ITEM 9. MARKET PRICE AND DIVIDENDS
ON REGISTRANT'S COMMON STOCK
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock traded on the Vancouver Stock Exchange in
Vancouver, British Columbia, under the symbol "APT" until July 23, 1998. The
symbol was changed on September 1, 1992 commensurate with a name change. The
closing sales price as of July 22, 1998, the last day traded on the Vancouver
Stock Exchange, was $0.14US
The Company's Common Stock trades on the NASD Bulletin Board, under the
symbol "AIRP". The closing sales price on June 30, 1999 was $0.14.
Set forth below is the high and low bid information in U.S. dollars for
the Company's Common Stock for each full quarterly period within the two most
recent fiscal years and the first quarter of 1999. The information set forth
below was obtained from the OTC Bulletin Board and the Vancouver Stock Exchange,
the latter which was translated to U.S. dollars using the annual average
conversion rate.
<TABLE>
<CAPTION>
High Low
Period Bid Bid
------ --- ---
<S> <C> <C>
2nd Quarter 1999 $0.20 $0.13
1st Quarter 1999 0.26 0.17
4th Quarter 1998 0.29 0.07
3rd Quarter 1998 0.22 0.10
2nd Quarter 1998 0.24 0.12
1st Quarter 1998 0.26 0.11
4th Quarter 1997 0.46 0.20
3rd Quarter 1997 0.36 0.17
2nd Quarter 1997 0.22 0.16
1st Quarter 1997 0.23 0.15
</TABLE>
At June 30, 1999, the Company had approximately 585 Shareholders of
record.
The Company has not paid a dividend since its incorporation, and
management does not anticipate the Company will pay dividends in the near
future.
26
<PAGE> 27
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
<TABLE>
<CAPTION>
Class of Nature Amount
Amount Persons to of of Exemption
Dates Title Sold Whom Sold Consideration Consideration Claimed
- ----- ----- ---- --------- ------------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
6/11/99 Common 3,350,000 1 Offshore Cash $502,500 Reg S
Stock(3) Accredited
Investor
4/26/99 Common 1,600,000 1 Offshore Cash $240,000 Reg S
Stock(3) Accredited
Investor
1/28/99 Common 2,466,667 1 Offshore Cash $370,000 Rule 504
Stock(3) Accredited and/or
Investor Reg S
1/28/99 Common 33,333 1 Offshore Cash $5,000 Reg S
Stock Accredited
Investor
1/15/99 Common Stock 1,500,000 1 Offshore Cash $150,000 Reg S
& Warrants Accredited
(On a 1 for 1 Investors
basis)
1/15/99 Common Stock 500,000 1 Accredited Cash $68,000 Section 4(2)
& Warrants U.S. Investor
(On a 1 for 1
basis)
________________________________________________________________________________________________________________
12/21/ Common 4,200,000 1 Offshore Cash $630,000 Rule 504
98 Stock (3) Accredited
Investor
9/98 -
12/98 Common Stock 10,431,561 Ten Conversion of $1,066,572 Reg S
Offshore Debt to Equity
Accredited
Investors
9/98 Common Stock 208,387 1 Accredited Conversion of $25,000 Section 4(2)
U.S. Investor Debt to Equity
9/11/98 Common
Stock(3) 1,000,000 1 Offshore Cash $125,475 Reg S
Accredited
Investor
1/98 - Common Stock 8,112,500 4 Offshore Cash $985,657 Reg S
12/98 and Warrants Accredited
(On a 1 for 1 Investors
basis)
___________________________________________________________________________________________________________________
11/4/97 Common Stock 369,209 1 U.S. Cash $99,723 Section 4(2)
& Warrants(2) Accredited
(On a 1 for 1 Investor
basis)
5/97 - Common 2,250,000 3 Offshore Cash $365,117 Reg S
11/97 Stock(3) Accredited
Investors
1/97 - Common Stock 1,809,580 Three Conversion of $288,907 Reg S
7/97 Offshore Debt to Equity
Accredited
Investors
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1/97 - Options to 57,500 Four Bonus $9,539 Section 4(2)
12/97 Acquire Sophisticated Consideration
Common Stock Employees, all to Employees
Sophisticated
5/97 Convertible(1) 2,300,000 1 Offshore Cash $1,250,000 Reg S
Debenture Debenture Accredited
Investor
1/97 - Common Stock 10,005,830 4 Offshore Cash $834,645 Reg S
11/97 and Warrants(2) Accredited
(On a 1 for 1 Investors
basis
_________________________________________________________________________________________________________________
5/96 Common 7,477,778 8 Offshore Cash $1,235,638 Reg S
12/96 Shares (2) Accredited
and Warrants Investors
(On a 1 for 1
basis)
7/96 Common Stock 293,743 2 Offshore Conversion of $108,555 Reg S
Accredited Debt to Equity
Investors
</TABLE>
(1) 1,250,000 of the debt was converted on May 29, 1997, to 2,300,000 shares
of Common Stock plus 2,300,000 Warrants exercisable at $0.15 per share,
and expiring on May 29, 1999.
(2) Each Warrant provides the right to acquire one share of Common Stock at
$0.15, and has a two year term.
(3) Issued in connection with the exercise of Warrants previously placed
with offshore investors.
28
<PAGE> 29
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The Company has only one type of security, Common Stock with par value
equal to U.S.$0.001. There are 100,000,000 authorized shares of Common Stock of
which 70,714,087 shares were issued/outstanding as of December 31, 1998.
The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the holders of Capital
Stock. Holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
preferred stock that might be issued in the future. Holders of Common Stock have
no preemptive or subscription rights, and there are no redemption or conversion
rights with respect to such shares. All outstanding shares of Common Stock are
fully paid and nonassessable.
The Board of Directors proposed to the Company's shareholders and they
adopted at its Annual Meeting held on June 4, 1999, resolutions giving the Board
of Directors the authority and discretion to reverse split the Company's
outstanding Common Stock on a 1 for 10 basis, if and at such time over the
succeeding 12 months, as the Board of Directors determines such a reverse split
would be in the interest of the Company. In such event, the authorized capital
stock would change to 50,000,000 shares of common stock authorized and each 10
shares of the outstanding common stock would automatically convert into a single
share of new common stock.
29
<PAGE> 30
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law, under which the Company is
incorporated, gives a corporation the power to indemnify any of its directors,
officers, employees, or agents who are sued by reason of their service in such
capacity to the corporation provided that the director, officer, employee, or
agent acted in good faith and in a manner he believed to be in or not opposed to
the best interests of the corporation. With respect to any criminal action, he
must have had no reasonable cause to believe his conduct was unlawful.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING PERSONS OF
THE REGISTRANT PURSUANT TO THE FOREGOING PROVISIONS OR OTHERWISE, THE REGISTRANT
HAS BEEN ADVISED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION
SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS,
THEREFORE, UNENFORCEABLE, IN THE EVENT THAT A CLAIM FOR INDEMNIFICATION AGAINST
SUCH LIABILITIES (OTHER THAN THE PAYMENT BY THE REGISTRANT OF EXPENSES INCURRED
OR PAID BY A DIRECTOR, OFFICER OR CONTROLLING PERSON OF THE REGISTRANT IN THE
SUCCESSFUL DEFENSE OF ANY ACTION, SUIT OR PROCEEDING) IS ASSERTED BY SUCH
DIRECTOR, OFFICER OR CONTROLLING PERSON IN CONNECTION WITH THE SECURITIES BEING
REGISTERED, THE REGISTRANT WILL, UNLESS IN THE OPINION OF ITS COUNSEL THE MATTER
HAS BEEN SETTLED BY CONTROLLING PRECEDENT, SUBMIT TO A COURT OF APPROPRIATE
JURISDICTION THE QUESTION WHETHER SUCH INDEMNIFICATION BY IT IS AGAINST PUBLIC
POLICY AS EXPRESSED IN THE ACT AND WILL BE GOVERNED BY THE FINAL ADJUDICATION OF
SUCH ISSUE.
30
<PAGE> 31
ITEM 13. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
SEE INDEX AT (ITEM 15),
FINANCIAL STATEMENTS AND EXHIBITS
31
<PAGE> 32
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONTENTS
<TABLE>
<S> <C>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1998 and 1997 F-3
Statements of Operations for the years ended December 31, 1998,
1997 and 1996 F-5
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1998, 1997 and 1996 F-6
Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9
</TABLE>
<PAGE> 33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Air Packaging Technologies, Inc.
Valencia, California
We have audited the accompanying consolidated balance sheet of Air Packaging
Technologies, Inc. and Subsidiary as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Air Packaging
Technologies, Inc. and Subsidiary at December 31, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ BDO Seidman, LLP
Los Angeles, California
March 12, 1999
F-1
<PAGE> 34
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Board of Directors
Air Packaging Technologies, Inc.
Valencia, CA
We have audited the accompanying consolidated balance sheet of Air Packaging
Technologies, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years ended December 31, 1997 and 1996. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Air Packaging Tehnologies, Inc.
and subsidiaries as of December 31, 1997, and results of their operations and
their cash flows for the years ended December 31, 1997 and 1996 in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
that 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 3. The financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amounts and
classification of liabilities that might result from the outcome of this
uncertainty.
/S/HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
March 30, 1998
F-2
<PAGE> 35
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Note 8)
CURRENT ASSETS
Cash and cash equivalents $ 125,799 $ 59,462
Trade receivables, net of allowance for doubtful
accounts of $5,130 and $3,900 (Note 15) 96,852 34,566
Inventories (Note 4) 408,643 156,455
Advances and prepaids 75,134 4,662
- ----------------------------------------------------------------------------------------
Total current assets 706,428 255,145
PROPERTY AND EQUIPMENT, net (Note 5) 810,458 540,660
INTANGIBLE ASSETS, net (Note 6) 233,609 275,042
DEPOSITS 60,100 66,874
- ----------------------------------------------------------------------------------------
Total assets $1,810,595 $1,137,721
========================================================================================
</TABLE>
F-3
<PAGE> 36
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note 11) $ 275,882 $ 684,078
Accrued officers' salaries -- 1,232
Due to related party (Note 7) -- 160,462
Loan payable - related party (Note 8) -- 38,128
Current portion of notes payable (Note 10) -- 81,500
- ----------------------------------------------------------------------------------------------
Total current liabilities 275,882 965,400
- ----------------------------------------------------------------------------------------------
Other -- 39,500
- ----------------------------------------------------------------------------------------------
Total liabilities 275,882 1,004,900
- ----------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS' EQUITY (Notes 12 and 14)
Common stock, $.001 par value, 100,000,000 shares
authorized; 70,714,087 and 44,761,639 shares
issued and outstanding 70,714 44,762
Additional paid-in capital 19,420,979 16,321,392
Accumulated deficit (17,956,980) (16,233,333)
- ----------------------------------------------------------------------------------------------
Total stockholders' equity 1,534,713 132,821
- ----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,810,595 $ 1,137,721
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 37
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES (Note 15)
Sales $ 722,268 $ 340,624 $ 431,655
Sales of discontinued products -- -- 208,419
- --------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 722,268 340,624 640,074
COST OF SALES 566,837 592,544 705,707
- --------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) 155,431 (251,920) (65,633)
- --------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Sales, general and administrative 1,967,932 1,572,619 1,002,150
Research and development 7,371 3,322 47,010
- --------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,975,303 1,575,941 1,049,160
- --------------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (1,819,872) (1,827,861) (1,114,793)
- --------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (153,470) (17,934) (71,927)
Interest income 3,433 2,010 3,309
Other income 2,243 19,586 10,571
- --------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (147,794) 3,662 (58,047)
- --------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEM (1,967,666) (1,824,199) (1,172,840)
EXTRAORDINARY ITEM - GAIN ON
RESTRUCTURING OF PAYABLES (Note 11) 244,019 -- --
- --------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (1,723,647) $ (1,824,199) $ (1,172,840)
==========================================================================================================================
LOSS PER COMMON SHARE - BASIC AND DILUTED
Loss before extraordinary item $ (.04) $ (.06) $ (.06)
Extraordinary item $ .01 $ -- $ -
Net loss $ (.04) $ (.06) $ (.06)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC
AND DILUTED 45,066,084 30,693,624 19,313,760
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 38
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996 20,181,178 $20,181 $11,692,461 $(13,236,294) $(1,523,652)
Net cash proceeds from private
placements (Note 12) 7,477,778 7,478 1,009,235 -- 1,016,713
Debt for equity exchange
(Note 12) 310,564 311 110,659 -- 110,970
Net loss -- -- -- (1,172,840) (1,172,840)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 27,969,520 27,970 12,812,355 (14,409,134) (1,568,809)
Net cash proceeds from private
placements (Note 12) 10,375,039 10,376 1,580,343 -- 1,590,719
Debt for equity exchange
(Notes 7 and 12) 1,809,580 1,809 285,477 -- 287,286
Conversion of debenture (Note 9) 2,300,000 2,300 1,247,700 -- 1,250,000
Exercise of options (Note 12) 57,500 58 8,089 -- 8,147
Exercise of warrants (Note 12) 2,250,000 2,249 343,978 -- 346,227
Stock-based compensation (Note 12) -- -- 43,450 -- 43,450
Net loss -- -- -- (1,824,199) (1,824,199)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 44,761,639 44,762 16,321,392 (16,233,333) 132,821
Net cash proceeds from private
placements (Note 12) 10,112,500 10,113 914,480 -- 924,593
Debt for equity exchange
(Notes 7, 8, 10 and 12) 10,639,948 10,639 1,073,534 -- 1,084,173
Exercise of warrants (Notes 9 and 12) 5,200,000 5,200 738,427 -- 743,627
Stock-based compensation (Note 12) -- -- 247,073 -- 247,073
Revaluation of warrants (Note 12) -- -- 126,073 -- 126,073
Net loss -- -- -- (1,723,647) (1,723,647)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 70,714,087 $70,714 $19,420,979 $(17,956,980) $ 1,534,713
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 39
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,723,647) $(1,824,199) $(1,172,840)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 219,064 150,400 209,124
Provision for doubtful accounts -- 2,037 (13,559)
Inventory reserve -- 97,202 73,000
Stock-based compensation expense 247,073 43,450 --
Expense on revaluation of warrants 126,073 -- --
Extraordinary gain on restructuring of payables (244,019) -- --
Gain on sale of property and equipment -- (6,742) --
Increase (decrease) from changes in:
Trade receivables (62,286) 3,730 (10,237)
Inventories (252,188) (123,211) 132,231
Advances and prepaids (70,472) 356 1,548
Deposits 6,774 (51,594) 1,696
Accounts payable and accrued liabilities 159,306 171,981 (81,058)
Accrued officers' salaries (1,232) (24,794) (56,536)
Due to related party -- 126,000 118,560
Other liabilities (39,500) -- --
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,635,054) (1,435,384) (798,071)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment -- 7,000 --
Purchases of property and equipment (413,765) (528,193) (29,811)
Patent expenditures (33,664) (37,788) (39,113)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (447,429) (558,981) (68,924)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placements 924,593 1,590,719 1,016,713
Net proceeds from exercise of warrants 743,627 346,227 --
Net proceeds from exercise of options -- 8,147 --
Proceeds from loan payable - related party -- 38,128 --
Proceeds from notes payable 521,000 50,000 --
Payment on note payable (33,000) (31,000) (137,500)
Costs associated with debt conversion (7,400) -- --
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,148,820 2,002,221 879,213
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 66,337 7,856 12,218
CASH, at beginning of year 59,462 51,606 39,388
- ----------------------------------------------------------------------------------------------------------------------
CASH, at end of year $ 125,799 $ 59,462 $ 51,606
======================================================================================================================
</TABLE>
F-7
<PAGE> 40
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company paid interest in the amount of $0, $43,205 and $25,750 during 1998,
1997 and 1996, respectively. The Company paid income taxes in the amount of
$800, $800 and $2,400 during 1998, 1997 and 1996, respectively.
During 1997, $3,528 of interest was capitalized for construction of property and
equipment.
During 1998, 1997 and 1996, the Company exchanged $1,084,073, $287,286 and
$110,970, respectively, of debt for 10,639,948, 1,809,580 and 310,564 shares of
common stock (see Notes 7, 8, 10 and 12).
During 1997, the convertible debenture with a balance of $1,250,000 was
converted into 2,300,000 shares of common stock of the Company at the exercise
price of $0.54 per share and 2,300,000 detachable nontransferable warrants (see
Note 9).
During the years ended December 31, 1998 and 1997, the Company recorded $187,073
and $43,450, respectively, representing compensation in conjunction with stock
options (see Note 12).
During 1998, the Company issued 810,000 shares to an employee in satisfaction of
accrued compensation in the amount of $81,000 (Note 12).
During 1998, the Company's board of directors revalued 22,487,539 outstanding
warrants to their fair value. As a result, expense of $126,073 was recorded in
the current year (see Note 12).
================================================================================
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 41
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS Air Packaging Technologies, Inc. (the
"Company") and Subsidiary develops,
manufactures and distributes
inflatable commercial packaging
systems and inflatable gift wrap
products. During 1992, the Company
changed its name from Puff Pac
Industries, Inc. to Air Packaging
Technologies, Inc. As of December 31,
1995, the Company decided to focus on
its commercial packaging product line
and therefore wrote down inventory
relating to gift wrap products to its
liquidation value as of December 31,
1995 and completed liquidating the
inventory during 1996.
2. SUMMARY OF SIGNIFICANT PRINCIPLES OF CONSOLIDATION
ACCOUNTING
POLICIES The consolidated financial statements
include the accounts of Air Packaging
Technologies, Inc. and its
wholly-owned foreign subsidiary. All
significant intercompany balances and
transactions have been eliminated in
consolidation.
BASIS OF PRESENTATION
The consolidated financial statements
have been prepared in accordance with
United States generally accepted
accounting principles (GAAP).
REVENUE RECOGNITION
Revenue is recognized upon shipment of
products.
CASH EQUIVALENTS
For purposes of the statements of cash
flows, the Company considers all
highly liquid investments purchased
with an original maturity of three
months or less to be cash equivalents.
F-9
<PAGE> 42
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT PROPERTY AND EQUIPMENT
ACCOUNTING
POLICIES Property and equipment are stated at
(CONTINUED) cost. Depreciation of property and
equipment is calculated using the
straight-line method over the
estimated useful lives (ranging from 3
to 5 years) of the respective assets.
The cost of normal maintenance and
repairs is charged to operating
expenses as incurred. Material
expenditures which increase the life
of an asset are capitalized and
depreciated over the estimated
remaining useful life of the asset.
The cost of properties sold, or
otherwise disposed of, and the related
accumulated depreciation or
amortization are removed from the
accounts, and any gains or losses are
reflected in current operations.
INTANGIBLE ASSETS
Patents, trademarks, and rights to
patent and trademark royalties are
carried at cost less accumulated
amortization which is calculated on a
straight-line basis over ten years,
the estimated useful lives of the
assets. The Company periodically
reviews intangible assets for
impairment where the fair value is
less than the carrying value.
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. Under SFAS
109, the effect on deferred income
taxes of a change in tax rates is
recognized in income in the period
that includes the enactment date.
F-10
<PAGE> 43
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT TRANSLATION OF FOREIGN CURRENCIES
ACCOUNTING
POLICIES The reporting currency for the Company
(CONTINUED) is the United States dollar. All
amounts in the accompanying financial
statements and notes are in United
States dollars.
Non-U.S. assets and liabilities are
translated into U.S. dollars using the
year-end exchange rates except for
prepayments, property, other long-term
assets and stockholders' equity
accounts, which are translated at
rates in effect when these assets were
acquired. Revenues and expenses are
translated at average rates during the
year. Net translation gains (losses)
of approximately $(1,250), $700 and
$1,900 have been charged to operations
during 1998, 1997 and 1996,
respectively.
INVENTORY
Inventory, which consists of raw
material, work in progress, and
finished goods (which is comprised of
material cost, production and
packaging labor and overhead), is
valued at the lower of cost or market.
Cost is determined by the first-in,
first-out (FIFO) method. Management
periodically reviews the utility of
the Company's inventory and adjusts
the related reserves for slow
movement and/or obsolescence.
IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting
Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of,"
established guidelines regarding when
impairment losses on long-lived
assets, which include plant and
equipment and certain identifiable
intangible assets, should be
recognized and how impairment losses
should be measured. The Company
periodically reviews such assets for
possible impairments and expected
losses, if any, are recorded
currently.
STOCK-BASED COMPENSATION
The Company adopted Statement of
Financial Accounting Standards No.
123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), as of
January 1, 1996, which establishes a
fair value method of accounting for
stock-based compensation plans. In
accordance with SFAS 123, the Company
has chosen to continue to account for
stock-based compensation utilizing the
intrinsic value method prescribed in
APB 25. Accordingly, compensation cost
for stock options is measured as the
excess, if any, of the fair market
price of the Company's stock at the
date of grant over the amount an
employee must pay to acquire the
stock.
F-11
<PAGE> 44
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT Also, in accordance with SFAS 123, the
ACCOUNTING POLICIES Company has provided footnote
(CONTINUED) disclosure with respect to stock-based
employee compensation. The cost of
stock-based employee compensation is
measured at the grant date based on
the value of the award and is
recognized over the service period.
The value of the stock-based award is
determined using a pricing model
whereby compensation cost is the
excess of the fair value of the stock
as determined by the model at grant
date or other measurement date over
the amount an employee must pay to
acquire the stock.
CONCENTRATIONS OF CREDIT RISK
Credit risk represents the accounting
loss that would be recognized at the
reporting date if counterparties
failed completely to perform as
contracted. Concentrations of credit
risk (whether on or off balance sheet)
that arise from financial instruments
exist for groups of customers or
groups of counterparties when they
have similar economic characteristics
that would cause their ability to meet
contractual obligations to be
similarly effected by changes in
economic or other conditions described
below. In accordance with FASB
Statement No. 105, "Disclosure of
Information about Financial
Instruments with Off-Balance-Sheet
Risk and Financial Instruments with
Concentrations of Credit Risk," the
credit risk amounts shown in Note 15
do not take into account the value of
any collateral or security.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values for
financial instruments under Statement
of Financial Accounting Standards No.
107, "Disclosures about Fair Value of
Financial Instruments," are determined
at discrete points in time based on
relevant market information. These
estimates involve uncertainties and
cannot be determined with precision.
The estimated fair values of the
Company's financial instruments, which
includes all cash, accounts
receivables, accounts payable,
long-term debt, and other debt,
approximates the carrying value in the
consolidated financial statements at
December 31, 1998 and 1997 as a result
of their short term nature, or due to
the interest rates approximating the
Company's effective borrowing rates.
F-12
<PAGE> 45
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT EARNINGS (LOSS) PER SHARE
ACCOUNTING
POLICIES The Company adopted Statement of
(CONTINUED) Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share,"
during 1997. SFAS 128 requires
presentation of basic and diluted
earnings per share. Basic earnings
(loss) per share is computed by
dividing income (loss) available to
common shareholders by the weighted
average number of common shares
outstanding for the reporting period.
Diluted earnings per share reflects
the potential dilution that could
occur if securities or other
contracts, such as stock options, to
issue common stock were exercised or
converted into common stock, but does
not include the impact of these
dilutive securities that would be
antidilutive. During the three years
ended December 31, 1998, these
dilutive securities were antidilutive.
All prior period weighted average and
per share information had no effect on
the amounts presented in accordance
with SFAS 128.
Options and warrants to purchase
22,157,539, 21,700,317 and 9,278,611
shares were outstanding during the
years ended 1998, 1997 and 1996,
respectively, but were not included in
the computation of diluted loss per
common share because the effect would
be antidilutive.
The Company has 4,460,423 shares in
escrow to be released upon the
satisfaction of certain conditions,
and are included in the number of
shares outstanding in each of the two
years ended 1998. However, these
shares have been excluded from the
computation of basic and diluted loss
per share for each of the three years
ended 1998 as the necessary conditions
have not been satisfied (see Note 14).
F-13
<PAGE> 46
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT COMPREHENSIVE INCOME
ACCOUNTING
POLICIES During the year ended December 31,
(CONTINUED) 1998, the Company adopted Statement of
Financial Accounting Standards No.
130, "Reporting Comprehensive Income,"
("SFAS 130") issued by the FASB as it
is effective for financial standards
with fiscal years beginning after
December 15, 1997. SFAS 130
establishes standards for reporting
and display of comprehensive income
and its components in a full set of
general-purpose financial statements.
Comprehensive income is comprised of
net income and all changes to
stockholders' equity except those due
to investments by owners and
distribution to owners. The Company
does not have any components of
comprehensive income for each of the
years ended December 31, 1998, 1997
and 1996. Adoption of SFAS 130 did not
have an impact on the Company's
financial position, results of
operations and cash flows.
SEGMENTS OF AN ENTERPRISE
During the year ended December 31,
1998, the Company adopted Statement of
Financial Accounting Standards No.
131, "Disclosures about Segments of an
Enterprise and Related Information,"
("SFAS 131") issued by the FASB and is
effective for financial statements
with fiscal years beginning after
December 15, 1997. SFAS 131 requires
that public companies report certain
information about operating segments,
products, services and geographical
areas in which they operate. At
December 31, 1998, the Company did not
report any segment information as
operations and business activity are
considered one unit. Adoption of SFAS
131 did not have an impact on the
Company's financial position, results
of operations and cash flows.
USE OF ESTIMATES IN THE PREPARATION OF
FINANCIAL STATEMENTS
The preparation of the Company's
consolidated financial statements in
conformity with generally accepted
accounting principles requires the
Company's management to make estimates
and assumptions that affect the
reported amounts of assets and
liabilities and disclosure of
contingent assets and liabilities at
the date of the financial statements
and the reported amounts of revenues
and expenses during the reporting
period. Actual results could differ
from those estimates.
F-14
<PAGE> 47
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT NEW ACCOUNTING PRONOUNCEMENTS
ACCOUNTING
POLICIES Statement of Financial Accounting
(CONTINUED) Standards No. 132 ("SFAS 132"),
"Employers' Disclosures about Pensions
and Other Postretirement Benefits,"
issued by the Financial Accounting
Standards Board is effective for
financial statements with fiscal years
beginning after December 15, 1997.
This statement revises employers'
disclosures about pension and other
postretirement benefit plans. It does
not change the measurement or
recognition of those plans. Adoption
of SFAS 132 did not have an impact on
its financial position, results of
operations and cash flows.
Statement of Financial Accounting
Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments
and Hedging Activities," issued by the
Financial Accounting Standards Board
is effective for fiscal years
beginning after June 15, 1999. SFAS
133 requires companies to recognize
all derivative contracts as either
assets or liabilities in the balance
sheet and to measure them at fair
value. If certain conditions are met,
a derivative may be specifically
designated as a hedge, the objective
of which is to match the timing of
gain or loss recognition on the
hedging derivative with the
recognition of (i) the changes in the
fair value of the hedged asset or
liability that are attributable to the
hedged risk or (ii) the earnings
effect of the hedged forecasted
transaction. For a derivative not
designated as a hedging instrument,
the gain or loss is recognized in
income in the period of change. The
Company does not expect adoption of
SFAS 133 to have an effect on its
financial position, or results of
operations and any effect will be
limited to the form and content of its
disclosures.
RECLASSIFICATIONS
Certain reclassifications have been
made to the prior year statements to
conform to the 1998 presentation. Such
reclassifications had no effect on the
previously reported net loss.
3. LIQUIDITY AND 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
assets and the satisfaction of
liabilities in the normal course of
business. However, there is
substantial doubt about the Company's
ability to
F-15
<PAGE> 48
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LIQUIDITY AND GOING CONCERN continue as a going concern because of
(CONTINUED) the magnitude of its losses during
the past three years, ($1,723,647),
($1,824,199) and ($1,172,840) in 1998,
1997 and 1996, and an accumulated
deficit of ($17,956,980) at December
31, 1998. The Company's continued
existence is dependent upon its
ability to raise substantial capital,
to increase sales, to significantly
improve operations, and ultimately
become profitable.
The Company believes that future
investments and certain sales-related
efforts will provide sufficient cash
flow for it to continue as a going
concern in its present form. However,
there can be no assurance that the
Company will achieve such results.
Accordingly, the consolidated
financial statements do not include
any adjustments related to the
recoverability and classification of
recorded asset amounts or the amount
and classification of liabilities or
any other adjustments that might be
necessary should the Company be unable
to continue as a going concern.
4. INVENTORIES Inventories consist of the following
at:
<TABLE>
<CAPTION>
December 31, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $350,147 $118,009
Work-in-process 23,703 14,974
Finished goods 34,793 23,472
- --------------------------------------------------------------------------------
$408,643 $156,455
================================================================================
</TABLE>
The above balances are presented net
of total inventory reserves of
approximately $63,000 and $154,000 in
1998 and 1997, respectively.
Allowance activity is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1997 $ 362,000
1997 Write-offs (305,000)
Additional reserve recorded 97,000
- -------------------------------------------------------------------------------
Balance at December 31, 1997 154,000
1998 Write-offs (91,000)
- -------------------------------------------------------------------------------
Balance at December 31, 1998 63,000
===============================================================================
</TABLE>
In 1997 and 1996, the Company wrote
down inventory by approximately
$97,000 and $73,000, respectively, to
reflect lower of cost or market
pricing.
F-16
<PAGE> 49
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY Property and equipment consist of the
AND EQUIPMENT following:
<TABLE>
<CAPTION>
December 31, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing equipment $1,639,469 $ 979,028
Dies and molds 166,866 153,399
Computer equipment 62,673 63,782
Quality control lab 102,035 --
Office equipment 100,237 56,654
Vehicles 12,730 12,730
Construction in Progress -- 404,652
- --------------------------------------------------------------------------------
2,084,010 1,670,245
Less accumulated depreciation 1,273,552 1,129,585
- --------------------------------------------------------------------------------
$ 810,458 $ 540,660
================================================================================
</TABLE>
Depreciation and amortization expense
for property and equipment charged to
operations for the years ended
December 31, 1998, 1997 and 1996 was
$143,967, $80,160 and $121,854,
respectively.
6. INTANGIBLE ASSETS Intangible assets consist of the
following at:
<TABLE>
<CAPTION>
December 31, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Patents $657,142 $623,478
Trademarks 3,157 3,157
Rights to patent and trademark royalties 85,146 85,146
- --------------------------------------------------------------------------------
745,445 711,781
Less accumulated amortization 511,836 436,739
- --------------------------------------------------------------------------------
$233,609 $275,042
================================================================================
</TABLE>
Amortization expense for intangible
assets charged to operations for the
years ended December 31, 1998, 1997
and 1996 was $75,097, $70,240 and
$87,240, respectively.
F-17
<PAGE> 50
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DUE TO The amount due to related party
RELATED PARTY consists of fees payable to,
and non-interest bearing advances
from, a former director. During 1997,
$126,000 of the outstanding balance
was converted to 863,100 shares of
common stock. In 1998, additional fees
of $31,500 were incurred, and all
remaining outstanding debt was settled
in exchange for 2,566,706 shares at
$0.10 per share.
8. LOAN PAYABLE - RELATED PARTY In January 1997, the Company entered
into an agreement with an affiliate of
a related party by which the Company
can borrow up to $150,000. Interest
payments at 8.5% per annum are due
monthly, and any borrowings are
secured by the Company's assets. The
outstanding loan payable became due
and payable on June 1, 1998. In
December 1998, the Company issued
435,289 shares at a value of $0.10 per
share in full settlement of the
outstanding debt plus accrued
interest.
9. CONVERTIBLE SUBORDINATED In 1991, the Company issued a
DEBENTURE $1,500,000 convertible subordinated
debenture due October 31, 1996. In
February 1994, a principal payment of
$250,000 was made. On May 15, 1996
this debenture was modified and
extended to October 31, 1997.
On May 29, 1997, the debenture was
converted into 2,300,000 shares of
common stock of the Company and
2,300,000 detachable nontransferable
warrants. Two warrants entitle the
lender to purchase one additional
common share of the Company. The
exercise price of each warrant is
$0.54 for the first year ended May 29,
1998 and $0.62 for the second year
ended May 29, 1999.
In November 1998, the Company's board
of directors amended the warrants to
be convertible on a one for one basis
at a price of $0.15 per share up to
the expiration date (see Note 12).
In December 1998, the lender exercised
the entire 2,300,000 warrants at the
amended price of $0.15 per share.
F-18
<PAGE> 51
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. NOTES PAYABLE Notes payable consist of the
following:
<TABLE>
<CAPTION>
December 31, 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
$100,000 unsecured, non-interest bearing
installment note payable to an
insurance company with monthly
payments of $5,000 through December
10, 1997, principal is past due $ -- $ 31,500
$50,000 unsecured note bearing interest
at 8%, due May 1998 -- 50,000
- ----------------------------------------------------------------------
-- 81,500
Less current portion -- (81,500
- ----------------------------------------------------------------------
$ -- $ --
======================================================================
</TABLE>
During 1998, the Company paid $23,000
in full settlement of the outstanding
installment note payable and
recognized a gain of $8,500, which is
included in "Extraordinary Item" in
the consolidated statements of
operations (see Note 11).
In December 1998, the Company issued
568,000 shares at a value of $0.10 per
share in full settlement of the
interest-bearing note payable, plus
accrued interest (see Note 12).
11. EXTRAORDINARY During the fourth quarter of 1998,
ITEM the Company paid approximately
$190,000 in full settlement of various
accounts payables and other accrued
expenses totaling approximately
$434,000 and recognized an
extraordinary gain of $244,000, or
$0.01 per share. There was no income
tax effect due to the Company's
current year net loss and related
valuation allowance.
The Company did not recognize any
gains or losses on the issuance of
stock in full settlement of debts as
described in Notes 7, 8, 10 and 12 as
the fair value of the equity interest
granted was equivalent to the carrying
amount of the settled debts.
F-19
<PAGE> 52
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY COMMON STOCK
During 1998, the Company completed six
private placements for a total of
10,112,500 shares and received total
net proceeds of approximately
$925,000, net of expenses of $81,423.
During 1997 and 1996, the Company
issued 10,375,039 and 7,477,778 shares
of common stock through private
placements, receiving net proceeds of
approximately $1,600,000 and
$1,000,000 after expenses.
In 1998, 1997 and 1996, the Company
issued a total of 10,639,948,
1,809,100 and 310,564 common shares,
which includes shares also disclosed
in Notes 7, 8 and 10, in full
settlement of various debts amounting
to approximately $1,084,000, $287,000
and $111,000. The Company did not
recognize any gains or losses on the
conversion as the fair value of the
equity interest granted was equivalent
to the carrying amount of the settled
debts.
STOCK OPTIONS
The Company has issued options to
purchase common stock to certain
officers, employees and others under
various stock option plans for
services performed and to be
performed. Some options require
continued employment.
Option activity is as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
- -----------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1996 1,252,500 $ 0.22
Granted 565,000 0.25
Expired/canceled (850,000) 0.23
- -----------------------------------------------------------------------
Outstanding at December 31, 1996 967,500 0.23
Granted 2,977,500 0.17
Exercised (57,500) 0.14
Expired/canceled (90,000) 0.27
- -----------------------------------------------------------------------
Outstanding at December 31, 1997 3,797,500 0.18
Granted 2,830,000 0.18
Exercised -- --
Expired/canceled (2,757,500) 0.16
- -----------------------------------------------------------------------
Outstanding at December 31, 1998 3,870,000 $ 0.19
=======================================================================
Exercisable at December 31, 1998 3,515,000 $ 0.19
=======================================================================
</TABLE>
F-20
<PAGE> 53
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY STOCK OPTIONS (Continued)
(CONTINUED)
Information relating to stock options
at December 31, 1998 summarized by
exercise price are as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------- ------------------------
Weighted Average Weighted Average
----------------------------------- ------------------------
Remaining
Exercise Price Life Exercise Exercise
Per Share Shares (Months) Price Shares Price
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.15 1,400,000 59 $ 0.15 1,400,000 $ 0.15
$ 0.16 225,000 43 $ 0.16 225,000 $ 0.16
$ 0.18 405,000 42 $ 0.18 50,000 $ 0.18
$ 0.19 32,500 41 $ 0.19 32,500 $ 0.19
$ 0.20 700,000 48 $ 0.20 700,000 $ 0.20
$ 0.21 730,000 54 $ 0.21 730,000 $ 0.21
$ 0.22 82,500 25 $ 0.22 82,500 $ 0.22
$ 0.23 180,000 50 $ 0.23 180,000 $ 0.23
$ 0.26 15,000 24 $ 0.26 15,000 $ 0.26
$ 0.39 100,000 47 $ 0.39 100,000 $ 0.39
- ---------------------------------------------------------------------------------
3,870,000 52 $ 0.19 3,515,000 $ 0.19
=================================================================================
</TABLE>
PRO FORMA INFORMATION
In accordance with SFAS 123 and
described in Note 2, the Company
continues to account for stock-based
compensation utilizing the intrinsic
value method prescribed by APB 25. Had
compensation cost for stock options
issued to employees been determined
based on the fair value at grant dates
consistent with the method of SFAS
123, the Company's net loss and net
loss per share would have increased to
the pro forma amounts presented below:
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss, as reported $ (1,723,647) $ (1,824,199) $ (1,172,840)
Net loss, pro forma (1,900,179) (2,265,081) (1,207,016)
Loss per common share - basic and
diluted, as reported $ (.04) $ (.06) $ (.06)
Loss per common share - basic and
diluted, pro forma $ (.04) $ (.07) $ (.06)
</TABLE>
F-21
<PAGE> 54
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY The fair value of each option is
(CONTINUED) estimated on the date of grant using
the Black-Scholes option-pricing model
using the following weighted-average
assumptions: expected volatility of
106%, 130% and 149% in 1998, 1997 and
1996, respectively, an expected life
of five years in 1998 and two years in
1997 and 1996, no dividends would be
declared during the expected term of
the options, risk-free interest rate
of 5.01%, 6.1% and 5.3% for 1998, 1997
and 1996, respectively.
The weighted average fair value of
stock options granted to employees
during 1998, 1997 and 1996 was $0.16,
$0.16 and $0.21, respectively.
WARRANTS
During 1998, 1997 and 1996 the Company
issued 10,112,500, 10,375,039 and
7,477,778 shares of common stock
through private placements. Each share
issued had attached a share purchase
warrant to purchase one additional
share of common stock for a period of
two years.
During 1998 and 1997, The Company
issued a total of 5,200,000 and
2,250,000 shares at various per share
prices upon the exercise of warrants
by various shareholders.
In November 1998, the Company's board
of directors revalued 22,487,539
outstanding warrants based on the fair
value of the stock, and amended the
exercise price to $0.15 per share up
to the expiration date. As a result,
interest expense of $126,073 was
recognized in the current year.
Outstanding and exercisable warrants
at December 31, 1998 to acquire the
Company's stock, held primarily by
existing stockholders, are as follows:
<TABLE>
<CAPTION>
Warrants Exercise Price Expiration Date
- ---------------------------------------------------------
<S> <C> <C>
276,053 $0.15 July 9, 1999
2,500,000 $0.15 September 18, 1999
1,529,777 $0.15 September 21, 1999
3,500,000 $0.15 October 28, 1999
369,209 $0.15 November 4, 1999
1,312,500 $0.15 January 28, 2000
4,000,000 $0.15 March 25, 2000
500,000 $0.15 October 3, 2000
800,000 $0.15 October 3, 2000
1,500,000 $0.15 October 3, 2000
2,000,000 $0.15 October 3, 2000
</TABLE>
F-22
<PAGE> 55
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES Income taxes are accounted for in
accordance with SFAS No. 109. At
December 31, 1998, the Company has a
net operating loss carryforward (NOL)
of approximately $16,400,000 for
federal tax purposes. At December 31,
1998, the Company has a deferred tax
asset of approximately $6,800,000,
which primarily relates 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 asset will be realized.
The NOLs expire as follows:
<TABLE>
<CAPTION>
Year ending December 31,
- ------------------------------------------------------------
<S> <C>
2007 $ 5,400,000
2008 2,000,000
2009 2,300,000
2010 1,400,000
2011 1,700,000
2012 2,200,000
2018 1,400,000
- ------------------------------------------------------------
Total $ 16,400,000
============================================================
</TABLE>
The Company's net operating loss
carryforwards may be limited due to
ownership changes as defined under
Section 382 of the Internal Revenue
Code of 1986.
14. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS
Minimum lease commitments under
noncancelable operating lease
agreements are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
- ----------------------------------------------------
<S> <C>
1999 $ 125,482
2000 54,384
2001 3,656
2002 2,438
- ----------------------------------------------------
Total $ 185,960
====================================================
</TABLE>
Rent expense was $142,987, $140,788
and $140,800 for the years ended
December 31, 1998, 1997 and 1996,
respectively.
F-23
<PAGE> 56
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. COMMITMENTS AND CONTINGENCIES ROYALTY AGREEMENTS
(CONTINUED)
The Company is required to pay
royalties related to certain patents
and trademarks. Total expense related
to these agreements was $3,991 in
1998, $1,726 in 1997 and $7,674 in
1996.
ESCROW AGREEMENT
In 1991, certain stockholders of the
Company entered into an escrow
agreement under which a total of
approximately 4.5 million shares of
the Company's common stock was placed
in escrow. The shares are entitled to
be released from escrow based on the
performance of the Company as measured
by cash flow (as defined by the
agreement) and certain other
conditions. While the shares are in
escrow, the stockholders waive their
rights to receive dividends or
participate in the distribution of
assets upon a winding up of the
Company. Any shares remaining in
escrow at December 31, 1999 will be
canceled by the Company. As of
December 31, 1998, all such shares
remain in escrow. These shares are
included in the number of shares
outstanding in each of the two years
ended 1998. However, these shares have
been excluded from the computation of
basic and diluted loss per share for
each of the three years ended 1998 as
the necessary conditions have not yet
been satisfied.
EMPLOYMENT AGREEMENTS
In August 1994, the Company entered
into an employment agreement with one
employee under which the Company is
obligated to pay 50 percent of base
salary plus insurance benefits for a
period of two years in case of
permanent disability. The annual base
salary is $72,000 plus 1 percent of
quarterly gross sales payables, in
addition to other benefits. In the
event the Company terminates the
agreement without cause, it will be
required to pay up to 15 months
compensation. In July 1998, the
Company entered into two 5-year
employment agreements with employees
of the Company. These agreements are
subject to the same conditions as
described above, except that severance
payments may be as much as up to 18
months' compensation. The current
salaries under these agreements are
$168,000 and $43,000 per annum for
each employee.
F-24
<PAGE> 57
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. COMMITMENTS AND CONTINGENCIES POTENTIAL LIABILITY
(CONTINUED)
A former employee of the Company is
seeking a severance payment of
$101,500 per terms of his employment
agreement, which was voluntarily
terminated in November 1998. The
parties have agreed to arbitration
scheduled to take place on a future
date. The Company has established a
liability for the entire amount at
December 31, 1998.
15. SIGNIFICANT CONCENTRATIONS The Company operates primarily in one
OF CREDIT RISK, industry segment: developing,
MAJOR CUSTOMERS manufacturing and distributing of
AND OTHER RISKS inflatable commercial packaging
AND UNCERTAINTIES systems. The Company's sales are
primarily to companies producing
Silicon wafers and computer chips in
California, Arizona, Oregon, Colorado
and Texas in the United States,
Denmark and the U.K. in Europe, and
Singapore in Asia. Sales to
unaffiliated customers which represent
more than 10% of the Company's net
sales for 1998, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
- -------------------------------------------------------------
<S> <C> <C> <C>
Customer
A 15% 22% --
B -- 13% --
C 31% --% 13%
D 18% -- --
</TABLE>
The following tables set forth below
information regarding the Company's
foreign operations:
Sales to Unaffiliated Customers
<TABLE>
<CAPTION>
YEAR
------------------------------------------
1998 1997 1996(1)
---------- ---------- -----------
<S> <C> <C> <C>
United States $366,177 $295,116 $547,391
Europe $223,619 $ 45,508 $ 80,629
Asia $132,472 -- $ 12,054
-------- -------- --------
$722,268 $340,624 $640,074
======== ======== ========
</TABLE>
- --------------
(1) In 1996, a discontinued inventory of Puff Pac Gift Wrap was sold in
connection with the discontinuance of this product, resulting in
nonrecurring sales of $208,419, which are included in this figure.
Operating Loss
<TABLE>
<CAPTION>
YEAR
------------------------------------------
1998 1997 1996(1)
---------- ----------- -----------
<S> <C> <C> <C>
United States $ (928,135) $(1,590,239) $ (947,574)
Europe $ (564,160) $ (237,622) $ (144,923)
Asia $ (327,577) -- $ (22,296)
----------- ----------- -----------
$(1,819,872) $(1,827,861) $(1,114,793)
=========== =========== ===========
</TABLE>
All Identifiable Assets of the Company are located within the U.S.
- --------------
(1) In 1996, the entire inventory of Puff Pac Gift Wrap was sold in
connection with the discontinuance of this product, resulting in
nonrecurring sales of $208,419, which are included in this figure.
Financial instruments that subject the
Company to credit risk consist
primarily of accounts receivable. The
Company frequently makes large credit
sales to customers. At December 31,
1998 and 1997, approximately $69,400
or 72% and $24,700 or 64% of the
Company's accounts receivable were due
from three customers, respectively.
16. RELATED PARTY TRANSACTIONS The Company issued 4,758,330 and
1,277,778 shares of common stock to a
related party through a private
placement for net proceeds of $635,769
and $200,242 during 1997 and 1996,
respectively (See also Note 7).
During 1997, the Company issued
3,500,000 shares of common stock to an
affiliate of a related party through a
private placement for net proceeds of
$548,742 (See also Note 8).
F-25
<PAGE> 58
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. RELATED PARTY TRANSACTIONS During 1997 and 1996, the Company was
(CONTINUED) billed $126,000 for fees due to a
related party related to private
placements (See Note 7).
During 1998, the Company issued
810,000 shares of its common stock to
the Chief Executive Officer in
exchange for salary expenses of
$81,000. The transaction was based on
the fair value of the stock on the
date the services were rendered.
The President and Chairman of the
Board of Schmitt Industries, Inc., who
is also a director of the company,
acquired an aggregate of 12,080,000
shares of common stock in 1998 from
another principal shareholder.
17. RECONCILIATION TO CANADIAN INCOME TAXES
GAAP
Under Canadian GAAP, income taxes are
accounted for using the deferral
method. The Company's financial
statements are presented using the
liability method in accordance with
SFAS 109. There would be no material
differences in these financial
statements if the deferral method were
adopted.
STOCK-BASED COMPENSATION
Canadian GAAP does not specifically
address recognition of compensation
related to stock options, however, in
practice, no recognition is usually
given. The Company's financial
statements are presented using the
intrinsic value method and include pro
forma disclosures using the fair value
method in accordance with SFAS 123.
There would be no material differences
in these financial statements, except
that the pro forma information in Note
10 would not be included, if no
recognition of compensation were given
to stock options.
18. SUBSEQUENT EVENTS Subsequent to year end, the Company
issued 2,500,000 shares at $0.15 per
share upon the exercise of warrants by
a shareholder.
F-26
<PAGE> 59
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3(i) Articles of Incorporation
3(ii) Bylaws
4 Instruments defining rights of security holders, including
indentures.
None.
9 Voting Trust Agreement
None
10 Material Contracts
(a) Lease Agreement for plant facilities
(b) 1. Employment Agreement with Garvin McMinn
(b) 2. Amendment to Employment Contract with Garvin McMinn
(c) 1. Employment Contract with CFO Janet Maxey
(c) 2. Amendment to Employment Contract with CFO Janet
Maxey
(d) 1. Senior Executive Contract with Vice President
Elwood Trotter
(d) 2. Amendment to Employment Contract with Vice
President Elwood Trotter
(e) Form of Option Certificate delivered to certain Key
Employees in connection with the Grant of
Individual Options to said Employees
(f) Patent Royalty Agreement between Puff Pac, Ltd.
(the Company's predecessor), and Puff Pac People.
(g) Escrow Agreement
(h) 1999 Non-Qualified Key Man Stock Option Plan
16 Letter re Change in Certifying Accountant
21 Subsidiaries of the Registrant
Name Domicile
---- --------
Puff Pac Industries
(Canada) Inc. (inactive) Canada
27 Financial Data Schedule
<PAGE> 60
ITEM 14. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company appointed BDO Seidman, LLP, as independent accountants and
dismissed its former accountants, Hein + Associates LLP on November 30, 1998.
Both the former auditor's report and the current auditor's report contain a
going concern qualification. There were no other disclaimers or qualifications.
The decision to change accountants was made by the Company's Board of
Directors.
During the Company's two most recent fiscal years, and any subsequent
interim period preceding such resignation of its former outside accountants,
there were no disagreements with such former accountant on any matter.
The Company did not consult with BDO Seidman, LLP regarding the
application of accounting principles to a specified transaction or the type of
audit opinion that might be rendered or any other accounting, auditing or
financial reporting issues during the Company's two most recent fiscal years and
any subsequent interim period prior to engaging BDO Seidman, LLP.
32
<PAGE> 61
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Reports of Independent Certified Public Accountants
Consolidated Financial Statements
Balance Sheets as of December 31, 1998 and 1997;
Statement of Operations for the years ended December 31,
1998, 1997 and 1996; Statement of Stockholders' Equity for
the years ended December 31, 1998, 1997 and 1996;
Statement of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
(b) Exhibits Required by Item 601 of Regulation SK.
3(i) Articles of Incorporation
3(ii) Bylaws
4 Instruments defining rights of security holders, including
indentures.
None.
9 Voting Trust Agreement
None
10 Material Contracts
(a) Lease Agreement for plant facilities
(b) 1. Employment Agreement with Garvin McMinn
(b) 2. Amendment to Employment Contract with Garvin McMinn
(c) 1. Employment Contract with CFO Janet Maxey
(c) 2. Amendment to Employment Contract with CFO Janet
Maxey
(d) 1. Senior Executive Contract with Vice President
Elwood Trotter
(d) 2. Amendment to Employment Contract with Vice
President Elwood Trotter
(e) Form of Option Certificate delivered to certain Key
Employees in connection with the Grant of
Individual Options to said Employees
(f) Patent Royalty Agreement between Puff Pac, Ltd.
(the Company's predecessor), and Puff Pac People.
(g) Escrow Agreement
(h) 1999 Non-Qualified Key Man Stock Option Plan
16 Letter re Change in Certifying Accountant
33
<PAGE> 62
21 Subsidiaries of the Registrant
Name Domicile
---- --------
Puff Pac Industries
(Canada) Inc. (inactive) Canada
27 Financial Data Schedule
34
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AIR PACKAGING
TECHNOLOGIES, INC.
/s/ DONALD OCHACHER
----------------------------------------------
Donald Ochacher
Date: July 22, 1999 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ DONALD OCHACHER Chairman of the Board,
- --------------------------- Director, and
Donald Ochacher Chief Executive Officer July 22, 1999
/s/ Elwood Trotter Vice President July 22, 1999
- ---------------------------
Elwood C. Trotter
/s/ Janet Maxey Chief Financial Officer July 22, 1999
- ---------------------------
Janet Maxey
/s/ Garry Newman Vice President July 22, 1999
- ---------------------------
Garry Newman
/s/ Carl Stadelhofer Director July 22, 1999
- ---------------------------
Carl Stadelhofer
/s/ Wayne Case Director July 22, 1999
- ---------------------------
Wayne Case
/s/ STERLING MASON Director July 22, 1999
- ---------------------------
Sterling Mason
</TABLE>
35
<PAGE> 1
EXHIBIT 3.(I)
CERTIFICATE OF INCORPORATION
OF
PUFF PAC INDUSTRIES INC.
ARTICLE 1
The name of the corporation is Puff Pac Industries Inc.
ARTICLE 2
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
19801. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE 3
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE 4
The number of shares which this corporation shall have authority to issue,
itemized by classes, par value of shares, shares without par value, and series,
if any, within a class, is as follows:
<TABLE>
<CAPTION>
Number of Par Value
Class Shares Per Share
----- --------- ---------
<S> <C> <C>
Common 25,000,000 U.S. $0.001
</TABLE>
The holders of stock of the corporation shall have no preemptive rights to
subscribe for any securities of the corporation.
ARTICLE 5
The Board of Directors is authorized to make, alter or repeal the by-laws
of the corporation.
ARTICLE 6
Any contract or other transaction between the corporation and any of its
directors, officers or shareholders (or any corporation or firm in which any of
them is directly or indirectly interested) shall be valid for all purposes,
notwithstanding the presence of such director, officer or
<PAGE> 2
-2-
shareholder at the meeting authorizing such contract or transaction or his
participation in such meeting or authorization.
The foregoing shall, however, apply only if the interest of such director,
officer or shareholder is known or disclosed (a) to the Board of Directors and
it nevertheless authorizes, ratifies or agrees to the contract or transaction
by a majority of the directors present, each such interested Director to be
counted in determining the majority necessary to carry the vote; or (b) to the
shareholders and they nevertheless authorize, ratify or agree to the contract
or transaction by a majority of the shareholders present, each such person
interested to be counted for a quorum and for voting purposes.
This provision shall not be construed to invalidate any contract or
transaction which would be valid in the absence of this provision.
ARTICLE 7
Section 1. The corporation shall indemnify any person who was or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of
the fact that he is or was a director or officer or employee of the
corporation, or is or was serving at the request of the corporation as a
director or officer or employee of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceedings by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to pressure a
judgment in its favor by reason of the fact that he is or was a director,
officer or employee of the corporation, or is or was serving at the request
<PAGE> 3
- 3 -
of the corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except as otherwise limited by applicable
law.
Section 3. To the extent that a director, officer or employee of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 and 2 of this Article 7, or
in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
Section 4. Any indemnification under Sections 1 and 2 of this Article 7
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer or employee is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 1 and 2 of this Article 7.
Such determination shall be made (1) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceedings, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in written opinion, or (3) by the stockholders.
Section 5. Expenses incurred by an officer or director in defending a civil
or criminal action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceedings upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this Article 7. Such expense
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
Section 6. The indemnification and advancement of expenses provided by or
granted pursuant to the other sections of this Article 7 shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Section 7. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a
<PAGE> 4
-4-
director, officer or employee of the corporation, or is or was serving at the
request of the corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions of this
Article 7.
Section 8. For purposes of this Article 7, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which,if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees, so that any person who is or was a director,
officer or employee of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer or employee
of another corporation, partnership joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article 7 with
respect to the resulting or surviving corporation if its separate existence
had continued.
Section 9. For purposes of this Article 7, reference to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed of a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer or employee of the corporation
which imposes duties on or involves services by, such director, officer or
employee with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
7.
Section 10. The indemnification and advancement of expenses provided by or
granted pursuant to this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE 8
No director of the corporation shall have any personal liability to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided, however, this provisions shall not eliminate or
limit the
<PAGE> 5
-5-
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of the Delaware General Corporate Law, or (iv) for any
transaction from which the director derived an improper personal benefit.
ARTICLE 9
The name and mailing address of the incorporator is:
Don Farrell
514 Ballantree Pl.
West Vancouver, B.C.
V6H 2J6
The power of the incorporator shall terminate upon the filing of this
certificate of incorporation.
ARTICLE 10
The names and mailing addresses of the persons who will serve as directors
until the next annual meeting of stockholders or until their successors are
elected and qualify are:
Name Mailing Address
---- ---------------
A. Edmun Daem 1387 Minto Crescent
Vancouver, B.C.
V6H 2J6
Don Farrell 514 Ballantree Pl.
West Vancouver, B.C.
V7S 1W5
Bertrand A. Levesque 29084 Lillyglen Dr.
Canyon Country, California
U.S.A. 91351
Robert A. Matthews 4895 Caulfield Court
West Vancouver, B.C.
V7W 3B3
Daniel A. Pharo 2160 Century Park East, #401
Los Angeles, California
U.S.A. 90067
Elwood C. Trotter 4520 Moncton Street
Richmond, B.C.
V7E 3A9
<PAGE> 6
-6-
ARTICLE 11
Section 1. If, in respect of the corporation:
(a) any act or omission of the corporation effects a result:
(b) the business or affairs of the corporation are or have been carried on
or conducted in a manner; or
(c) the powers of the directors of the corporation are or have been exercised
in a manner,
that is oppressive or unfairly prejudicial to or that unfairly disregards the
interests of any security holder, creditor, director or officer of the
corporation, then a registered holder or beneficial owner, and a former
registered holder or beneficial owner, of a share of the corporation, or a
director or an officer or a former director or officer of the corporation, or
any other person who a court determines is a proper person to make an
application under this section, may apply to a court for an Order to rectify
the matters complained of.
Section 2. A registered holder or beneficial owner, and a former
registered holder or beneficial owner, of a security of the corporation, or a
director or an officer or a former director or officer of the corporation, or
any other person who, in the discretion of a court, is a proper person to make
an application under this section (the "Complainant"), may apply to a court for
leave to bring an action in the name and on behalf of the corporation, or
intervene in an action to which any such body corporate is a party, for the
purpose of prosecuting, defending or discontinuing the action on behalf of the
body corporate provided that:
(a) the Complainant has given reasonable notice to the directors of the
corporation of his intention to apply to the court if the directors of the
corporation do not bring, diligently prosecute or defend or discontinue
the action;
(b) the Complainant is acting in good faith; and
(c) it appears to be in the interests of the corporation that the action be
brought, prosecuted, defended or discontinued.
Section 3. A shareholder of the corporation may dissent if the
corporation resolves to:
(a) amend its articles to add, change or remove any provisions restricting or
constraining the issue, transfer or ownership or shares of that class)
<PAGE> 7
- 7-
(b) amend its articles to add, change or remove any restriction upon the
business or businesses that the corporation may carry on;
(c) amalgamate with another corporation;
(d) be continued under the laws of another jurisdiction; or
(e) sell, lease or exchange all or substantially all its property.
In addition to other right the shareholder may have, a
shareholder who complies with this section is entitled, when the action
approved by the resolution from which he dissents becomes effective, to be paid
by the corporation the fair value of the shares held by him in respect of which
he dissents, determined as of the close of business on the day before the
resolution was adopted. A dissenting shareholder may only claim under this
section with respect to all the shares of a class held by him on behalf of any
one beneficial owner and registered in the name of the dissenting shareholder.
The dissenting shareholder shall send to the corporation, at or before any
meeting of the shareholders at which a resolution referred to above is to be
voted on, a written objection to the resolution, unless the corporation did not
give notice to the shareholder of the purpose of the meeting or of his right to
dissent. The corporation shall, within 10 days after the shareholders adopt the
resolution, send to each shareholder who has filed the objection referred to
above, notice that the resolution has been adopted, but such notice is not
required to be sent to any shareholder who voted for the resolution or who has
withdrawn his objection. The dissenting shareholder shall, within 20 days after
he received a notice that the resolution was adopted, or if he does not receive
such notice within 20 days after he learns that the resolution has been
adopted, send to the corporation a written notice containing his name and
address, the number and class of shares in respect of which he dissents, a
demand for payment of the fair value of such shares. The dissenting shareholder
shall, within 30 days after sending such notice, send the certificates
representing the shares in respect of which he dissents to the corporation or
its transfer agent. A dissenting shareholder who fails to comply with the above
has no right to make a claim under this section. The corporation or its
transfer agent shall endorse on any share certificate so received a notice that
the holder is a dissenting shareholder under this section and shall forthwith
return the share certificates to the dissenting shareholder. The corporation
shall, not later than seven days after the later of the day on which the action
approved by the resolution is effective or the day the corporation received the
notice from the dissenting shareholder demanding payment, send to each
dissenting shareholder who has sent such notice a written offer to pay for his
share in an
<PAGE> 8
-8-
amount considered by the directors of the corporation to be the fair value
thereof accompanied by a statement showing how the fair value was determined,
unless the corporation is unable lawfully to pay the dissenting shareholders
for their shares. The corporation shall pay for the shares of a dissenting
shareholder within 10 days after an offer has been accepted, but any such offer
lapses if the corporation does not receive an acceptance thereof within 30 days
after the offer has been made. If the corporation fails to make an offer, or it
its dissenting shareholder fails to accept an offer, the corporation may,
within 50 days after the action approved by the resolution is effective or
within such further period as a court may allow, apply to a court to fix a fair
value for the shares of any dissenting shareholder. If the corporation fails to
apply to a court, the dissenting shareholder may apply to a court for the same
purpose within a further period of 20 days or within such further period as a
court may allow. The corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds for believing
that the corporation is or would after the payment be unable to pay its
liabilities as they became due, or the realizable value of the corporation's
assets would thereby be less than the aggregate of its liabilities.
I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make this certificate, hereby declaring and certifying that this
is my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 3rd day of November, 1989.
/s/ DON FARRELL
--------------------------
Don Farrell
<PAGE> 9
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 06:30 AM 09/01/1992
922455073-2212172
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * * * * *
PUFF PAC INDUSTRIES INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of PUFF PAC INDUSTRIES INC., by the
unanimous written consent of its members filed, with the minutes of the Board,
duly adopted a resolution setting forth the proposed amendments as follows:
RESOLVED that the Certificate of Incorporation of this corporation be
amended by changing the First Article thereof so that, as amended sold
Article shall be and read as follows:
"FIRST: The name of this corporation is AIR PACKAGING TECHNOLOGIES, INC."
FURTHER RESOLVED that the Certificate of Incorporation of this corporation
be amended by changing the Seventh Article thereof so that, as amended
said Article shall be and read as follows:
SEVEN: The power to adopt, amend or repeal bylaws is hereby conferred upon
the Board of Directors. This provision shall not divest the shareholders
of the concurrent power to adopt, amend or repeal bylaws.
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the annual meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of The General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
<PAGE> 10
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
AIR PACKAGING TECHNOLOGIES, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of AIR PACKAGING
TECHNOLOGIES, INC., resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of
said corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the FOURTH Article thereof so that, as amended
said Article shall be and read as follows:
"FOURTH: The total number of shares which the corporation shall have
authority to issue is 50,000,000 shares of capital stock, and the par
value of each such share is $.001 per share."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the annual meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation law
of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said AIR PACKAGING TECHNOLOGIES, INC. has caused this
certificate to be signed by Daniel Pharo, its Chairman, and Al Trotter, its
Secretary, this 3rd day of May, 1994.
By: /s/ DAN PHARO
---------------------------------
Dan Pharo, Chairman
ATTEST:
By: /s/ ELWOOD TROTTER
------------------------------
Elwood Trotter, Secretary
<PAGE> 11
STATE OF DELAWARE
SECRETARY OF STATE
DIVISIONS OF CORPORATIONS
FILED 09:00 AM 09/04/1997
971795194-2212172
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
AIR PACKAGING TECHNOLOGIES, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of AIR PACKAGING TECHNOLOGIES, INC.,
have approved and duly adopted resolutions setting forth a proposed amendment of
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and calling a meeting of the stockholders of said corporation
for consideration thereof. The resolution setting forth the proposed amendment
is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Fourth Article thereof so that, as amended said
Article shall be and read as follows:
"FOURTH The total number of shares which the corporation shall have
authority to issue is 100,000,000 shares of capital stock, and the par
value of each such share is $.001 per share."
SECOND: That thereafter, pursuant to resolution of its board of
Directors, the annual meeting of the stockholders of said corporation was duly
called and held on June 27, 1997, upon notice in accordance with Section 222 of
the General Corporation Law of Delaware at which meeting the necessary number of
shares as required by statute were voted in favour of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said AIR PACKAGING TECHNOLOGIES, INC. has caused this
certificate to be signed by Dan Farrell, its Chairman, and Elwood Trotter, its
Secretary.
By: /s/ DON FARRELL
------------------------- Date: August 17, 1997
DON FARRELL, CHAIRMAN
Attest: /s/ ELWOOD TROTTER
------------------------- Date: August 25, 1997
ELWOOD TROTTER, SECRETARY
<PAGE> 1
EXHIBIT 3(ii)
AIR PACKAGING TECHNOLOGIES, INC.
----------
AMENDED AND RESTATED
BYLAWS
May 5, 1994
----------
ARTICLE I
DIRECTORS
1.1 POWERS. Subject to the provisions of the Corporations Code of
Delaware and any limitations in the articles of incorporation and these bylaws
relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
1.2 NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of
directors shall be not less than four, nor more than twelve, and shall be such
number as may be designated from time to time by resolution of the Board of
Directors adopted at a Regular or Special Meeting of the Board of Directors.
1.3 ELECTION AND TERM OF OFFICE OF DIRECTORS. At each annual meeting of
shareholders, directors shall be elected to hold office until the next annual
meeting. Each director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
1.4 VACANCIES. Any vacancy occurring in the board of directors, and any
directorship to be filled by reason of an increase in the number of directors,
shall be filled by a majority of the remaining directors then in office even
though less than a quorum, or by the sole remaining director; except that a
vacancy created by the removal of a director by the vote or written consent of
the shareholders or by court order may be filled only by the vote of a majority
of the shares entitled to vote represented at a duly held meeting at which a
quorum is present, or by the written consent of holders of a majority of the
outstanding shares entitled to vote. A successor director so elected shall serve
for the unexpired term of his predecessor. A vacancy or vacancies in the board
of directors shall be deemed to exist in the event of the death, resignation, or
removal of any director, or if the board of directors by resolution declares
vacant the office of a director who has been declared of unsound mind by an
order of court or convicted of a felony, or if the authorized number of
directors is increased, or if the members fall, at any
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meeting of members at which any director or directors are elected, to elect the
number of directors to be voted for at that meeting.
1.5 RESIGNATION. Any director may resign effective on giving written
notice to the president, the secretary, or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
1.6 REMOVAL OF DIRECTOR FOR CAUSE. A director who has been declared of
unsound mine by an order of court or convicted of a felony may be removed from
office by the vote of a majority of the directors.
1.7 REMOVAL OF DIRECTOR WITHOUT CAUSE. Any or all of the directors may
be removed without cause if such removal is approved by a majority of the shares
entitled to vote represented at a duly held meeting at which a quorum is
present, or by the written consent of holders of a majority of the outstanding
shares entitled to vote.
1.8 EFFECT OF REDUCTION OF AUTHORIZED NUMBER OF DIRECTORS. No reduction
of the authorized number of directors shall have the effect of removing any
director before that director's term of off ice expires.
1.9 PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular meetings of
the board of directors may be held at any place within or outside the State of
Delaware that has been designated from time to time by resolution of the board.
In the absence of such a designation, regular meetings shall be held at the
principal executive office of the corporation. Special meetings of the board
shall be held at any place within or outside the State of Delaware that has been
designated in the notice of the meeting or, if not stated in the notice or there
is no notice, at the principal executive office of the corporation. Any meeting,
regular or special, may be held by conference telephone or similar communication
equipment, so long as all directors participating in the meeting can hear one
another, and all such directors shall be deemed to be present in person at the
meeting.
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1.10 ANNUAL MEETING. Immediately following each annual meeting of
shareholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
1.11 OTHER REGULAR MEETINGS. Other regular meetings of the board of
directors shall be held without call at such time as shall from time to time be
fixed by the board of directors. Such regular meetings may be held without
notice.
1.12 SPECIAL MEETINGS. Special meetings of the board of directors for
any purpose or purposes may be called at any time by the chairman of the board,
the president, any vice president, the secretary, or any two directors.
1.13 NOTICE OF SPECIAL MEETINGS. Notice of the time and place of
special meetings shall be delivered personally or by telephone to each director
or sent by first-class mail or telegram, charges prepaid, addressed to each
director at that director's address as it is shown on the records of the
corporation. In case that notice is mailed, it shall be deposited in the United
States mail at least 4 days before the time of the holding of the meeting. In
case the notice is delivered personally or by telephone or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least 48
hours before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has reason
to believe will promptly communicate it to the director. The notice need not
specify the purpose of the meeting. The notice need not specify the place of the
meeting if the meeting is to be held at the principal executive office of the
corporation.
1.14 WAIVER OF NOTICE. The transactions of any meeting of the board of
directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes. The waiver of notice or consent need not specify the
purpose of the meeting. All such waivers, consents, and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting. Notice
of a meeting shall also be deemed given to any director who attends the meeting
without protesting, before or at its commencement, the lack of notice to that
director.
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1.15 QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
provided in section 1.16 of these bylaws. 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. A meeting at
which a quorum is initially present may continue to transact business,
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for that meeting.
1.16 ADJOURNMENT. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
1.17 NOTICE OF ADJOURNMENT. Notice of the time and place of holding an
adjourned meeting need not be given, unless the meeting is adjourned for more
than 24 hours, in which case notice of the time and place shall be given before
the time of the adjourned meeting, in the manner specified in section 1.13 of
these bylaws, to the directors who were not present at the time of the
adjournment.
1.18 ACTION WITHOUT MEETING. Any action required or permitted to be
taken by the board of directors may be taken without a meeting if all members of
the board shall individually or collectively consent in writing to that action.
Such action by written consent shall have the same force and effect as a
unanimous vote of the board of directors. Such written consent or consents shall
be filed with the minutes of the proceedings of the board.
1.19 FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. This section 1.19 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
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ARTICLE II
COMMITTEES
2.1 COMMITTEES OF DIRECTORS. The board of directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two or more directors, to serve at the
pleasure of the board. The board may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. Any committee, to the extent provided in the
resolution of the board, shall have all the authority of the board, except with
respect to:
(a) the approval of any action which, under the Corporations
Code of Delaware also requires shareholders' approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on
the board or on any committee
(d) the amendment or repeal of bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a price range determined by
the board of directors; or
(g) the appointment of any other committees of the board of
directors or the members of these committees.
2.2 MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees of directors shall be governed by, and held and taken in accordance
with, the provisions of article I of these bylaws, section 1.9 (place of
meetings), 1.11 (regular meetings), 1.12 (special meetings), 1.13 (notice of
special meetings), 1.14 (waiver of notice), 1.15 (quorum), 1.16 (adjournment),
1.17 (notice of adjournment), and 1.18 (action without meeting), with such
changes in the context of those bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; except
that the time of regular meetings of committees may be determined either by
resolution of the board of directors or by resolution of the committee. Special
meetings of committees may also be called by resolution of the board of
directors. Notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all meetings of the
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committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE III
OFFICERS
3.1 OFFICERS. The officers of the corporation shall be a president, a
secretary, and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents, one or more assistant secretaries, and such other officers as may be
appointed in accordance with the provisions of section 3.3 of these bylaws. If
the corporation has a chairman of the board, the corporation need not also have
a president. Any number of offices may be held by the same person.
3.2 ELECTION OF OFFICERS. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of section 3.3 or
section 3.4 of these bylaws, shall be chosen by the board of directors, and each
shall serve at the pleasure of the board, subject to the rights, if any, of an
officer under any contract of employment.
3.3 SUBORDINATE OFFICERS. The board of directors may appoint, and may
empower the president to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in the bylaws or as the
board of directors may from time to time determine.
3.4 VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these bylaws for regular appointments to that office.
3.5 REMOVAL OF OFFICERS. Subject to the rights, if any, of an officer
under any contract of employment, any officer may be removed, either with or
without cause, by the board of directors, at any regular or special meeting of
the board, or, except in case of an officer chosen by the board of directors, by
any officer upon whom such power of removal may be conferred by the board of
directors.
3.6 RESIGNATION OF OFFICERS. Any officer may resign at any time by
giving written notice to the corporation. Any resignation shall take effect at
the date of the receipt of that notice or at any later time specified in that
notice; and, unless otherwise specified in that notice, the
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acceptance of the resignation shall not be necessary to make it effective. Any
resignation is without prejudice to the rights, if any, of the corporation under
any contract to which the officer is a party.
3.7 CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall, in addition,
be the chief executive officer of the corporation and shall have the powers and
duties prescribed in section 3.8 of these bylaws.
3.8 PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the board of directors to the chairman of the board, if there be such
an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction, and control of the business and the officers of
the corporation. He shall preside at all meetings of the shareholders and, in
the absence of the chairman of the board, or if there be none, at all meetings
of the board of directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the board of directors
or bylaws.
3.9 VICE PRESIDENTS. In the absence or disability of the president, the
vice presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the bylaws, and the president, or the chairman of the
board.
3.10 SECRETARY. The secretary shall have the general powers and duties
usually vested in the office of secretary of a corporation, and shall have such
other powers and duties as may be prescribed by the board of directors or the
bylaws. Included in the powers and duties of the secretary, but not by way of
limitation shall be the following:
(a) The secretary shall keep or cause to be kept, at the
principal executive office or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders, which book shall indicate, with respect to such
meetings and actions, the time and place of holding, whether regular or special,
the names of those present at directors' meetings or committee meetings, the
number of shares present or
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represented at shareholders' meetings, the proceedings, and, if special, how
authorized and the notice given.
(b) The secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and dates of certificates issued for the same, and the number and dates of
cancellation of all certificates surrendered for cancellation.
(c) The secretary shall give, or cause to be given, notice of
all meetings of the shareholders and of the board of directors required by the
bylaws or bylaw to be given.
(d) The secretary shall keep the seal of the corporation, if one
be adopted, in safe custody.
3.11 CHIEF FINANCIAL OFFICER. The chief financial officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in the
name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may be
prescribed by the board of directors or the bylaws.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS
The corporation shall have the power, to the maximum extent permitted
by the Corporations Code of Delaware, to indemnify each of its agents against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact any such person is or was an agent of the corporation. For purposes of this
section, an "agent" of the corporation includes any person who is or was a
director, officer, employee, or other agent of the corporation; who is or was
serving at the request of the
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corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise; or who was a director,
officer, employee, or agent of a corporation that was a predecessor corporation
of the corporation or of another enterprise at the request of such predecessor
corporation.
ARTICLE V
MEETINGS OF SHAREHOLDERS
5.1 PLACE OF MEETINGS. Meetings of shareholders shall be held at any
place within or outside the State of Delaware designated by the board of
directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
5.2 ANNUAL MEETING. The annual meeting of shareholders shall be held
each year on a date and at a time designated by the board of directors. The date
so designated shall be within 5 months after the end of the fiscal year of the
corporation and within 15 months after the last annual meeting. At each annual
meeting directors shall be elected, and any other proper business may be
transacted.
5.3 SPECIAL MEETINGS. A special meeting of the shareholders may be
called at any time by the board of directors, the chairman of the board, the
president, the secretary, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than 10% of the votes at that meeting. If a
special meeting is called by any person or persons other than the board of
directors, the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president, or the secretary of the corporation. The officer receiving the
request shall cause notice to be given promptly to the shareholders entitled to
vote, in accordance with the provisions of sections 5.4 and 5.5 of these bylaws,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than 35 nor more than 60 days after the receipt of
the request. If the notice is not given within 20 days after receipt of the
request, the person or persons requesting the meeting may give the notice.
Nothing contained in this paragraph of this section 5.3 shall be construed as
limiting, fixing, or affecting the time when a meeting of shareholders called by
action of the board of directors may be held.
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5.4 NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with section 5.5 of
these bylaws not less than 10 nor more than 60 days before the date of the
meeting. The notice shall specify the place, date and hour of the meeting and
(i) in the case of a special meeting, the general nature of the business to be
transacted, or (ii) in the case of the annual meeting, those matters which the
board of directors, at the time of giving the notice, intends to present for
action by the shareholders. The notice of any meeting at which directors are to
be elected shall include the name of any nominee or nominees whom, at the time
of the notice, management intends to present for election. If action is proposed
to be taken at any meeting for approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, (ii) an amendment
of the articles of incorporation, (iii) a reorganization of the corporation,
(iv) a voluntary dissolution of the corporation, or (v) a distribution in
dissolution, the notice shall also state the general nature of that proposal.
5.5 MANNER OF GIVING NOTICE. Notice of any meeting of shareholders
shall be given either personally or by first-class mail or telegraphic or other
written communication, charges prepaid, addressed to the shareholder at the
address of that shareholder appearing on the books of the corporation or given
by the shareholder to the corporation for the purpose of notice. If no such
address appears on the corporation's books or is given, notice shall be deemed
to have been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication. If any notice
addressed to a shareholder at the address of that shareholder appearing on the
books of the corporation is returned to the corporation by the United States
Postal Service marked to indicate that the United States Postal Service is
unable to deliver the notice to the shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if these shall be available to the shareholder on written demand of the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice.
5.6 AFFIDAVIT OF NOTICE. An affidavit of the mailing or other means of
giving any notice of any shareholders' meeting shall be executed by the
secretary, assistant secretary, or any transfer agent of the corporation giving
the notice, and shall be filed and maintained in the minute book of the
corporation.
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5.7 QUORUM. The presence in person or by proxy of the holders of one
third of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business. The shareholders present at
a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
5.8 ADJOURNED MEETING; NOTICE. Any shareholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the shares represented at that meeting, either in
person or by proxy, but in the absence of a quorum, no other business may be
transacted at that meeting, except as provided in section 5.7 of these bylaws.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at a meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or unless the
adjournment is for more than 45 days from the date set for the original meeting,
in which case the board of directors shall set a new record date. If notice of
any such adjourned meeting is required, notice shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of sections 5.4 and 5.5 of these bylaws. At any adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
5.9 VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section
5.11 of these bylaws, subject to the provisions of the Corporations Code of
Delaware (relating to voting shares held by a fiduciary, in the name of a
corporation, or in joint ownership). The shareholders' vote may be by voice vote
or by ballot; provided, however, that any election for directors must be by
ballot if demanded by any shareholder before the voting has begun. On any matter
other than elections of directors, any shareholders may vote part of the shares
in favor of the proposal and refrain from voting the remaining shares or vote
them against the proposal, but, if the shareholder fails to specify the number
of shares which the shareholder is voting, it will be conclusively presumed that
the shareholder's vote is with respect to all shares that the shareholder is
entitled to vote. If a quorum is present, the affirmative vote of the majority
of the shares represented at the meeting and entitled to vote on any matter
shall be the act of the shareholders, unless the vote of a greater number or
voting by classes is required by the Corporations Code of Delaware or by the
articles of incorporation. At a shareholders' meeting at which directors are to
be elected, no shareholder shall be entitled to cumulate vote (i.e., cast for
any one or more candidates a number of votes greater than the number of the
shareholder's shares). The candidates receiving the highest number of votes, up
to the number of directors to be elected, shall be elected.
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5.10 WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice, a consent to a holding of the meeting, or an approval of the
minutes. The waiver of notice or consent need not specify either the business to
be transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 5.4 of these Bylaws,
the waiver of notice or consent shall state the general nature of the proposal.
All such waivers, consents, and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. Attendance by a person at
a meeting shall also constitute a waiver of notice of that meeting, except when
the person objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened, and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters not included in the notice of the meeting if that
objection is expressly made at the meeting.
5.11 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any annual or special meeting of shareholders may
be taken without a meeting and without prior notice if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take that action at a meeting at which all shares entitled to
vote on that action were present and voted. In the case of election of
directors, such a consent shall be effective only if signed by the holders of
all outstanding shares entitled to vote for the election of directors; provided,
however, that a director may be elected at any time to fill a vacancy on the
board of directors that has not been filled by the directors, by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed with the
secretary of the corporation and shall be maintained in the corporate records.
Any shareholder giving a written consent, or the shareholder's proxyholders, or
a transferee of the shares of a personal representative of the shareholder or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
5.12 NOTICE OF SHAREHOLDER ACTION BY WRITTEN CONSENT. If the consents
of all shareholders entitled to vote have not been solicited in writing, and if
the unanimous written consent of all such shareholders shall not have been
received, the secretary shall give prompt notice of the corporate action
approved by the shareholders without a
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meeting. This notice shall be given in the manner specified in Section 5.5 of
these bylaws.
5.13 RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of any
meeting or to vote or entitled to give consent to corporate action without a
meeting, the board of directors may fix, in advance, a record date, which shall
not be more than 60 days nor less than 10 days before the date of any such
meeting nor more than 60 days before any such action without a meeting, and in
this event only shareholders of record on the date so fixed are entitled to
notice and to vote or to give consents, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date,
except as otherwise provided in the Corporations Code of Delaware. If the board
of directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action of the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the 60th day before the date of such other action,
whichever is later.
5.14 PROXIES. Every person entitled to vote for directors or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed or by one or more agents authorized
by a written proxy signed by the person and filed with the secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission, or otherwise) by the shareholder or by the shareholder's attorney
in fact. A validly executed proxy that does not state that it is irrevocable
shall continue in full force and effect unless (i) revoked by the person
executing it, before the vote pursuant to that proxy, by a writing delivered to
the corporation stating that the proxy is revoked, or by a subsequent proxy
executed by or attendance at the meeting and voting in person by, the person
executing the proxy; or (ii) written notice of the death or incapacity of the
maker of that proxy is received by the corporation before the vote pursuant to
that proxy is counted; provided, however, that no proxy shall be valid after the
expiration of 11 months from the date of the proxy, unless otherwise provided in
the proxy.
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5.15 INSPECTORS OF ELECTION. Before any meeting of shareholders, the
board of directors may appoint any persons other than nominees for office to act
as inspectors of election at the meeting or its adjournment. If no inspectors of
election are so appointed, the chairman of the meeting may, and on the request
of any shareholder or a shareholder's proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either 1 or 3. If
inspectors are appointed at a meeting on the request of one or more shareholders
or proxies, the holders of a majority of shares or their proxies present at the
meeting shall determine whether 1 or 3 inspectors are to be appointed. If any
person appointed as inspector fails to appear or fails or refuses to act, the
chairman of the meeting may, and upon the request of any shareholder or a
shareholder's proxy shall, appoint a person to fill that vacancy. These
inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity, and effect of proxies;
(b) receive votes, ballots, or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
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ARTICLE VI
OFFICES
6.1 PRINCIPAL OFFICES. The board of directors shall fix the location of
the principal executive office of the corporation at any place within or outside
the State of Delaware. If the principal executive office is located outside this
state, and the corporation has one or more business offices in this state, the
board of directors shall fix and designate a principal business office in the
State of Delaware.
6.2 OTHER OFFICES. The board of directors may at any time establish
branch or subordinate offices at any place or places where the corporation is
qualified to do business.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE OF SHARE REGISTER. The corporation shall keep at its
principal executive office, or at the office of its transfer agent or registrar,
if either be appointed and as determined by resolution of the board of
directors, a record of its shareholders and the number and class of shares held
by each shareholder.
7.2 INSPECTION OF SHARE REGISTER. A shareholder or shareholders of the
corporation holding at least 5% in the aggregate of the outstanding voting
shares of the corporation may (1) inspect and copy the records of shareholders'
names and addresses and shareholdings during usual business hours on 5 days'
prior written demand on the corporation, and (ii) obtain from the transfer agent
of the corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the shareholders' names and addresses,
who are entitled to vote for the election of directors, and their shareholdings,
as of the most recent record date for which that list has been compiled or as of
a date specified by the shareholder after the date of demand. This list shall be
made available to any such shareholder by the transfer agent on or before the
later of 5 days after the demand is received or the date specified in the demand
as the date as of which the list is to be compiled. The record of shareholder
shall also be open to inspection on the written demand of any shareholder or
holder of a voting trust certificate, at any time during usual business hours,
for a purpose reasonably related to the holder's interests as a shareholder or
as of the holder of a voting trust certificate. Any inspection and copying under
this Section 7.2 may be made in person or by an agent or attorney of the
shareholder or holder of a voting trust certificate making the demand.
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7.3 MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall keep at
its principal executive office, or if its principal executive office is not in
the State of Delaware, at its principal business office in this state, the
original or a copy of the bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
Delaware and the corporation has no principal business office in this state, the
secretary shall, upon the written request of any shareholder, furnish to that
shareholder a copy of the bylaws amended to date.
7.4 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The
accounting books and records and minutes of proceedings of the shareholders and
the board of directors and any committee or committees of the board of directors
shall be kept at such place or places designated by the board of directors, or,
in the absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form. The minutes and accounting books and records
shall be open to inspection upon the written demand of any shareholder or holder
of a voting trust certificate, at any reasonable time during usual business
hours, for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. The inspection may
be made in person or by an agent or attorney, and shall include the right to
copy and make extracts. These rights of inspection shall extend to the records
of each subsidiary corporation of the corporation.
7.5 INSPECTION BY DIRECTORS. Every director shall have the absolute
right at any reasonable time to inspect all books, records, and documents of
every kind and the physical properties of the corporation and each of its
subsidiary corporations. This inspection by a director may be made in person or
by an agent or attorney and the right of inspection includes the right to copy
and make extracts of documents.
ARTICLE VIII
GENERAL CORPORATE MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes
of determining the shareholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or entitled to exercise any rights
in respect of any other lawful action (other than action by shareholders by
written consent without a meeting), the board of directors may fix, in advance,
a record date, which shall not be more than 6O days before any such action, and
in that case only shareholders of record on the date so fixed are entitled to
receive
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the dividend, distribution, or allotment of rights or to exercise the rights,
as the case may be, notwithstanding any transfer of any shares on the books of
the corporation after the record date so fixed, except as otherwise provided in
the Corporations Code of Delaware. If the board of directors does not so fix a
record date, the record date for determining shareholders for any such purpose
shall be at the close of business on the day on which the board adopts the
resolution or the 60th day before the date of that action, whichever is later.
8.2 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts, or
other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall be signed or endorsed
by such person or persons and in such manner as shall be determined by
resolution of the board of directors.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of
directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and this
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors or within the agency power or
an officer, no officer, agent, or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES. A certificate or certificates for shares
of the capital stock of the corporation shall be issued to each shareholder when
any of these shares are fully paid, and the board of directors may authorize the
issuance of certificate or shares as partly paid provided that these
certificates shall state the amount of the consideration to be paid for them and
the amount paid. All certificates shall be signed in the name of the corporation
by the chairman of the board or the president or vice president and by the chief
financial officer or the secretary or any assistant secretary, certifying the
number of shares and the class or series of shares owned by the shareholder. Any
or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on a certificate shall have ceased to be that officer,
transfer agent, or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent, or registrar at the date of issue.
8.5 LOST CERTIFICATE. Except as provided in this Section 8.5, no new
certificates for shares shall be issued to replace old certificates unless the
latter is surrendered to the corporation and cancelled at the same time. The
board of directors may, in case any share certificate or certificate for any
other security is lost, stolen, or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the board may require,
including, at the board's option, provision for indemnification of the
corporation secured by a bond
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or other adequate security sufficient to protect the corporation against any
claim that may be made against it, including any expense or liability, on
account of the alleged loss, theft, or destruction of the certificate or the
issuance of the replacement certificate.
8.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the
board, the president, or any vice president, or any other person authorized by
resolution of the board of directors or by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all shares
of any other corporation or corporations, foreign or domestic, standing in the
name of the corporation. The authority granted to these officers to vote or
represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by a proxy
executed by these officers.
8.7 CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
Corporations Code of Delaware shall govern the construction of these bylaws.
Without limiting the generality of this provision, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these
bylaws may be amended or repealed by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote;
9.2 AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders
as provided in Section 9.1 of these bylaws to adopt, amend or repeal bylaws,
bylaws may be adopted, amended, or repealed by the board of directors; provided,
however, that the board of directors may adopt a bylaws or amendment of a bylaw
changing the authorized number of directors only for the purpose of fixing the
exact number of directors within the limits specified in the articles of
incorporation or in Section 1.2 of these bylaws.
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting secretary of Air Packaging
Technologies, Inc., a Delaware corporation; and
(2) That the foregoing bylaws, comprising 18 pages, constitute the
bylaws of such corporation as duly adopted by action of the Incorporator of the
corporation duly taken on June 14, 1991 and as amended by majority written
consent of shareholder on the 7th day of April, 1994.
IN WITNESS WHEREOF, I have hereunto subscribed by name and affixed the
seal of such corporation this 5th day of May, 1994.
/s/ ELWOOD C. TROTTER
- --------------------------------------
Secretary and Director
Elwood C. Trotter
<PAGE> 1
EXHIBIT 10(A)
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only, April
22, 1997, is made by and between Raymond Scurria, Rose Scurria, Linda M. Scurria
and Mary Jane Zehnpfennig ("LESSOR") and Air Packaging Technologies, Inc., a
Delaware Corporation ("LESSEE"), (collectively the "PARTIES," or individually a
"PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 25620 Rye Canyon Road, Units D, E & F,
located in the City of Santa Clarita, County of Los Angeles, State of
California, with zip code 91355, as outlined on Exhibit A attached hereto
("PREMISES"). The "BUILDING" is that certain building containing the Premises
and generally described as (describe briefly the nature of the Building):
approximately 17,280 square feet in part of a larger concrete tilt-up industrial
building totaling approximately 49,825 square feet. In addition to Lessee's
rights to use and occupy the Premises as hereinafter specified, Lessee shall
have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings in
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "INDUSTRIAL CENTER." (Also
see Paragraph 2.)
1.2(b) PARKING: twenty-three (23) unreserved vehicle parking spaces
("UNRESERVED PARKING SPACES"); (Also see Paragraph 2.6.)
1.3 TERM: 3 years and 0 months ("ORIGINAL TERM") commencing
June 1, 1997 ("COMMENCEMENT DATE") and ending May 31, 2000
("EXPIRATION DATE"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION
DATE"). (Also see Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $9,850.00 per month ("BASE RENT"), payable on the
1st day of each month commencing June 1, 1997 (Also see
Paragraph 4.)
[ ] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 55, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $9,850 as Base Rent for
the period June 1, 1997 through June 30, 1997.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: 34.7
percent (34.7%) ("LESSEE'S SHARE") as determined by [ ] prorata square footage
of the Premises as compared to the total square footage of the Building or [ ]
other criteria as described in Addendum ________.
1.7 SECURITY DEPOSIT: $59,100.00 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: general offices, manufacturing and warehousing of
packaging products and all activities related thereto.
___________________________ ("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] _____________________ represents Lessor exclusively ("LESSOR'S BROKER");
[ ] _____________________ represents Lessee exclusively ("LESSEE'S BROKER"); or
[X] CB Commercial represents both Lessor and Lessee ("DUAL AGENCY").
(Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) for brokerage services
rendered by said Broker(s) in connection with this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A____________________________________________________________
("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 55, and Exhibits A through
B, all of which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including, but not limited to, the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations, and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
<PAGE> 2
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS -- DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
nonexclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas -- Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including, but not limited to, the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, or extend the term hereof, but in such case, Lessee shall not, except
as otherwise provided herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
Parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 10.2(b) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph
8.1).
(vii) The cost of insurance carried by Lessor with respect
to the Common Areas.
(viii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(ix) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such
over-
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payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including,
but not limited to the installation (and, at Lessor's option, removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including, but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including,
but not limited to, matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including,
but not limited to, permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDERS") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection
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<PAGE> 4
systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the exterior or interior surfaces of exterior walls nor
shall Lessor be obligated to maintain, repair or replace windows, doors or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor, in an
amount equal to one and one-half times the amount of such contested lien claim
or demand, indemnifying Lessor against liability for the same, as required by
law for the holding of the Premises free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is
defined as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraphs 8.2(b),
8.3(a) and 8.3(b), ("REQUIRED INSURANCE"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "Insurance Cost Increase"
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "Insurance Cost Increase"
shall not, however, include any premium increases resulting from the nature of
the occupancy of any other lessee of the Building. If the parties insert a
dollar amount in Paragraph 1.9, such amount shall be considered the "BASE
PREMIUM." If a dollar amount has not been inserted in Paragraph 1.9 and if the
Building has been previously occupied during the twelve (12) month period
immediately preceding the Commencement Date, the "Base Premium" shall be the
lowest annual premium reasonably obtainable for the Required Insurance as of
the Commencement Date, assuming the most nominal use possible of the Building,
in no event, however, shall Lessee be responsible for any portion of the
premium cost attributable to liability insurance coverage in excess of
$1,000,000 procured under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
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(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall, at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend
the same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event, however, that there is a shortage of
insurance proceeds and such shortage is due to the fact that, by reason of the
unique nature of the improvements in the Premises, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, Lessor shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within such ten (10) day period,
and if Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may at Lessor's option, either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following such commitment from Lessee.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
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(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include any
form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be the
amount of Real Property Taxes, which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services supplied
to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment 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, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
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(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including, but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this Lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time 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 San Francisco or the Federal Reserve Bank
District in which the Premises are located at the time of award plus one percent
(1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach
of this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
pro-
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ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraphs
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The Parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be
entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above Lessee's Share of
the legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKERS' FEES
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed in
writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) granted under this Lease or any Option subsequently granted, or
(b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within ten
(10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee shall make available
to any potential lender or purchaser designated by Lessor such financial
statements of Lessee 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 reviewed by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be 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.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
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23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of monies or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (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 assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of Rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease, including, but not limited to, the obligation to
provide the Tenancy Statement and information required in Paragraph 15.
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<PAGE> 10
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the Rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Default under Paragraph 13.1 during
the twelve (12) month period immediately preceding the exercise of the Option,
whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
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<PAGE> 11
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: _________________________ Executed at: _________________________
on: __________________________________ on: May 5, 1997
By LESSOR: By LESSEE:
Raymond Scurria, Rose Scurria, Air Packaging Technologies, Inc.,
Linda M. Scurria, and Mary Jane a Delaware Corporation
Zehnpfennig
By: /s/ Raymond Scurria By: /s/ G. McMinn
Name Printed: Raymond Scurria Name Printed: G. McMinn
Title: Attorney-in-Fact Title: President & CEO
By:___________________________________ By:___________________________________
Name Printed:_________________________ Name Printed:_________________________
Title:________________________________ Title:________________________________
Address: 707 S. Victory Boulevard Address: 25620 Rye Canyon Road, Unit F
Burbank, CA 91502 Valencia, CA 91355
Telephone: (818) 849-2268 Telephone: (805) 294-2222
Facsimile: (818) 849-6049 Facsimile: (805) 294-0947
BROKER: CB Commercial Real Estate BROKER: CB Commercial Real Estate
Group, Inc. Group, Inc.
Executed at:__________________________ Executed at:__________________________
on:___________________________________ on:___________________________________
By: /s/ Craig Peters By: /s/ Craig Peters
Name Printed: Craig Peters Name Printed: Craig Peters
Title: First Vice President Title: First Vice President
Address: 15301 Ventura Blvd., Address: 15301 Ventura Blvd.,
Suite #120 Suite #120
Sherman Oaks, CA 91403 Sherman Oaks, CA 91403
Telephone: (818) 907-4616 Telephone: (818) 907-4616
Facsimile: (818) 907-4702 Facsimile: (818) 907-4702
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
South Flower Street,Suite 600, Los Angeles, California 90017. (213)
687-8777.
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<PAGE> 12
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-GROSS DATED APRIL
22, 1997, BY AND BETWEEN RAYMOND SCURRIA, ROSE SCURRIA, LINDA M. SCURRIA, AND
MARY JANE ZEHNPFENNIG, AS LESSOR, AND AIR PACKAGING TECHNOLOGIES, INC., A
DELAWARE CORPORATION, AS LESSEE, FOR THE PROPERTY COMMONLY KNOWN AS 25620 RYE
CANYON ROAD, UNITS D, E AND F, SANTA CLARITA, CALIFORNIA.
- -------------------------------------------------------------------------------
49. ALTERATIONS AND ADDITIONS:
Lessee acknowledges that it has been in possession of the Premises under a
sublease and accepts the Premises in its then "as is" condition.
Notwithstanding the foregoing, Lessor shall construct a full height
demising wall between the Premises and the adjacent unit at Lessor's sole
cost and expense. In addition, Lessor, at Lessor's cost, shall install
sprinklers and landscaping in the planters running along the western
property line of the Industrial Center. All improvements by Lessor shall
comply with all applicable covenants or restrictions of record and
applicable building codes, regulations and ordinances in effect on the
Commencement Date. Lessee, at Lessee's sole cost and expense, will be
responsible for separating the electrical service between the Premises and
the adjacent unit.
Other than the above, Lessee shall accept the Premises in "As Is"
condition.
50. RULES AND REGULATIONS:
Lessee and its employees, agents and visitors will observe faithfully the
Project's rules and regulations as promulgated by Lessor from time to
time. The Lessor may issue such rules and regulations in its reasonable
discretion, providing that such rules and regulations do not unreasonably
interfere with Lessee's permitted use of the Premises and are similar in
substance to rules and regulations promulgated for similar office and
industrial projects. Such rules and regulations, if any, will be
considered to be part of this Lease, breach of which will constitute a
default under this Lease in the same manner as a breach of any other
provision of this Lease. Lessor will not be liable to Lessee for the
breach of any provision in this Lease by any other party in the Project,
except to the extent that upon notice by Lessee to Lessor, as provided
herein, Lessor fails to take all reasonable steps to prevent continued
injury or damage to Lessee.
51. MODIFICATION:
This Lease contains all of the terms agreed upon by Lessor and Lessee with
respect to the Premises. All prior negotiations, correspondence, and
agreements are superseded by this Lease. No officer, partner, agent or
employee of any party has any authority to make representations or
promises not contained in this Lease, and each of the parties agrees that
it has not executed this Lease in reliance upon any representation or
promises not set forth in this Lease. This Lease may not be modified or
changed except by written instrument signed by Lessor and Lessee.
52. PROTECTIVE COVENANTS:
Lessee hereby acknowledges that the Premises are subject to that
Declaration of Covenants, Conditions and Restrictions dated December 9,
1965 and recorded in the Office of the County Recorder in the County of
Los Angeles, and that said restrictions affect the use of the leased
Premises. Lessee acknowledges that it has received a copy of said
restrictions which are attached hereto and incorporation herein as Exhibit
"B" and Lessee agrees that it shall comply with said restrictions.
<PAGE> 13
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-GROSS DATED APRIL
22, 1997, BY AND BETWEEN RAYMOND SCURRIA, ROSE SCURRIA, LINDA M. SCURRIA, AND
MARY JANE ZEHNPFENNIG, AS LESSOR, AND AIR PACKAGING TECHNOLOGIES, INC., A
DELAWARE CORPORATION, AS LESSEE, FOR THE PROPERTY COMMONLY KNOWN AS 25620 RYE
CANYON ROAD, UNITS D, E AND F, SANTA CLARITA, CALIFORNIA.
- --------------------------------------------------------------------------------
53. DRIVEWAY EASEMENTS:
Lessee acknowledges its rights to use the driveways is nonexclusive and
other building occupants have the same rights. Lessee may not block, fence,
or otherwise restrict the use of the driveways of the Premises.
54. FIRE PROTECTION:
Lessee agrees to supply and install any equipment required by the County
Fire Prevention Bureau or the Building Department as a result of the type
of materials stored within the leased building or because the activities
within the building. All such compliance shall be at the Lessee's expense.
CONSULT YOUR ATTORNEY/ADVISORS - This document has been prepared for
approval by your attorney. No representation or recommendation is made by
CB Commercial Real Estate Group, Inc. or the American Industrial Real
Estate Association (A.I.R.) or the agents or employees of this document or
the transaction to which it relates. These are questions for your attorney.
On any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other
person with experience in evaluating the condition of the property,
including the possible presence of asbestos, hazardous materials and
underground storage tanks.
In addition, please be advised that an Owner or Tenant of real property may
be subject to the Americans with Disabilities Act (the ADA), a Federal law
codified at 42 USC Section 12101 et seq. Among other requirements of the
ADA that could apply to your property, Title III of the ADA requires Owners
and Tenants of "public accommodations" to remove barriers to access by
disabled persons and provide auxiliary aids and services for hearing,
vision or speech impaired persons by January 26, 1992. The regulations
under Title III of the ADA are codified at 28 CFR Part 36.
CB Commercial recommends that you and your attorney, engineer and/or
architect review the ADA and the regulations, and, if appropriate, your
proposed lease agreement, to determine if this law would apply to you, and
the nature of the requirement.
LESSOR: LESSEE: AIR PACKAGING TECHNOLOGIES, INC.
By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ [SIGNATURE ILLEGIBLE]
-------------------------- --------------------------------
Date: May 6, 1997 Date: May 5, 1997
-------------------- ------------------------------
<PAGE> 14
[AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION LOGO]
RENT ADJUSTMENT(S)
ADDENDUM TO
STANDARD LEASE
DATED April 22, 1997
Raymond Scurria, Rose M. Scurria, Linda M.
BY AND BETWEEN (LESSOR) Scurria, and Mary Jane Zehnpfennig
(LESSEE) Air Packaging Technologies, Inc., a Delaware Corporation
PROPERTY ADDRESS: 25620 Rye Canyon Road, Units D, E and F, Santa Clarita,
CA
Paragraph 55
A. RENT ADJUSTMENTS
The monthly rent for each month of the adjustment period(s) specified below
shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[X] 1. COST OF LIVING ADJUSTMENT(S)(COL)
(a) On (Fill in COL Adjustment Date(s): the commencement of the thirteenth
(13th) month of the Lease term and every (12) months thereafter the monthly rent
payable under paragraph 1.5 ("Base Rent") of the attached Lease shall be
adjusted by the change, if any, from the Base Month specified below, in the
Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of
Labor for (select one): [X] CPIW (Urban Wage Earners and Clerical Workers) or
[ ] CPIU (All Urban Consumers), for (Fill in Urban Area): Los
Angeles/Anaheim/Riverside. All Items (1982-1984 = 100), herein referred to as
"C.P.I."
(b) The monthly rent payable in accordance with paragraph A1(a) of this
Addendum shall be calculated as follows: the Base Rent set forth in paragraph
1.5 of the attached Lease, shall be multiplied by a fraction the numerator of
which shall be the C.P.I. of the calendar month 2 (two) months prior to the
month(s) specified in paragraph A1(a) above during which the adjustment is to
take effect, and the denominator of which shall be the C.P.I. of the calendar
month which is two (2) months prior to (select one): [X] the first month of the
term of this Lease as set forth in paragraph 1.3 ("Base Month") or [ ] (Fill in
Other "Base Month"): _____________________________. The sum so calculated shall
constitute the new monthly rent hereunder, but in no event, shall any such new
monthly rent be less than the rent payable for the month immediately preceding
the date for rent adjustment.*
(c) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I. shall
be used to make such calculation. In the event that Lessor and Lessee cannot
agree on such alternative index, then the matter shall be submitted for
decision to the American Arbitration Association in accordance with the then
rules of said association and the decision of the arbitrators shall be binding
upon the parties. The cost of said Arbitrators shall be paid equally by Lessor
and Lessee.
*In no event shall said increase be less than the three percent (3%) per annum
or be greater than seven percent (7%) per annum.
RENT ADJUSTMENT(S)
PAGE 1 OF 2
<PAGE> 15
B. NOTICE: Unless specified otherwise herein, notice of any escalations other
than Fixed Rental Adjustment(s) shall be made as specified in Paragraph 23 of
the attached Lease.
C. BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached Lease
shall be paid a Brokerage Fee for each adjustment specified above in
accordance with paragraph 15 of the attached Lease.
RENT ADJUSTMENTS
PAGE 2 OF 2
<PAGE> 16
EXHIBIT "A"
[BLUEPRINT]
<PAGE> 17
[LOGO]
VALENCIA INDUSTRIAL CENTER
==========================
DECLARATION OF COVENANTS AND RESTRICTIONS
Whereas, California Land Company, a California corporation (hereinafter
called "Company"), is the owner of (or has an equitable interest in) all that
certain real property located in the County of Los Angeles, State of California,
more particularly described in Exhibit A, attached hereto and incorporated
herein by reference thereto; and
Whereas, it is the desire and intention of Company to develop all of the
property described in Exhibit A as a high standard industrial center, beginning
with development of that portion thereof more particularly described in Exhibit
B, attached hereto and incorporated herein by reference thereto (hereinafter
called "Initial Restricted Area"); and
Whereas, it is the desire and intention of Company to impose upon the
Initial Restricted Area and such other portions of the property described in
Exhibit A made subject hereto from time to time, mutually beneficial
restrictions under a general plan of improvement for the benefit of all of the
property described in Exhibit A the improvements thereon and the future owners
thereof.
Now, therefore, Company hereby declares that the Initial Restricted Area is
held and shall be held, conveyed, hypothecated, encumbered, leased, rented,
used, occupied and improved, subject to the following limitations, restrictions
and covenants, all of which are declared and agreed to be in furtherance of a
plan for the subdivision, improvement and sale of the Restricted Area (as
hereinafter defined) and are established and agreed upon for the purpose of
enhancing and perfecting the value, desirability and attractiveness of the real
property and ever part thereof. All of the limitations, covenants and
restrictions shall run with the real property and shall be binding on all
parties having or acquiring any right, title or interest in the property made
subject hereto or any part thereof, and shall be for the benefit of each owner
of any portion of said real property, or any interest therein, and shall inure
to the benefit of and be binding upon each successor in interest of the owners
thereof.
A. Definitions.
1. "Approving Agent" means, in the following order of precedence:
(a) Company, so long as it owns of record any land in the Restricted
Area; or thereafter
(b) Any corporation, association or trust controlled by Company or with
which Company has been merged or consolidated or by which Company
has been acquired, all as certified of record by Company
(hereinafter called Company's Successor) so long as it owns of
record any land in the Restricted Area and provided it has been
granted of record by Company the exclusive right to approve plans
and grant variances as hereinafter set forth; or thereafter
(c) Any association (whether or not incorporated) organized by a
majority of the owners of record of land in the Restricted Area for
the purpose, among others, of approving plans and granting variances
as hereinafter provided, in which membership is available to all
such owners without charge, provided Company or Company's Successor
has granted to it of record the exclusive right to approve plans and
grant variances as hereinafter set forth which Company agrees will
be done by it or Company's Successor before Company or Company's
Successor ceases to own of record any land in the Restricted Area,
if written request therefor is received prior to that time.
2. "Restricted Area" means the Initial Restricted Area and also such other
portions of the property described in Exhibit A as may from time to time
be designated as subject to the provisions hereof by Company or
Company's Successor by duly recorded designation referring to this
instrument, whether or not such additional areas are owned by Company in
fee at the date hereof.
3. "Site" means an area of land shown as one lot on a recorded subdivision
map or so designated in a deed or lease in which Company is the grantor
or lessor. If an easement or easements over any portion or portions of a
Site established by recorded plan or recorded instrument is or are
reserved by Company for any purpose whatsoever, the area of such portion
or portions shall be included in computing the area of that Site. If
subsequent to the establishment of a Site by recorded plan or recorded
instrument, any portion or portions thereof are, for railroad, street,
highway, utility or public purpose, taken by right of eminent domain, or
deed in lieu thereof, or dedicated or conveyed pursuant to reservation
by Company, the area of such portion or portions shall continue to be
included thereafter in computing the area of that Site.
B. Restrictions.
1. Building Types and Location on Site. No building shall be maintained
upon any Site within forty (40) feet of any street or within fifteen
(15) feet of any other Site, nor have exterior walls constructed other
than substantial construction including concrete and masonry, nor shall
more than fifty per cent (50%) of the area of any Site be built upon;
nor shall any building be constructed upon any Site with a roof having a
difference in elevation of more than two (2) feet unless approved in the
manner hereinafter provided.
2. Use of Setback Areas. Within the required setback area from streets
there shall be maintained on each Site only paved walks, paved
driveways, lawns and landscaping; and the surface of so much of the
remainder of each Site as is not covered by building, or by landscaping
shall be treated so as to be dust free. At least two-thirds (2/3) of the
surface of the required setback area from streets shall be maintained in
landscaping.
EXHIBIT "B"
<PAGE> 18
3. Parking and Loading. There shall be maintained on each Site facilities
for parking loading and unloading sufficient to serve the business
conducted thereon without using adjacent streets therefor; and no use
shall be made of any Site which will attract parking in excess of the
parking spaces then available thereon.
4. Uses Permitted. Each Site shall be used only for
manufacturing, processing, storage wholesale, office, laboratory,
professional research and development activities; and there shall not
be permitted any junk or salvage yard or any other use which will be
offensive to the neighborhood by reason of odor, fumes, dust, smoke,
noise, or pollution or will be hazardous by reason of danger of fire
or explosion.
5. Maintenance of Buildings and Landscaping. The exterior of all
structures and all walks, driveways, lawns and landscaping on each
Site shall be maintained in good order, repair and condition by the
owner thereof; and all exterior painted surfaces shall be maintained
in first-class condition and shall be repainted at least once in
every four (4) years.
6. Screening of Storage Areas. No open storage shall be permitted on any
Site unless protected by screening to a height of not more than eight
(8) feet approved in the manner hereinafter provided.
7. Approval of Plans Required. No buildings, exterior signs or
structures shall be erected, or exterior structural alterations or
additions made on any Site except pursuant to plans and
specifications approved in the manner hereinafter provided as to
landscaping and architectural conformity to a high standard
industrial center, which approval shall not be withheld unreasonably.
The requirement of approval set forth in this paragraph is in
addition to, and not in substitution for, any and all other
restrictions herein contained.
For the purposes hereof, a high standard industrial center
consists of a complex of industrial facilities designed and
constructed to be aesthetically pleasing as well as functional,
combining open green and landscaped areas with structures having a
harmonious exterior design. The industrial center standard includes,
without limiting the generality thereof, the following:
(a) With the exception of those areas planted in shrubs or trees,
the landscaped areas shall be maintained in grass lawns or
approved ground cover.
(b) No signs projecting above the highest point on the roof line of
any building or employing letters exceeding four (4) feet in
height may be used. No more than two business identification
signs may be used on any Site and no signs shall be painted on
any structure. No flashing or moving lights may be used. No more
than one sign relating to the sale or leasing of the Site or
exceeding fifteen (15) square feet may be used.
8. Subdivision of Sites. Further subdivision or division of any Site
shall not serve to make the parts into which such Site is subdivided
themselves Sites for the purposes hereof without the written approval
of the Approving Agent. The restrictions herein contained shall, in
all events, remain applicable to the entire Site as originally
defined for the duration hereof.
C. Approvals, Variances and Waivers.
1. So long as there is an Approving Agent it shall have the exclusive
right to grant approvals required by the Restrictions and to waive or
vary the Restrictions in particular respects whenever in its option
such waiver or variance will not be detrimental to a high standard
industrial center.
2. After there ceases to be an Approving Agent the owners of record of
the land in the Restricted Area abutting upon each Site shall have
the exclusive right to grant approvals required by the Restrictions
and the owners of record of two-third (2/3) in area of land in the
Restricted Area within five hundred (500) feet of each Site (said
area to be defined by a line parallel to the boundaries of each Site
and located five hundred (500) feet therefrom) shall have the
exclusive right to waive or vary the Restrictions in particular
respects whenever in their opinion such waiver or variance will not
be detrimental to a high standard industrial center.
3. Any person having an interest in any Site may rely upon any
instrument of record signed by the Approving Agent or after there
ceases to be an Approving Agent by the appropriate owners referred to
above purporting to grant an approval or to waive or vary the
Restrictions in particular respects.
4. Any construction, other than exterior signs, driveways, parking
areas, grading, landscaping, fences and screens, completed for more
than three (3) months shall be deemed approved, unless prior to the
expiration of such period a suit for enforcement has been commenced
and notice thereof duly recorded. No owner of any Site shall be
responsible except for violations occurring while owner.
D. Enforcement.
1. All of the provisions herein contained shall run with the land and
shall be enforceable in equity.
2. So long as there is an Approving Agent it shall have the exclusive
right to enforce the provisions hereof, without liability for failure
so to do, except that each owner of record of land in the Restricted
Area shall have the right to enforce the provisions hereof then
applicable to any Site if the Approving Agent shall fail so to do
within thirty (30) days after written request from any such owner.
3. After there ceases to be an Approving Agent each owner of record of
land in the Restricted Area shall have the right to enforce the
Restrictions then applicable to any Site without liability for
failure to do.
E. Termination. The terms hereof shall be binding as herein provided until
January 1, 2015. Thereafter, this Declaration of Covenants and
Restrictions shall be extended for successive ten (10) year periods unless
prior to any of said expiration dates, the owners of a majority of the
Sites then subject hereto shall execute, acknowledge and duly record an
instrument extinguishing or modifying this Declaration. Any such
extinguishment or modification shall become effective upon the expiration
date next following the recordation thereof.
====================================================
Recorded on December 9, 1965 as Document Number 698.
Official Records, County of Los Angeles, California
====================================================
<PAGE> 1
EXHIBIT 10(b)
EMPLOYMENT CONTRACT
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
AIR PACKAGING TECHNOLOGIES, INC., a Delaware corporation, located at 25620 Rye
Canyon Road, Valencia, California 91355, (hereinafter referred to as the
"Employer"), and GARVIN MC MINN 4320 Woodcrest Road, West Vancouver, British
Columbia V7S 2W1, (hereinafter referred to as the "Employee"), in consideration
of the mutual promises made herein, agree as follows:
1. SPECIFIED TERM. The Employer hereby employs Employee and Employee
hereby accepts employment with Employer for a period of 60 months, beginning
July 1, 1998. The term of this Agreement shall automatically renew for
successive 12 month terms at the end of each term, unless terminated by either
party at the end of any term by written notice to the other at least 90 days
before expiration of the term.
2. EARLIER TERMINATION. This Agreement may be terminated earlier as
hereinafter provided.
3. TITLE AND DESCRIPTION OF DUTIES. Employee shall serve as the
President and Chief Executive Officer of Employer at its office in Valencia,
California. The parties agree his services shall be rendered both from Southern
California, and from Vancouver, Canada, where he maintains offices.
4. LOYAL AND CONSCIENTIOUS PERFORMANCE OF DUTIES. Employee agrees that
to the best or his ability and experience he will at all times loyally and
conscientiously perform all of the duties and obligations required of him either
expressly or implicitly by the terms of this Agreement.
5. SALARY. As compensation for the services to be rendered by Employee
hereunder, Employer shall pay Employee a monthly salary during the term (and
each successive term) of this Agreement of $14,000 per month, until increased
by mutual agreement of the parties.
6. TAX WITHHOLDING. Employer shall have the right to deduct or withhold
from the compensation due to Employee hereunder any and all sums required for
federal income and Social Security taxes and all state or local taxes now
applicable or that may be enacted and become applicable in the future.
7. VACATION. Employee shall be entitled to three weeks of paid vacation
each calendar year, over the term of this Agreement.
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<PAGE> 2
8. SICK PAY. Employee shall be entitled to 20 days per year as sick
leave with full pay. Sick leave may be accumulated up to a total of 30 days, and
used any time.
9. CAR ALLOWANCE. Employer shall lease a car for Employee over the term
of this Agreement. If required by the leasing company, the lease contract will
be written with Employee as the lessee. In such event, Employer agrees to take
over all obligations under the lease contract on the earlier of the end of the
term of the commitment, or the date on which Employee's employment is
terminated, and to hold Employee harmless from any and all cost or liability.
Employer will pay for all operating expenses of any nature with regard to the
automobile provided by the Employee.
10. BUSINESS EXPENSES. The Employer shall promptly reimburse Employee
for all reasonable business expenses incurred by Employee in promoting the
business of Employer, including expenditures for entertainment, gifts and
travel.
Each such expenditure shall be reimbursable only if it is of a
nature qualifying it as a proper deduction on the Federal and State income tax
return of Employer.
11. MONIES DUE EMPLOYEE. Employer shall pay to Employee any business
expenses or accrued salaries due, within 30 days after notice of termination by
Employer or by Employee.
12. GROUP LIFE INSURANCE. Employer agrees to include Employee under any
Employer's group term life insurance coverage it provides to all Employees, if
any.
13. GROUP MEDICAL INSURANCE. Employer agrees to include Employee and
Employee's spouse and dependents under Employer's group medical insurance
coverage or self-funded coverage. There shall be a choice by the Employee as to
type of coverage (i.e., PPO, POS plans).
14. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. Employer shall obtain
and pay all cost of Officers' and Directors' Liability insurance, which shall
cover all usual liability risks associated with Employee's position as an
officer and director.
15. STOCK OPTIONS: As a bonus to Employee for entering into this
Agreement, Employer agrees to provide for Employee's participation in all key
man stock option plans and/or grants, on terms to be established at Employer's
discretion. The stock options granted shall provide that the options will
continue for a period of six months after the date of termination of employment.
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<PAGE> 3
16. TERMINATION FOR CAUSE.
a. Employer reserves the right to terminate this Agreement if
employee (1) willfully breaches or habitually neglects the duties which
he is required to perform under the terms of this Agreement; or (2)
commits acts of dishonesty, fraud, misrepresentation, or other acts of
moral turpitude, that would prevent the effective performance of his
duties.
b. Employer may at its option terminate this Agreement for the
reasons stated above by giving written notice of termination to Employee
without prejudice to any other remedy to which Employer may be entitled
either at law, in equity, or under this Agreement.
c. The notice of termination required by this Section shall
specify the ground for the termination and shall be supported by a
statement of relevant facts.
d. Termination under this section shall be considered "for
cause" for the purposes of this Agreement.
17. TERMINATION WITHOUT CAUSE.
a. This Agreement shall be terminated upon the death or
permanent disability of Employee such that he cannot fulfill his
responsibilities under this Agreement.
b. Termination under this section shall be considered
"termination without cause" for the purposes of this Agreement.
18. TERMINATION BY EMPLOYEE.
(a) Employee may terminate his obligations under this Agreement
at any time by giving Employer at least three months' notice in advance;
(b) Termination under this section shall be considered voluntary
termination.
19. EFFECT OF TERMINATION UPON COMPENSATION.
(a) In the event that this Agreement is terminated prior to the
completion of the term of employment specified herein, Employee shall be
entitled to the compensation and expense reimbursements earned by and
vested
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<PAGE> 4
in him prior to the date of termination as provided for in this
Agreement, computed pro rata up to and including that date.
(b) "Termination for Cause". In the event of termination "for
cause", Employee shall be entitled to 12 months' compensation from the
date of termination, in addition to that set forth in Subsection (a)
above.
(c) "Termination Without Cause". In the event of termination
"without cause", Employee shall be entitled to 18 months' compensation
from the date of termination, in addition to that set forth in
Subsection (a) above.
(d) "Termination by Employee". In the event of voluntary
termination, Employee shall be entitled to compensation as set forth in
Subsection (a) above.
(e) "Termination on Death or Permanent Disability": If Employee
is terminated due to his death or permanent disability, Employer agrees
to pay Employee (or his Estate) 50% of Employee's monthly salary under
this Agreement, payable in the same manner as provided for the payment
of salary herein, for a period of 24 months after termination.
20. NOTICES. Any and all notices or other communications required or
permitted to be given by either party to the other shall be in writing and may
be transmitted either by personal delivery or by mail, registered or certified,
postage prepaid, with return receipt requested. Notices shall be deemed duly
served and given when personally delivered to the party to whom directed or any
of its officers or, in lieu of such personal service, when deposited in the
United States mail, first class postage prepaid, addressed as follows:
To Employer: Air Packaging Technologies, Inc.
25620 Rye Canyon Road
Valencia, California 91355
copy to: Donald G. Davis, Esq.
Davis & Associates
P. 0. Box 12009
Marina Del Rey, California 90295
To Employee: Garvin McMinn
4320 Woodcrest Road
West Vancouver, British Columbia V7S 2W1
21. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the
4
<PAGE> 5
employment of Employee by Employer, and contains all of the covenants and
agreements between the parties with respect to that employment in any manner
whatsoever. Each party to this Agreement acknowledges that no representations,
inducements, promises, or agreements, orally or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement, or promise not contained in this
Agreement shall be valid or binding.
22. MODIFICATIONS. Any modification of this Agreement will be effective
only if it is in writing signed by the party to be charged.
23. EFFECT OF WAIVER. The failure of either party to insist on strict
compliance with any of the terms, covenants, or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenants or
condition, nor shall any waiver or relinquishment of any right or power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.
24. PARTIAL INVALIDITY. If any provision in this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
25. LAW GOVERNING AGREEMENT. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
26. SUMS DUE DECEASED EMPLOYEE. If Employee dies prior to the expiration
of the term of his employment, any sums that may be due him from Employer under
this Agreement shall be paid to Employee's executors, administrators, heirs, or
personal representatives.
27. ATTORNEYS' FEES AND COSTS. If any legal action is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which that party may be entitled. This provision
shall be construed as applicable to the entire contract.
5
<PAGE> 6
Executed effective July 1, 1998, at Valencia, California.
EMPLOYER
AIR PACKAGING TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ ELWOOD C. TROTTER
------------------------------
EMPLOYEE
/s/ GARVIN MC MINN
- ---------------------------------
GARVIN MC MINN
6
<PAGE> 1
EXHIBIT 10(b) 2
AMENDMENT TO EMPLOYMENT CONTRACT
(GARVIN MC MINN)
That certain Employment Contract between Employer, AIR PACKAGING TECHNOLOGIES,
INC., and Employee, GARVIN MC MINN, formerly President and Chief Executive
Officer, dated July 1, 1998 (the "Agreement"), is hereby amended in the
following respects, effective as of June 1, 1999 (numbers represent the Section
numbers in the Agreement):
1. Term: The term of this Agreement shall run through May 31, 2000, and
then automatically terminate on its own accord.
3. Title and Description of Duties: Employee shall serve as a consultant
to the corporation, from time to time, or on an "as needed" basis.
Employee, at his option, may perform these services from Vancouver,
Canada.
5. Salary: Monthly salary shall be fixed at $5,000 per month, effective
June 1, 1999, payable on or before the 15th of each month.
7. Vacation: Provision deleted. Employee will be on call for consulting
services, but not required to contribute any particular number of
hours a week or a month to the Employer's business.
8. Sick Pay: Provision deleted.
9. Car Allowance: Provision deleted.
10. Business Expense: When Employee is performing services for Employer
at Employer's written request in the Southern California area, or
another locale at Employer's written request different from Vancouver,
Employer shall pay Employee all actual business and travel expenses
incurred.
15. Stock Options: All stock options held by Employee (totalling
1,150,000 options at this date and each exercisable at an exercise
price of $0.15 per share) shall continue for a period of six months
after the end of the term of this Agreement, and shall expire if not
exercised on or before November 30, 2000.
16. Termination for Cause: Provision deleted.
17. Termination Without Cause: Provision deleted.
<PAGE> 2
EXHIBIT 10(b) 2
(continued)
18. Termination by Employee: Provision deleted.
19. Effect of Termination Upon Compensation: Regardless of whether
Employee's services are terminated, and regardless of reason,
Employee or his heirs, shall be entitled to receive the compensation
provided for herein for the full term of this Agreement, or through
May 31, 2000, and shall be entitled to exercise Employee's options
through November 30, 2000.
EMPLOYER EMPLOYEE
AIR PACKAGING TECHNOLOGIES,
INC., a Delaware corporation
By /s/ ILLEGIBLE SIG /s/ GARVIN MC MINN
------------------------------ ------------------------------
Date 6/10/99 Date June 10, 1999
---------------------------- ------------------------------
<PAGE> 1
EXHIBIT 10(c).1
EMPLOYMENT CONTRACT
- CHIEF FINANCIAL OFFICER -
AIR PACKAGING TECHNOLOGIES, INC., a Delaware corporation, located at 25620 Rye
Canyon Road, Valencia, California 91355, (hereinafter referred to as the
"Employer"), and JANET MAXEY, 27632 Salem Court, Castaic, California 91384,
(hereinafter referred to as the "Employee"), in consideration of the mutual
promises made herein, agree as follows:
1. SPECIFIED TERM. The Employer hereby employs Employee and Employee
hereby accepts employment with Employer for a period of 60 months, beginning
July 1, 1998. The term of this Agreement shall automatically renew for
successive 12 month terms at the end of each term, unless terminated by either
party at the end of any term by written notice to the other at least 90 days
before expiration of the term.
2. EARLIER TERMINATION. This Agreement may be terminated earlier as
hereinafter provided.
3. TITLE AND DESCRIPTION OF DUTIES. Employee shall serve as the Chief
Financial Officer of Employer at its office in Valencia, California. The parties
agree this services shall be rendered primarily from Southern California.
4. LOYAL AND CONSCIENTIOUS PERFORMANCE OF DUTIES. Employee agrees that
to the best or his ability and experience he will at all times loyally and
conscientiously perform all of the duties and obligations required of him either
expressly or implicitly by the terms of this Agreement.
5. SALARY. As compensation for the services to be rendered by Employee
hereunder, Employer shall pay Employee a monthly salary during the term (and
each successive term) of this Agreement of $3,574.00 per month, based on an
average of 120 hours per month, until increased by mutual agreement of the
parties.
6. TAX WITHHOLDING. Employer shall have the right to deduct or withhold
from the compensation due to Employee hereunder any and all sums required for
federal income and Social Security taxes and all state or local taxes now
applicable or that may be enacted and become applicable in the future.
7. VACATION. Employee shall be entitled to three weeks of paid vacation
each calendar year, over the term of this Agreement.
1
<PAGE> 2
8. SICK PAY. Employee shall be entitled to 20 days per year as sick
leave with full pay. Sick leave may be accumulated up to a total of 30 days, and
used any time.
9. BUSINESS EXPENSES. The Employer shall promptly reimburse Employee for
all reasonable business expenses incurred by Employee in promoting the business
of Employer, including expenditures for entertainment, gifts and travel.
Each such expenditure shall be reimbursable only if it is of a
nature qualifying it as a proper deduction on the Federal and State income tax
return of Employer.
10. MONIES DUE EMPLOYEE. Employer shall pay to Employee any business
expenses or accrued salaries due, within a period of 30 days after notice of
termination by Employer or by Employee.
11. GROUP LIFE INSURANCE. Employer agrees to include Employee under any
Employer's group term life insurance coverage it provides to all Employees, if
any.
12. GROUP MEDICAL INSURANCE. Employer agrees to include Employee and
Employee's spouse and dependents under Employer's group medical insurance
coverage or self-funded coverage. There shall be a choice by the Employee as to
type of coverage (i.e., PPO, POS plans).
13. STOCK OPTIONS: As a bonus to Employee for entering into this
Agreement, Employer agrees to provide for Employee's participation in all key
man stock option plans and/or grants, on terms to be established at Employer's
discretion. The stock options granted shall provide that the options will
continue for a period of six months after the date of termination of employment.
14. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. Employer shall obtain
and pay all cost of Officers' and Directors' Liability insurance, which shall
cover all usual liability risks associated with Employee's position as an
officer.
15. TERMINATION FOR CAUSE.
a. Employer reserves the right to terminate this Agreement if
employee (1) wilfully breaches or habitually neglects the duties which
he is required to perform under the terms of this Agreement; or (2)
commits acts of dishonesty, fraud, misrepresentation, or other acts of
moral turpitude, that would prevent the effective performance of his
duties.
2
<PAGE> 3
b. Employer may at its option terminate this Agreement for the
reasons stated above by giving written notice of termination to Employee
without prejudice to any other remedy to which Employer may be entitled
either at law, in equity, or under this Agreement.
C. The notice of termination required by this Section shall
specify the ground for the termination and shall be supported by a
statement of relevant facts.
d. Termination under this section shall be considered "for
cause" for the purposes of this Agreement.
16. TERMINATION WITHOUT CAUSE.
a. This Agreement shall be terminated upon the death or
permanent disability of Employee such that he cannot fulfill his
responsibilities under this Agreement.
b. Termination under this section shall be considered
"termination without cause" for the purposes of this Agreement.
17. TERMINATION BY EMPLOYEE.
(a) Employee may terminate his obligations under this Agreement
at any time by giving Employer at least three months' notice in advance;
(b) Termination under this section shall be considered voluntary
termination.
18. EFFECT OF TERMINATION UPON COMPENSATION.
(a) In the event that this Agreement is terminated prior to the
completion of the term of employment specified herein, Employee shall be
entitled to the compensation and expense reimbursements earned by and
vested in him prior to the date of termination as provided for in this
Agreement, computed pro rata up to and including that date.
(b) "Termination for Cause". In the event of termination "for
cause", Employee shall be entitled to 12 months' compensation from the
date of termination, in addition to that set forth in Subsection (a)
above.
(c) "Termination Without Cause". In the event of termination
"without cause", Employee shall be entitled to 18 months' compensation
from the date
3
<PAGE> 4
of termination, in addition to that set forth in Subsection (a) above.
(d) "Termination by Employee". In the event of voluntary
termination, Employee shall be entitled to compensation as set forth in
Subsection (a) above.
(e) "Termination on Death or Permanent Disability": If Employee
is terminated due to his death or permanent disability, Employer agrees
to pay Employee (or his Estate) 50% of Employee's monthly salary under
this Agreement, payable in the same manner as provided for the payment
of salary herein, for a period of 24 months after termination.
19. NOTICES. Any and all notices or other communications required or
permitted to be given by either party to the other shall be in writing and may
be transmitted either by personal delivery or by mail, registered or certified,
postage prepaid, with return receipt requested. Notices shall be deemed duly
served and given when personally delivered to the party to whom directed or any
of its officers or, in lieu of such personal service, when deposited in the
United States mail, first class postage prepaid, addressed as follows:
To Employer: Air Packaging Technologies, Inc.
25620 Rye Canyon Road
Valencia, California 91355
copy to: Donald G. Davis, Esq.
Davis & Associates
P.O. Box 12009
Marina Del Rey, California 90295
To Employee: Janet Maxey
27632 Salem Court
Castaic, California 91384
20. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Employee by Employer, and contains all of the covenants and
agreements between the parties with respect to that employment in any manner
whatsoever. Each party to this Agreement acknowledges that no representations,
inducements, promises, or agreements, orally or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement, or promise not contained in this
Agreement shall be valid or binding.
4
<PAGE> 5
21. MODIFICATIONS. Any modification of this Agreement will be effective
only if it is in writing signed by the party to be charged.
22. EFFECT OF WAIVER. The failure of either party to insist on strict
compliance with any of the terms, covenants, or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenants or
condition, nor shall any waiver or relinquishment of any right or power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.
23. PARTIAL INVALIDITY. If any provision in this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
24. LAW GOVERNING AGREEMENT. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
25. SUMS DUE DECEASED EMPLOYEE. If Employee dies prior to the expiration
of the term of his employment, any sums that may be due him from Employer under
this Agreement shall be paid to Employee's executors, administrators, heirs, or
personal representatives.
26. ATTORNEYS' FEES AND COSTS. If any legal action is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which that party may be entitled. This provision
shall be construed as applicable to the entire contract.
Executed effective July 1, 1998, at Valencia, California.
EMPLOYER
AIR PACKAGING TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ GARVIN MCMINN
------------------------------
GARVIN MCMINN
EMPLOYEE
/s/ JANET MAXEY
- -----------------------------------
JANET MAXEY
5
<PAGE> 1
EXHIBIT 10(c) 2
AMENDMENT TO EMPLOYMENT CONTRACT
(JANET MAXEY)
That certain Employment Contract between Employer, AIR PACKAGING TECHNOLOGIES,
INC., and Employee, JANET MAXEY, retaining Ms. Maxey as Chief Financial
Officer, effective July 1, 1998 (the "Agreement") is hereby amended in the
following respects, effective as of June 1, 1999 (numbers represent the Section
numbers in the Agreement):
1. Specified Term: The term of this Agreement shall run through May 31,
2000, and then automatically terminate on its own accord.
13. Stock Options: All stock options held by Employee (totaling 250,000
Options at this date and each exercisable at an exercise price of
$0.15 per share) shall continue to be exercisable so long as Employee
is employed by Employer, and shall terminate at the end of six months
after Employee ceases employment with Employer, regardless of reason
for termination.
18. (a) In the event that this Agreement is terminated prior to the
completion of the term of employment specified herein, Employee
shall be entitled to the compensation and expense reimbursements
earned by and vested in him prior to the date of termination as
provided for in this Agreement, computed pro rata up to and
including that date.
(b) Deleted.
(c) Deleted.
(d) Deleted.
(e) Deleted.
EMPLOYER EMPLOYEE
AIR PACKAGING TECHNOLOGIES, INC.,
a Delaware corporation
By /s/ ILLEGIBLE SIG /s/ JANET MAXEY
----------------------------------- ------------------------------
Date 6/30/99 Date 6/30/99
--------------------------------- ------------------------------
<PAGE> 1
EXHIBIT 10(d).1
Senior Executive Contract
DUTIES AND OBLIGATIONS OF EMPLOYEE
TITLE AND DESCRIPTION OF DUTIES
Employee shall serve as Vice President, Sales of Air Packaging Technologies,
Inc. In that capacity, Employee shall do and perform all services, acts, or
things necessary or advisable to fulfill the duties of an Officer. However,
Employee shall at all times be subject to the direction of the President, and to
the policies established by the Board of Directors, of Employer.
LOYAL AND CONSCIENTIOUS PERFORMANCE OF DUTIES
Employee agrees that to the best of his ability and experience he will at all
times loyally and conscientiously perform all of the duties and obligations
required of him either expressly or implicitly by the terms of this agreement.
COMPETITIVE ACTIVITIES
During the term of this contract Employee shall not, directly or indirectly,
either as an employee, employer, consultant, agent, principal, partner,
stockholder, corporate officer, director, or in any other individual or
representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of Employer.
TRADE SECRETS
The parties acknowledge and agree that during the term of this agreement and in
the course of the discharge of his duties hereunder, Employee shall have access
to and become acquainted with information concerning the operation of Employer,
including without limitation, (financial, personnel, sales, planning, and other)
information that is owned by Employer and regularly used in the operation of
Employer's business and that this information constitutes Employer's trade
secrets.
Employee agrees that he shall not disclose any such trade secrets, directly or
indirectly, to any other person or use them in any way, either during the term
of this agreement or at any other time thereafter, except as is required in the
course of his employment with Employer.
Employee further agrees that all files, records, documents, equipment and
similar items relating to Employer's business, whether prepared by Employee or
others, are and shall remain exclusively the property of Employer and that they
shall be removed from the premises of Employer (only with the express prior
consent of Employer's President).
<PAGE> 2
Page two...
OBLIGATIONS OF EMPLOYER
GENERAL DESCRIPTION
Employer shall provide Employee with the compensation, incentives, benefits, and
business expense reimbursement specified elsewhere in this agreement.
OFFICE AND STAFF
Employer shall provide Employee with a private office, stenographic help, office
equipment and supplies, and other facilities and services, suitable to
Employee's position and adequate for the performance of his duties.
COMPENSATION OF EMPLOYEE
ANNUAL SALARY
As compensation for the services to be rendered by Employee hereunder, Employer
shall pay Employee an annual salary at the rate per annum specified in Schedule
"A" attached to and made part of this Agreement.
Employee shall receive such annual increases in salary as may be determined by
President.
SALARY CONTINUATION DURING DISABILITY
If Employee for any reason whatsoever becomes permanently disabled so that he is
unable to perform the duties prescribed herein, Employer agrees to pay Employee
50 percent of annual salary plus insurance benefits for 2 years.
TAX WITHHOLDING
Employer shall have the right to deduct or withhold from the compensation due to
Employee hereunder any and all sums required for federal income and Social
Security taxes and all state or local taxes now applicable or that may be
enacted and become applicable in the future.
AUTOMOBILE ALLOWANCE
The employer shall provide the employee an automobile allowance of $600.00 per
month.
The employer will pay for any operating expenses of any nature whatsoever with
regard to the automobile provided by the employee.
<PAGE> 3
Page three...
EMPLOYEE BENEFITS
ANNUAL VACATION
Employee shall be entitled up to 3 weeks vacation time each year with pay.
Employee may be absent from his employment for vacation only at such times as
Employer's President shall determine from time to time. In the event that
Employee is unable for any reason to take the total amount of vacation time
authorized herein during any year, he (may accrue that time and add it to
vacation time for any following year or may instead receive a cash payment in an
amount equal to the amount of annual salary attributable to that period of time
or shall be deemed to have waived any entitlement to vacation time for that
year).
ILLNESS
Upon completion of one year in the service of Employer, Employee shall be
entitled to 20 days per year as sick leave with full pay. Sick leave may be
accumulated up a total of 30 days.
GROUP MEDICAL INSURANCE
Employer agrees to include Employee under Employer's group medical insurance
coverage and any other insurance plans offered at no cost to the employee.
BUSINESS EXPENSES
BUSINESS EXPENSES
Employer shall promptly reimburse Employee for all reasonable business expenses
incurred by Employee in promotion the business of Employer, including
expenditures for entertainment, gifts, and travel.
Each such expenditure shall be reimbursable only if it is of a nature qualifying
it as a proper deduction on the federal and state income tax return of Employer.
Each such expenditure shall be reimbursable only if Employee furnishes to
Employer adequate records and other documentary evidence required by federal and
state statutes and regulations issued by the appropriate taxing authorities for
the substantiation of that expenditure as an income tax deduction.
<PAGE> 4
Page four...
REPAYMENT BY EMPLOYEE OF DISALLOWED BUSINESS EXPENSES
In the event that any expenses paid for Employee or any reimbursement of
expenses paid to Employee shall, on audit or other examination of Employer's
income tax returns, be determined not to be allowable deductions from Employer's
gross income, and in the further event that any such determination is acceded to
by the 'Employer or made final by the appropriate federal or state taxing
authority or a final judgment of a court of competent jurisdiction, and no
appeal is taken from the judgment or the applicable period for filing notice of
appeal has expired, Employee shall repay to Employer the amount of the
disallowed expenses.
TERMINATION OF EMPLOYMENT
TERMINATION FOR CAUSE
Employer reserves the right to terminate this agreement if employee (1) wilfully
breaches or habitually neglects the duties which he is required to perform under
the terms of this agreement, or (2) commits acts of dishonesty, fraud,
misrepresentation or other acts of moral turpitude, that would prevent the
effective performance of his duties.
Employer may at its option terminate this agreement for the reasons stated in
this section by giving written notice of termination to Employee without
prejudice to any other remedy to which Employer may be entitled either at law,
in equity, or under this agreement.
The notice of termination required by this section shall specify the ground for
the termination and shall be supported by a statement of (all) relevant facts.
Termination under this section shall be considered "for cause" for the purposes
of this agreement.
TERMINATION COMPENSATION
If the employer terminates the employee with or without cause, the employee is
to be compensated for a specific period according to Schedule "B".
GENERAL PROVISIONS
NOTICES
Any notices to be given by either party to the other shall be in writing and may
be transmitted either by personal delivery or by
<PAGE> 5
Page five...
mail, registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses appearing in
the introductory paragraph of this agreement, but each party may change that
address by written notice in accordance with this section. Notices delivered
personally shall be deemed communicated as of the date of actual receipt; mailed
notices shall be deemed communicated as of the date of mailing.
ARBITRATION
Any controversy between Employer and Employee involving the construction or
application of any of the terms, provisions, or conditions of this agreement
shall on the written request of either party served on the other be submitted to
arbitration. Arbitration shall comply with and be governed by the provisions of
the California Arbitration Act.
Employer and Employee shall each appoint one person to hear and determine the
dispute. If the two persons so appointed are unable to agree, then those persons
shall select a third impartial arbitrator whose decision shall be final and
conclusive upon both parties.
The cost of arbitration shall be borne by the losing party or in such
proportions as the arbitrators decide.
ATTORNEYS' FEES AND COSTS
If any legal action is necessary to enforce or interpret the terms of this
agreement, the prevailing party shall be entitled to reasonable attorneys' fees,
costs, and necessary disbursements in addition to any other relief to which that
party may be entitled. This provision shall be construed as applicable to the
entire contract.
ENTIRE AGREEMENT
This agreement supersedes any and all other agreements, either oral or in
writing, between the parties hereto with respect to the employment of Employee
by Employer, and contains all of the covenants and agreements between the
parties with respect to that employment in any manner whatsoever. Each party to
this agreement acknowledges that no representations, inducements, promises, or
agreements, orally or otherwise, have been made by any party, or anyone acting
on behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this agreement shall be valid
or binding.
<PAGE> 6
Page six...
MODIFICATIONS
Any modification of this agreement will be effective only if it is in writing
signed by the party to be charged.
LAW GOVERNING AGREEMENT
This agreement shall be governed by and construed in accordance with the laws of
the State of California.
SUMS DUE DECEASED EMPLOYEE
If Employee dies prior to the expiration of the term of his employment, any sums
that may be due him from Employer under this agreement as of the date of death
shall be paid to Employee's executors, administrators, heirs, personal
representatives, successors, and assigns.
Executed on August 2, 1994 (date), at Valencia (city), California.
EMPLOYER
Air Packaging Technologies, Inc.
By /s/ DAN PHARO
-------------------------------
Dan Pharo, President
EMPLOYEE
/s/ ELWOOD TROTTER
- ----------------------------------
Elwood Trotter
<PAGE> 7
SCHEDULE "A"
Elwood Trotter - $6,000.00 monthly plus 1% of gross sales payable quarterly.
Note: The President shall have the right to negotiate the percentage of sales
with the employee.
<PAGE> 8
SCHEDULE "B"
TERMINATION COMPENSATION
If employee is terminated with or without cause, the employee shall be
compensated as follows:
1 year employment - 6 months compensation
2 years employment - 9 months compensation
3 years employment - 12 months compensation
4 years plus - 15 months compensation
The compensation is based on salary only. The percentage of sales is not
included in the compensation package.
<PAGE> 1
EXHIBIT 10(d) 2
AMENDMENT TO EMPLOYMENT CONTRACT
(ELWOOD TROTTER)
That certain Employment Contract between Employer, AIR PACKAGING TECHNOLOGIES,
INC., and Employee, ELWOOD TROTTER, retaining Mr. Trotter as Vice President,
effective August 2, 1994 (the "Agreement"), is hereby amended in the following
respects, effective as of June 1, 1999:
1. The Section on page 2 entitled "Salary Continuation During Disability"
is hereby deleted in its entirety, and replaced with the following
language:
"Specified Term: The term of this Agreement shall run through
May 31, 2000, and then automatically terminate on its own
accord."
2. The Section on page 4 entitled "Termination Compensation" is deleted
in its entirety, and replaced with the following language:
"Effect of Termination on Compensation: In the event that this
Agreement is terminated prior to the completion of the term of
employment specified herein, Employee shall be entitled to the
compensation and expense reimbursements earned by and vested in
him prior to the date of termination as provided for in this
Agreement, computed pro rata up to and including that date."
3. There shall be added at the end of the Agreement the following
Section:
"Stock Options: All stock options held by Employee (totaling
750,000 Options at this date and exercisable at an exercise
price of $0.15 per share) shall continue to be exercisable
so long as Employee is employed by Employer, and shall terminate
at the end of six months after Employee ceases employment with
Employer, regardless of reason for termination."
EMPLOYER EMPLOYEE
AIR PACKAGING TECHNOLOGIES, INC.,
a Delaware corporation
By /s/ ILLEGIBLE SIG /s/ ELWOOD TROTTER
----------------------------------- ---------------------------------
Date 6/30/99 Date June 30, 1999
--------------------------------- ---------------------------------
<PAGE> 1
EXHIBIT 10(e)
STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of _______________________________________
BETWEEN:
AIR PACKAGING TECHNOLOGIES, INC., of
25620 Rye Canyon Road, Valencia, California
91355 USA
(the "Company")
OF THE FIRST PART
AND:
______________________________________
______________________________________
______________________________________
(the "Optionee")
OF THE SECOND PART
WHEREAS:
A. The Optionee is an employee of the Company or its wholly-owned
subsidiary, as the case may be;
B. The Company wishes to grant the Optionee an option to purchase
common shares in the capital of the Company;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the
sum of $1.00 given by the Optionee to the Company (the receipt of which is
hereby acknowledged by the Company) the parties hereto agree as follows:
<PAGE> 2
2
1. The Company hereby grants the Optionee as an incentive and not in
lieu of salary or any other compensation for services, an option to purchase a
total of ______ common shares in its capital (the "Option") at a price of
_______ per share exercisable on or before ______________ (the "Expiry Date").
2. In order to exercise the Option, the Optionee shall, before 5:00 p.m.
on the Expiry Date, give notice to the Company of the Optionee's intention to
exercise the Option in whole or in part, such notice to be accompanied by cash,
bank draft, money order or certified cheque, payable to the Company, in the
appropriate amount.
3. If the Optionee:
(a) dies prior to the expiration of the Option, the Optionee's legal
representatives may, within one year from the Optionee's death and
prior to the expiry of the Option, exercise that portion of the Option
which remains outstanding after which time the Option shall terminate;
or
(b) ceases to act as an employee of the Company or its wholly-owned
subsidiary for any reason other than the Optionee's death, the Option
shall terminate 30 days after the date of such cessation.
4. If the issued and outstanding common shares in the capital of the
Company are at any time changed by subdivision, consolidation, re-division,
reduction in capital, reclassification or recapitalization (such changes are
herein called collectively "Capital Alterations"), not including any issuance
of additional shares for consideration, the Option shall be adjusted as follows:
(a) the number and class of shares in respect of which the Option is
granted shall be adjusted in such a manner as to parallel the change
created by the Capital Alterations in the class and total number of
the issued and outstanding common shares; and
(b) the exercise price of each share in respect of which the Option shall
operate shall be increased or decreased proportionately, as the case
may require, so that upon exercising the Option the same proportionate
shareholdings at the same aggregate purchase price shall be acquired
after such Capital Alterations as would have been acquired before the
Capital Alterations.
5. The Option granted is personal to the Optionee and may not be
assigned or transferred in whole or in part.
6. This Agreement constitutes and expresses the whole agreement of the
parties with reference to the subject matter herein, all promises,
representations and understandings relative thereto being merged herein.
Notwithstanding the foregoing, it is acknowledged and agreed that the Option
herein is in addition to, and not in substitution for, the Optionee's
previously granted and yet unexercised stock options.
<PAGE> 3
3
7. Any amendment to this Agreement shall be subject to the approval of
the shareholders of the Company if the Optionee was an insider of the Company,
as that term is used in the Securities Act (British Columbia), at the time of
granting the Option or is an insider of the Company at the time of the
amendment.
8. This Agreement shall be construed and enforced in accordance with the
laws of British Columbia and the parties hereby irrevocably attorn to the
exclusive jurisdiction of the Courts of British Columbia.
9. This Agreement shall be subject to the approval of all securities
regulatory authorities having jurisdiction.
10. If the Optionee is an insider of the Company, as that term is defined
in the Securities Act (British Columbia), the Optionee shall not exercise the
Option prior to the approval of the Option by the shareholders of the Company.
For the purposes of this paragraph, approval of the shareholders may be granted
in advance of the Option, by way of blanket or omnibus resolution authorizing
the Company's Board of Directors to grant options or alternatively by approving
a stock option plan adopted by the Company. In the event the Company has
adopted a stock option plan, then notwithstanding anything to the contrary
contained herein, the Option and the Agreement shall be governed under the
terms of such stock option plan, and in the event of any inconsistencies
between this Agreement and the stock option plan, the terms of the stock option
plan shall prevail. If the shareholders do not approve the Option and this
Agreement, then the Option and this Agreement shall be void ab initio.
<PAGE> 4
4
11. THE OPTIONEE HEREBY CONFIRMS THAT THE OPTIONEE HAS RECEIVED
INDEPENDENT LEGAL ADVICE REGARDING THE APPLICATION OF THE SECURITIES LAWS OF
THE UNITED STATES TO THE PURCHASE AND SALE OF SHARES OF THE COMPANY
CONTEMPLATED BY THIS AGREEMENT.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the
day and year first above written.
THE COMMON SEAL OF AIR )
PACKAGING TECHNOLOGIES, INC. )
was hereunto affixed in the presence of: )
)
) c/s
_______________________________________ )
Director )
)
)
SIGNED, SEALED AND DELIVERED )
)
by _____________________ in the presence )
of: )
)
)
_______________________________________ )
Signature )
)
)
_______________________________________ ) ________________________________
Name )
)
)
_______________________________________ )
Address )
)
)
_______________________________________ )
<PAGE> 5
** APPENDIX 1 TO STOCK OPTION AGREEMENT DATED **
12. The option hereby granted, and the underlying shares of Common which will
be issued upon exercise, are each restricted securities issued in respective
private placement transactions exempt from registration under the united States
Securities Act of 1933, and such securities in each case may not be resold
without registration under the Securities Act or the availability of an
exemption from registration in connection with resale. The share certificates
evidencing the shares upon option exercise will bear the following legend:
The securities evidenced hereby have not been registered under
the Securities Act of 1933 or any state securities laws; such
securities may not be transferred, sold, pledged or otherwise
disposed of unless such securities are registered under the
Securities Act of 1933 and such state laws or such transactions
are exempt from the registration requirements therefor.
If you have questions about this option or the underlying stock upon issuance,
under Federal Securities Laws, you may wish to consult with your own attorney
or you may wish to contact our U.S. Corporate Counsel, Donald G. Davis, of The
Law Offices of Davis & Associates, Inc., P.O. Box 12009, Marina Del Rey,
California 90295; telephone (310) 823-8300.
Please sign below acknowledging you have read the above paragraphs.
<PAGE> 1
Exhibit 10(f)
DATED for reference January 1, 1989
- ---------------------------------------------
BETWEEN:
DANIEL PHARO
OF THE FIRST PART
AND:
PUFF PAC, LTD.
OF THE SECOND PART
AND:
ALL OF THE PERSONS IN
PUFF PAC PEOPLE
OF THE THIRD PART
- ---------------------------------------------
PATENT ROYALTY AGREEMENT
- ---------------------------------------------
RUSSELL & DuMOULIN
Barristers & Solicitors
1500 - 885 West Georgia Street
Vancouver, British Columbia
V6C 3H7
Attention: Alan H. Finlayson
<PAGE> 2
PATENT ROYALTY AGREEMENT
THIS AGREEMENT is dated for reference January 1, 1989.
BETWEEN:
DANIEL PHARO, Businessman, of 2160 Century Park East, Los Angeles,
California 90067
(hereinafter called "Pharo")
OF THE FIRST PART,
AND:
PUFF PAC, LTD., a California limited partnership having an office at
2399 Manning Avenue, Los Angeles, California, 90064
(hereinafter called "PPL")
OF THE SECOND PART,
AND:
ALL OF THE PERSONS IN PUFF PAC PEOPLE
(hereafter collectively called "PPP" and individually called a
"Person of PPP")
OF THE THIRD PART.
WHEREAS:
A. By oral agreement Pharo granted a royalty relating to U.S. patents No.
4,597,244 and No. 4,793,123 issued on July 1, 1986 and December 27, 1988
respectively, and to U.S. patent applications with serial numbers 089,228 and
07/262,537 filed on August 25, 1987 and October 25, 1988 respectively (the
"Intellectual Property") to a collectivity of people commonly known as Puff Pac
People ("PPP");
<PAGE> 3
B. By an undated agreement entitled "Patent Distribution Agreement" between
Pharo and PPL, Pharo granted a license to PPL to manufacture, use and sell
products made under the Intellectual Property;
C. The parties wish to reduce the oral agreement to writing and wish to make
certain amendments including ensuring that royalty payments are made from PPL
directly to PPP.
IN CONSIDERATION FOR the payment of $1.00 paid by PPL to each of the
persons of PPP and Pharo, the receipt and sufficiency of which consideration is
expressly acknowledged, the parties agree as follows;
1. For the period from January 1, 1989 to December 31, 1989, PPL will pay a
royalty to PPP in the amount of five percent of the Cost Of Goods Sold of
Products sold in the United States.
2. For the period from January 1, 1990 to December 31, 1990, PPL will pay a
royalty to PPP for Industrial Packaging and for Gift Wrapping of three percent
and four percent respectively, of the Cost of Goods Sold of Products sold in
the United States.
3. For the period from January 1, 1991 to December 31, 1994, PPL will pay a
royalty to PPP for Industrial Packaging and for Gift Wrapping of two percent
and three percent respectively of the Cost of Goods Sold of Products sold in
the United States.
4. For the period commencing January 1, 1995, PPL will pay a royalty to PPP
for Industrial Packaging and for Gift Wrapping of two percent and two and
one-half percent respectively of the Cost of Goods Sold of Products sold in the
United States.
5. The amounts to be paid under paragraphs 1, 2, 3 and 4 will be determined
by reference to the audited financial statements of PPL.
<PAGE> 4
6. Within 30 days of the end of the first, second and third quarters of each
fiscal year of PPL, PPL shall advance to PPP an amount being an estimate
made by PPL only of the royalty accrued for the recently completed quarter
of the fiscal year of PPL.
7. PPL shall pay to PPP the amounts to be paid under paragraphs 1, 2, 3 and 4
no later than 150 days following the fiscal year end of PPL. Such payments
will be adjusted to exclude the advances provided during the fiscal year
and, in the event that the advances exceed the total amount to be paid for
a fiscal year, then PPL shall no later than 150 days following the fiscal
year end of PPL deliver to PPP a demand to pay such excess and PPP shall
make payment to PPL on such demand within 10 days of receipt of such.
8. For the purpose of this Agreement, the following words and terms have the
following definitions:
(a) "Cost of Goods Sold" means manufacturers unit price FOB factory,
multiplied by the number of units sold, excluding returns using
average costing method;
(b) "Gift Wrapping" means wrapping produced under the Intellectual
Property that is placed around consumer goods at the retail trade;
(c) "Industrial Packaging" means the packaging produced under the
Intellectual Property that is used for protection of items including
flowers during their transportation or storage including, but not
restricted to, use by manufacturers, growers and wholesalers; and
(d) "Products" means those products produced under the Intellectual
Property.
<PAGE> 5
9. Payments hereunder shall be made by PPL directly to PPP.
10. Any payments to be made by PPL to PPP shall be delivered or mailed to PPP
at 5 West Elm Street, Lodi, California, 95240. In the event that PPP
incorporates a company to facilitate receipt of payments herein:
(a) each Person of PPP shall deliver to PPL an assignment in writing to
the corporation of its interest in this Agreement;
(b) each Person of PPP shall deliver to PPL a duly executed release of
PPL's obligations to each Person of PPP under this Agreement; and
(c) any payment required herein shall be made payable to the corporate
name and to the corporate address as advised by Ken Dammel.
11. PPL shall provide PPP within 150 day of the fiscal year end of PPL a
complete and accurate statement of its Cost of Goods Sold for the fiscal year
then ending, such statement to be certified by PPL as accurate and to include
information as to the number, description of Products sold during the fiscal
year and any further information as PPP may from time to time reasonably
request. Such statements shall be furnished to PPP regardless of whether
Products have been shipped, distributed or sold and whether or not royalties
have been earned during the fiscal period. PPP shall keep such statements
strictly confidential.
12. PPL acknowledges that as of December 31, 1988 it owes PPP royalty payments
of $12,999.25 in aggregate.
<PAGE> 6
13. PPP acknowledges that it has no royalty agreements written or oral with
PPL or Pharo other than this Agreement.
14. PPP does forever release Pharo, his executors, administrators, successors
and assigns of and from all causes of action, contracts, claims, suits, demands
and damages of whatever nature or kind and howsoever arising, which each of the
Persons of PPP, their executors, administrators, successors and assigns, can,
shall or may have for or by any reason or arising out of any cause, act,
contract, deed, matter, thing, or omission existing up to the date of this
Agreement, save and except royalty payments due and owing up to and including
December 31, 1988 in the amount of $12,999.25 in aggregate.
15. Each of the Persons of PPP does hereby remise, release and forever
discharge PPL, its directors, officers, agents, employees, successors and
assigns of and from all causes of action, contracts, claims, suits, costs,
demands and damages of whatever nature or kind and howsoever arising, which each
of the Persons of PPP, their executors, administrators, successors and assigns
now have or which hereafter they, their executors, administrators, successors
and assigns, can, shall or may have for or by any reason or arising out of any
cause, act, contract, deed, matter, thing, or omission existing up to the date
of this Agreement, save and except the royalty payments due and owing up to and
including December 31, 1988 in the amount of $12,999.25 in aggregate.
16. Pharo does hereby remise, release and forever discharge PPL, its
directors, officers, agents, employees, successors and assigns of and from all
causes of action, contracts, claims, suits, costs, demands and damages of
whatever nature or kind and howsoever arising, which Pharo, his executors,
administrators, successors and assigns now have or which hereafter he, his
executors, administrators, successors and assigns, can, shall or may have for or
by any reason or arising out of any cause, act,
<PAGE> 7
- 6 -
contract, deed, matter, thing, or omission existing up to the date of this
Agreement.
17. This Agreement does not create a partnership or joint venture between the
parties and neither party has the power to obligate or bind the other party in
any manner.
18. Any notice required to be given shall be sufficiently given if in writing
and delivered, personally, to the address of the intended recipient set forth
on the first page hereof or such other address as may be specified in writing
by any of the parties hereto on giving notice in the same manner. Such notice
shall be deemed to have been received on the day it is so delivered.
19. All of the parties to this Agreement agree to execute and deliver all such
further documents and assurances and do all such further acts and things which
either before or after the execution of this Agreement are necessary to carry
out the full interest and meaning of this Agreement.
20. This Agreement shall be governed by the laws of the province of British
Columbia and the parties hereto agree to the exclusive jurisdiction of the
courts of British Columbia.
21. This Agreement represents the entire understanding between the parties of
this Agreement and supersedes all previous representations, understandings or
agreements, oral or written between the parties.
22. This Agreement may be amended only by agreement in writing, executed by
all of the parties hereto.
23. This agreement may not be assigned by any Person of PPP without the
previous written consent of PPL.
24. This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators,
successors and assigns.
<PAGE> 8
<TABLE>
<CAPTION>
Percentage of Patent
Royalty also being the
Name of Partners In Percentage of
Puff Pac People Interest in Partnership
- ------------------- -----------------------
<S> <C>
Michele M. Rodgers 1
William Wetzel 1/2
Susan Baxter 1/2
Helen Robinson 1/2
Juanita Folks 1
Larry & Lenore Nies 1
Sandra Brewster 5
Robert W. Smith &
Dixie Hughes Smith 1
Diane Watson 1/2
Amy Morein 1
Heather Morein 1
Dick Howell 1
Clarice Pharo 1
Daniel Alan Pharo
Edwin Dommel 8
Kenneth Dommel 6
Larry Fagan 2
Rodger Henson 4
William Howell 1
Pamela Hummel 1
Dennis Johansen 3
Kleinfeld & Heiser 1
Charles Kroeger 1
Jim Mitchell 3
William Stratton 1
Hilland Holland 1
-----
TOTAL 100
</TABLE>
<PAGE> 1
EXHIBIT 10(g)
THIS AGREEMENT is dated for reference June 14, 1991 and made
AMONG:
CENTRAL GUARANTY TRUST COMPANY, a company having an office at 2nd Floor,
800 West Pender Street, Vancouver, British Columbia, V6C 2V7
(the "Escrow Agent");
AND:
PUFF PAC INDUSTRIES INC., a corporation duly incorporated pursuant to the
laws of the state of Delaware and having an office at Suite 1500, 701 West
Georgia Street, Vancouver, British Columbia, V7Y 1A1
(the "Issuer");
AND:
EACH SHAREHOLDER as defined in this Agreement
(collectively, the "Parties").
WHEREAS the Shareholder has acquired or is about to acquire shares of the
Issuer;
AND WHEREAS the Escrow Agent has agreed to act as escrow agent in respect
of the shares upon the acquisition of the shares by the Shareholder;
AND WHEREAS by an Escrow Agreement - Principal's Shares dated November 14,
1989 (the "Principal's Agreement") among the Escrow Agent, the Issuer and six
various shareholders, a total of 637,500 shares were originally held in escrow,
of which 525,000 shares remain held in escrow;
AND WHEREAS by an Earn-Out Escrow Agreement dated November 16, 1989 (the
"Earn-Out Agreement") among the Escrow Agent, the Issuer and 28 various
shareholders, a total of 3,935,423 shares are held in escrow;
NOW THEREFORE in consideration of the covenants contained in this
agreement and other good and valuable consideration (the receipt and
sufficiency of which is acknowledged), the Parties agree as follows:
<PAGE> 2
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1. INTERPRETATION
In this agreement:
(a) "Acknowledgement" means the acknowledgement and agreement to be bound
in the form attached as Schedule A to this agreement;
(b) "Act" means the Securities Act, S.B.C. 1985, c. 83;
(c) "Exchange" means the Vancouver Stock Exchange;
(d) "IPO" means the initial public offering of common shares of the Issuer
under a prospectus which has been filed with, and for which a receipt
has been obtained from, the Superintendent under section 42 of the
Act;
(e) "Local Policy Statement 3-07" means the Local Policy Statement 3-07 in
effect as of the date of reference of this agreement and attached as
Schedule B to this agreement;
(f) "Shareholder" means a holder of the shares of the Issuer who executes
this agreement or an Acknowledgement;
(g) "Shares" means the shares of each Shareholder described in Schedule C
to this agreement, as amended from time to time in accordance with
section 9;
(h) "Superintendent" means the Superintendent of Brokers appointed under
the Act; and
(i) "Superintendent or the Exchange" means the Superintendent, if the
shares of the Issuer are not listed on the Exchange, or the Exchange,
if the shares of the Issuer are listed on the Exchange.
2. PLACEMENT OF SHARES IN ESCROW
The Shareholder places the Shares in escrow with the Escrow Agent and
shall deliver the certificates representing the Shares to the Escrow Agent as
soon as practicable.
3. VOTING OF SHARES IN ESCROW
Except as provided by section 4(a), the Shareholder may exercise all
voting rights attached to the Shares.
<PAGE> 3
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4. WAIVER OF SHAREHOLDER'S RIGHTS
The Shareholder waives the rights attached to the Shares
(a) to vote the Shares on a resolution to cancel any of the Shares,
(b) to receive dividends, and
(c) to participate in the assets and property of the Issuer on a winding
up or dissolution of the Issuer.
5. ABSTENTION FROM VOTING AS A DIRECTOR
A Shareholder that is or becomes a director of the Issuer shall
abstain from voting on a directors' resolution to cancel any of the Shares.
6. TRANSFER WITHIN ESCROW
(1) The Shareholder shall not transfer any of the Shares except in accordance
with Local Policy Statement 3-07 and with the consent of the Superintendent
or the Exchange.
(2) The Escrow Agent shall not effect a transfer of the Shares within escrow
unless the Escrow Agent has received
(a) a copy of an Acknowledgment executed by the person to whom the Shares
are to be transferred, and
(b) a letter from the Superintendent or the Exchange consenting to the
transfer.
(3) Upon the death or bankruptcy of a Shareholder, the Escrow Agent shall hold
the Shares subject to this agreement for the person that is legally
entitled to become the registered owner of the Shares.
(4) Upon the death or bankruptcy of a Shareholder or upon a Shareholder who is
a principal of the Issuer as at the date of this agreement ceasing to be a
principal of the Issuer, upon the request of the board of directors of the
Issuer on behalf of the Issuer, any Shares held by the Shareholder shall,
in accordance with the request, be transferred to a then current principal
of the Issuer or surrendered to the Issuer for cancellation or other
disposition by the Issuer, in each case of transfer or surrender, for
consideration paid to the Shareholder of $0.01 per Share or such higher
price as the board of directors of the Issuer may determine.
<PAGE> 4
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7. RELEASE FROM ESCROW
(1) The Shareholder irrevocably directs the Escrow Agent to retain the Shares
until such Shares are released from escrow pursuant to subsection (2) or
surrendered for cancellation pursuant to section 8.
(2) The Escrow Agent shall not release the Shares from escrow unless the Escrow
Agent has received a letter from the Superintendent or the Exchange
consenting to the pro-rata release of such number of Shares as is
determined by dividing the Cumulative Cash Flow (as presently defined in
the Exchange's Listings Policy Statement No. 18) of the Issuer since
January 1, 1990 not previously applied towards a release by $0.468 Cdn.
(3) The approval of the Superintendent or the Exchange to a release from escrow
of any of the Shares shall terminate this agreement only in respect of the
Shares so released.
8. SURRENDER FOR CANCELLATION
The Shareholder shall surrender the Shares for cancellation and the
Escrow Agent shall deliver the certificates representing the Shares to the
Issuer
(a) at the time of a major reorganization of the Issuer, if required as a
condition of the consent to the reorganization by the Superintendent
or the Exchange,
(b) where the Issuer's shares have been subject to a cease trade order
issued under the Act for a period of 2 consecutive years,
(c) on December 1, 1999 if such Shares have not previously been released
from the terms of this agreement, or
(d) where required by section 6(4).
9. AMENDMENT OF AGREEMENT
(1) Subject to subsection (2), this agreement may be amended only by a written
agreement among the Parties and with the written consent of the
Superintendent or the Exchange.
(2) Schedule C to this agreement shall be amended upon
(a) a transfer of Shares pursuant to section 6,
(b) a release of Shares from escrow pursuant to section 7, or
<PAGE> 5
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(c) a surrender of Shares for cancellation pursuant to section 8,
and the Escrow Agent shall note the amendment on the Schedule C in its
possession.
10. INDEMNIFICATION OF ESCROW AGENT
The Issuer and the Shareholders, jointly and severally, release,
indemnify and save harmless the Escrow Agent from all costs, charges, claims,
demands, damages, losses and expenses resulting from the Escrow Agent's
compliance in good faith with this agreement.
11. RESIGNATION OF ESCROW AGENT
(1) If the Escrow Agent wishes to resign as escrow agent in respect of the
Shares, the Escrow Agent shall give notice to the Issuer.
(2) If the Issuer wishes the Escrow Agent to resign as escrow agent in respect
of the Shares, the Issuer shall give notice to the Escrow Agent.
(3) A notice referred to in subsection (1) or (2) shall be in writing and
delivered to
(a) the Issuer at Suite 1500, 701 West Georgia Street, Vancouver, British
Columbia, V7Y 1A1, or
(b) the Escrow Agent at 2nd Floor, 800 West Pender Street, Vancouver,
British Columbia, V6C 2V7
and the notice shall be deemed to have been received on the date of
delivery. The Issuer or the Escrow Agent may change its address for notice
by giving notice in writing to the other party in accordance with this
subsection.
(4) A copy of a notice referred to in subsection (1) or (2) shall concurrently
be delivered to the Superintendent or the Exchange.
(5) The resignation of the Escrow Agent shall be effective and the Escrow Agent
shall cease to be bound by this agreement on the date that is 180 days
after the date of receipt of the notice referred to in subsection (1) or
(2) or on such other date as the Escrow Agent and the Issuer may agree upon
(the "resignation date").
(6) The Issuer shall, before the resignation date and with the written consent
of the Superintendent or the Exchange, appoint another escrow agent and
that appointment shall be binding on the Issuer and the Shareholders.
<PAGE> 6
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12. FURTHER ASSURANCES
The Parties shall execute and deliver any documents and perform any
acts necessary to carry out the intent of this agreement.
13. TIME
Time is of the essence of this agreement.
14. GOVERNING LAWS
This agreement shall be construed in accordance with and governed
by the laws of British Columbia and the laws of Canada applicable in British
Columbia.
15. COUNTERPARTS
This agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which shall constitute one
agreement.
16. LANGUAGE
Wherever a singular expression is used in this agreement, that
expression is deemed to include the plural or the body corporate where required
by the context.
17. APPROVALS
This agreement is subject to the approval of the Exchange and of the
shareholders of the Issuer (the "Approvals").
18. OTHER AGREEMENTS
Subject to the receipt of the Approvals, this agreement supercedes
and cancels all previous agreements among the Parties with respect to the
Shares, and in particular, the Principal's Agreement and the Earn-Out Agreement
will terminate and be of no further force or effect immediately upon the
execution of this agreement by all Parties and the receipt of the Approvals.
<PAGE> 7
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19. ENUREMENT
This agreement enures to the benefit of and is binding on the Parties
and their heirs, executors, administrators, successors and permitted assigns.
The Parties have executed and delivered this agreement as of the date
of reference of this agreement.
The COMMON SEAL of )
CENTRAL GUARANTY TRUST COMPANY )
was hereunder affixed in the )
presence of: )
)
)
- -------------------------------- ) C/S
Authorized Signatory )
)
)
- -------------------------------- )
Authorized Signatory )
The COMMON SEAL of )
PUFF PAC INDUSTRIES INC. )
was hereunder affixed in the )
presence of: )
)
/s/ [Signature Illegible] )
- -------------------------------- ) C/S
Authorized Signatory )
)
/s/ [Signature Illegible] )
- -------------------------------- )
Authorized Signatory )
SIGNED, SEALED AND DELIVERED )
by THOMAS A. APPLETON )
in the presence of: )
)
Name: Aynn Batchler Appleton ) /s/ Thomas A. Appleton
-------------------------- ) ---------------------
Address: 4725 139th Ave. SE ) THOMAS A. APPLETON
----------------------- )
Bellevue, WA 98006 )
- -------------------------------- )
Occupation: Writer )
-------------------- )
<PAGE> 8
- 8 -
SIGNED, SEALED AND DELIVERED )
by CLIFFORD DANIEL BAKER )
in the presence of: )
)
Name: ?? Castro ) /s/ Clifford Daniel Baker
-------------------------- ) --------------------------
Address: 1322 W. 162nd St. ) CLIFFORD DANIEL BAKER
----------------------- )
Gardena, CA 90247 )
- -------------------------------- )
Occupation: Fashion )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by PETER JOHN BODEL )
in the presence of: )
)
Name: Charlotte Bell ) /s/ Peter John Bodel
-------------------------- ) --------------------------
Address: ) PETER JOHN BODEL
----------------------- )
)
- -------------------------------- )
Occupation: )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by WILLIAM BRADY )
in the presence of: )
)
Name: )
-------------------------- ) --------------------------
Address: ) WILLIAM BRADY
----------------------- )
)
- -------------------------------- )
Occupation: )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by DOUGLAS CIAFA )
in the presence of: )
)
Name: )
-------------------------- ) --------------------------
Address: ) DOUGLAS CIAFA
----------------------- )
)
- -------------------------------- )
Occupation: )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by CLIFFORD DANIEL BAKER )
in the presence of: )
)
Name: )
-------------------------- ) --------------------------
Address: ) CLIFFORD DANIEL BAKER
----------------------- )
)
- -------------------------------- )
Occupation: )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by PETER JOHN BODEL )
in the presence of: )
)
Name: Charlotte P. Bell ) /s/ Peter John Bodel
Barrister & Solicitor ) --------------------------
Russell & DuMoulin ) PETER JOHN BODEL
-------------------------- )
Address: 1700 - 1075 West )
Georgia Street )
----------------------- )
Vancouver, B.C. V6E 3G2 )
(604) 688-3411 )
- -------------------------------- )
Occupation: )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by WILLIAM BRADY )
in the presence of: )
)
Name: )
-------------------------- ) --------------------------
Address: ) WILLIAM BRADY
----------------------- )
)
- -------------------------------- )
Occupation: )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by DOUGLAS CIAFA )
in the presence of: )
)
Name: )
-------------------------- ) --------------------------
Address: ) DOUGLAS CIAFA
----------------------- )
)
- -------------------------------- )
Occupation: )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by CLIFFORD DANIEL BAKER )
in the presence of: )
)
Name: )
-------------------------- ) --------------------------
Address: ) CLIFFORD DANIEL BAKER
----------------------- )
)
- -------------------------------- )
Occupation: )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by PETER JOHN BODEL )
in the presence of: )
)
Name: Charlotte Bell ) /s/ Peter John Bodel
-------------------------- ) --------------------------
Address: ) PETER JOHN BODEL
----------------------- )
)
- -------------------------------- )
Occupation: )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by WILLIAM BRADY )
in the presence of: )
)
Name: R. H. Wiedeino ) /s/ William Brady
-------------------------- ) --------------------------
Address: 37214 Village 37 ) WILLIAM BRADY
----------------------- )
Camarillo, CA 93010 )
- -------------------------------- )
Occupation: )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by DOUGLAS CIAFA )
in the presence of: )
)
Name: )
-------------------------- ) --------------------------
Address: ) DOUGLAS CIAFA
----------------------- )
)
- -------------------------------- )
Occupation: )
-------------------- )
<PAGE> 9
- 9 -
SIGNED, SEALED AND DELIVERED )
by ANDY EDMUN DAEM )
in the presence of: )
)
/s/ CHARLOTTE BELL )
)
Name: ) /s/ ANDY EDMUN DAEM
------------------------- ) ---------------------------
Address: ) ANDY EDMUN DAEM
----------------------- )
)
- ------------------------------- )
Occupation: )
-------------------- )
SIGNED, SEALED AND DELIVERED by )
EDWIN O. DAMMEL and DARVILLA DAMMEL )
in the presence of: )
)
/s/ KENNETH DAMMEL )
) /s/ EDWIN O. DAMMEL
Name: Edwin & Darvilla Dammel ) ---------------------------
------------------------- ) EDWIN O. DAMMEL
Address: 202 Royal Oaks Ct. )
----------------------- ) /s/ DARVILLA DAMMEL
Lodi CA 95240 ) ---------------------------
- ------------------------------- ) DARVILLA DAMMEL
Occupation: Retired/Printers )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by KENNETH DAMMEL )
in the presence of: )
)
/s/ LAURA DAMMEL )
)
Name: Kenneth Dammel ) /s/ KENNETH DAMMEL
------------------------- ) ---------------------------
Address: 202 Royal Oaks Ct. ) KENNETH DAMMEL
----------------------- )
Lodi CA 95240 )
- ------------------------------- )
Occupation: Printer )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by BRUCE M. FRIEDMAN and )
SHARON FRIEDMAN in the )
presence of: )
)
/s/ LESLIE CARABET )
)
Name: Leslie Carabet ) /s/ BRUCE M. FRIEDMAN
------------------------- ) ---------------------------
Address: 4495 S. Beverly Dr. ) BRUCE M. FRIEDMAN
----------------------- )
Beverly Hills, CA 90212 ) /s/ SHARON FRIEDMAN
- ------------------------------- ) ---------------------------
Occupation: [Illegible] ) SHARON FRIEDMAN
-------------------- )
<PAGE> 10
- 10 -
SIGNED, SEALED AND DELIVERED )
by LARRY HARPER )
in the presence of: )
)
)
Name: Dennis Sessions ) /s/ LARRY HARPER
------------------------- ) ---------------------------
Address: 1503 Roanwood ) LARRY HARPER
----------------------- )
Houston, TX 77090 )
- ------------------------------- )
Occupation: D. J. Roofing )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by MARIA A. HOWELL )
in the presence of: )
)
) /s/ MARIA A. HOWELL
Name: Charlotte McCrate ) ---------------------------
------------------------- ) MARIA A. HOWELL
Address: 1252 N. Cape Rock )
----------------------- )
Cape Girardeau, MA. )
- ------------------------------- )
Occupation: Homemaker )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by RICHARD HOWELL )
in the presence of: )
)
[Signature Illegible] )
)
Name: Jacselila Tamers ) /s/ RICHARD HOWELL
------------------------- ) ---------------------------
Address: 10801 Rose Ave ) RICHARD HOWELL
----------------------- )
Los Angeles, CA 90034 )
- ------------------------------- )
Occupation: Editor )
-------------------- )
SIGNED, SEALED AND DELIVERED )
by DENNIS JOHANSEN )
in the presence of: )
)
)
Name: Sandra Johansen ) /s/ DENNIS JOHANSEN
------------------------- ) ---------------------------
Address: 2923 Snow Brook ) DENNIS JOHANSEN
----------------------- )
Stockton, CA 95219 )
- ------------------------------- )
Occupation: )
-------------------- )
<PAGE> 11
- 11 -
SIGNED, SEALED AND DELIVERED )
by JOAN JOHNS )
in the presence of: )
)
Name: [Signature Illegible] ) /s/ JOAN JOHNS
------------------------------- ) ------------------------------------
) JOAN JOHNS
Address: 12202 Beach Blvd. )
---------------------------- )
)
------------------------------- )
)
Occupation: Self-employed )
------------------------- )
SIGNED, SEALED AND DELIVERED )
by ELIZABETH A. KILFOY )
in the presence of: )
)
Name: Elizabeth A. Kilfoy ) /s/ ELIZABETH A. KILFOY
------------------------------- ) ------------------------------------
) ELIZABETH A. KILFOY
Address: 4308 Rosemary Street )
---------------------------- ) Notary Public in and for Montgomery
Chevy Chase, Maryland 20815 ) County, State of Maryland
- ------------------------------------ )
) /s/ PARRIZ KANOZI
Occupation: sales-management ) ------------------------------------
------------------------- ) My Commission Expires June 20, 199?
)
)
SIGNED, SEALED AND DELIVERED )
by YOUNG KYU KIM )
in the presence of: )
)
Name: Youngji Nam ) /s/ YOUNG KYU KIM
------------------------------- ) ------------------------------------
) YOUNG KYU KIM
Address: 1501 Sutter St. #110 )
---------------------------- )
San Francisco, CA 94109 )
- ------------------------------------ )
)
Occupation: Designer )
------------------------- )
)
SIGNED, SEALED AND DELIVERED )
by ANDREW S. LARSON and )
REBECCA B. LARSON in the )
presence of: )
)
Name: Carl A. Aundo ) /s/ ANDREW S. LARSON
------------------------------- ) ------------------------------------
) ANDREW S. LARSON
Address: W 7696 Hwy 82 )
---------------------------- ) /s/ REBECCA B. LARSON
Mayston, WI ) ------------------------------------
- ------------------------------------ ) REBECCA B. LARSON
)
Occupation: Painting Contractor )
------------------------- )
)
<PAGE> 12
-12-
SIGNED, SEALED AND DELIVERED )
by PAUL S. LEMPIO )
in the presence of: )
)
)
Name: Chera J. Lampus ) /s/ PAUL S. LEMPIO
------------------------- ) -----------------------------
) PAUL S. LEMPIO
Address: 11 Fay Drive )
---------------------- )
)
Kentfield, CA. )
- ------------------------------ )
)
Occupation: House Engineer )
------------------- )
)
)
SIGNED, SEALED AND DELIVERED )
by BERTRAND ANDRE LEVESQUE )
in the presence of: )
)
)
Name: Dan Plan ) /s/ BERTRAND ANDRE LEVESQUE
------------------------- ) -----------------------------
) BERTRAND ANDRE LEVESQUE
Address: 27062 Alabastro Dr. )
---------------------- )
)
Valencia, CA 91354 )
- ------------------------------ )
)
Occupation: Self employed )
------------------- )
SIGNED, SEALED AND DELIVERED )
by NORMA MAREIN )
in the presence of: )
)
)
Name: [SIG] ) /s/ NORMA MOREIN
------------------------- ) -----------------------------
) NORMA MOREIN
Address: 23641 Via Delos )
---------------------- )
)
Valencia, CA 91355 )
- ------------------------------ )
)
Occupation: Computer Sales Rep )
------------------- )
SIGNED, SEALED AND DELIVERED )
by DANIEL ALAN PHARO )
in the presence of: )
)
)
Name: Charlotte Bell ) /s/ DANIEL ALAN PHARO
------------------------- ) -----------------------------
) DANIEL ALAN PHARO
Address: )
---------------------- )
)
- ------------------------------ )
)
Occupation: )
------------------- )
<PAGE> 13
-13-
SIGNED, SEALED AND DELIVERED )
by WILLIAM STRATION )
in the presence of: )
)
Name: Peggy C. Scott ) /s/ WILLIAM W. STRATTON
------------------------------ ) --------------------------------
Address: PRECISE METAL PRODUCTS CO. ) WILLIAM STRATTON
P.O. Box 14990 )
PHOENIX, ARIZONA 89033 )
- ------------------------------------ )
Occupation: Accounting )
SIGNED, SEALED AND DELIVERED )
by DAVID C. TEUMA )
in the presence of: )
) /s/ DAVID C. TEUMA
Name: [Signature Illegible] ) --------------------------------
------------------------------- ) DAVID C. TEUMA
)
Address: 4400 Libbitt Ave. )
---------------------------- )
)
Encino, CA 91436 )
- ------------------------------------ )
)
Occupation: Manager of Business )
------------------------- )
)
SIGNED, SEALED AND DELIVERED )
by ELWOOD CHARLES TROTTER )
in the presence of: )
)
Name: Charlotte Bell ) /s/ ELWOOD CHARLES TROTTER
------------------------------- ) -------------------------------
) ELWOOD CHARLES TROTTER
Address:____________________________ )
____________________________________ )
)
Occupation:_________________________ )
VARIETY INVESTMENTS LTD.
Per: [SIGNATURE ILLEGIBLE]
- ------------------------------------
<PAGE> 14
- 14 -
SIGNED, SEALED AND DELIVERED )
by RUSSELL WIEDENMAN, JR. )
in the presence of: )
)
)
Name: /s/ Helen E. Zantsen ) /s/ Russell Wiedenman
------------------------------- ) ---------------------------
) RUSSELL WIEDENMAN
Address: 5000 Santa Rosa Rd. )
---------------------------- )
Camarillo, CA 93012 )
- ------------------------------------ )
)
Occupation: Personal Banker )
------------------------- )
SIGNED, SEALED AND DELIVERED )
by RUSSELL WIEDENMAN, JR. )
in the presence of: )
)
)
Name: )
------------------------------- ) ---------------------------
) RUSSELL WIEDENMAN
Address: )
---------------------------- )
)
- ------------------------------------ )
)
Occupation: )
------------------------- )
SIGNED, SEALED AND DELIVERED )
by RUSSELL WIEDENMAN and )
BETTY WEIDENMAN )
in the presence of: )
)
)
Name: /s/ Helen E. Zantsen ) /s/ Russell Wiedenman
------------------------------- ) ---------------------------
) RUSSELL WIEDENMAN
Address: 5000 Santa Rosa Rd. )
---------------------------- ) /s/ Betty Wiedenman
Camarillo, CA 93012 ) ---------------------------
- ------------------------------------ ) BETTY WIEDENMAN
)
Occupation: Personal Banker )
------------------------- )
WOODLAND HILLS PSYCHIATRIC MEDICAL
GROUP INC. RETIREMENT TRUST
Per:
- ------------------------------------
SIGNED, SEALED AND DELIVERED )
by RUSSELL WIEDENMAN, JR. )
in the presence of: )
)
)
Name: )
------------------------------- ) ---------------------------
) RUSSELL WIEDENMAN
Address: )
---------------------------- )
)
- ------------------------------------ )
)
Occupation: )
------------------------- )
SIGNED, SEALED AND DELIVERED )
by RUSSELL WIEDENMAN, JR. )
in the presence of: )
)
)
Name: /s/ A. Paul Bronk ) /s/ Russell Wiedenman
------------------------------- ) ---------------------------
) RUSSELL WIEDENMAN
Address: 500 2ND ST. )
---------------------------- )
Manhattan Bch, CA 90266 )
- ------------------------------------ )
)
Occupation: School Director )
------------------------- )
SIGNED, SEALED AND DELIVERED )
by RUSSELL WIEDENMAN and )
BETTY WEIDENMAN )
in the presence of: )
)
)
Name: )
------------------------------- ) ---------------------------
) RUSSELL WIEDENMAN
Address: )
---------------------------- ) ----------------------------
) BETTY WIEDENMAN
- ------------------------------------ )
)
Occupation: )
------------------------- )
WOODLAND HILLS PSYCHIATRIC MEDICAL
GROUP INC. RETIREMENT TRUST
Per:
- ------------------------------------
SIGNED, SEALED AND DELIVERED )
by RUSSELL WIEDENMAN )
in the presence of: )
)
)
Name: )
------------------------------- ) ---------------------------
) RUSSELL WIEDENMAN
Address: )
---------------------------- )
)
- ------------------------------------ )
)
Occupation: )
------------------------- )
SIGNED, SEALED AND DELIVERED )
by RUSSELL WIEDENMAN and )
BETTY WEIDENMAN )
in the presence of: )
)
)
Name: )
------------------------------- ) ---------------------------
) RUSSELL WIEDENMAN
Address: )
---------------------------- )
)
- ------------------------------------ )
)
Occupation: )
------------------------- )
SIGNED, SEALED AND DELIVERED )
by RUSSELL WIEDENMAN, JR. )
in the presence of: )
)
)
Name: )
------------------------------- ) ---------------------------
) RUSSELL WIEDENMAN
Address: )
---------------------------- ) ---------------------------
) BETTY WIEDENMAN
- ------------------------------------ )
)
Occupation: )
------------------------- )
WOODLAND HILLS PSYCHIATRIC MEDICAL
GROUP INC. RETIREMENT TRUST
Per:
/s/ Stephen S. Kleuens, M.D. WITNESS: S. Jay Levy
- ------------------------------------ 15485 Briarwood Dr.
STEPHEN S. KLEUENS, M.D. Sherman Oaks, CA 91403
July 17, 1999 /s/ S. Jay Levy
-------------------------------
<PAGE> 15
SCHEDULE A
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
TO: Superintendent of Brokers OR Vancouver Stock Exchange
#1100 - 865 Hornby Street 609 Granville Street
Vancouver, B.C. Vancouver, B.C.
V6Z 2H4 V7Y 1H1
(if the shares are not (if the shares are listed
listed on the Vancouver on the Vancouver Stock
Stock Exchange) Exchange)
I acknowledge that:
(a) I have entered into an agreement with ______________ under which ________
common shares of Puff Pac Industries Inc. (the "Shares") will be
transferred to me upon receipt of regulatory approval, and
(b) the Shares are held in escrow subject to an escrow agreement dated for
reference June 14, 1991 (the "Escrow Agreement"), a copy of which is
attached as Schedule A to this acknowledgement.
I consideration of $1.00 and other good and valuable consideration (the receipt
and sufficiency of which is acknowledged) I agree, effective upon receipt of
regulatory approval of the transfer to me of the Shares, to be bound by the
Escrow Agreement in respect of the Shares as if I were an original signatory to
the Escrow Agreement.
DATED at _____________________________, on ____________, 19___.
Where the transferee is an individual:
SIGNED, SEALED and DELIVERED )
by )
in the presence of: )
)
_____________________________ ) _____________________
Name )
)
_____________________________ )
Address
)
_____________________________ )
)
_____________________________ )
Occupation
Where the transferee is a company
The CORPORATE/COMMON SEAL of )
)
was affixed in the presence of: )
) C/S
_____________________________ )
Authorized Signatory )
)
_____________________________ )
Authorized Signatory )
<PAGE> 16
PROVINCE OF
BRITISH COLUMBIA
OFFICE OF THE SCHEDULE "B"
CHAIRMAN
BRITISH COLUMBIA SECURITIES COMMISSION
- --------------------------------------------------------------------------------
LOCAL POLICY STATEMENT 3-07
POLICY GUIDELINES RESPECTING TRADING SHARES,
PERFORMANCE SHARES AND OTHER CONSIDERATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART TITLE PAGE
- ---- ----- ----
<S> <C> <C>
1. IMPLEMENTATION 1
2. APPLICATION 1
2.1 Pre-prospectus
2.2 Reactivations and reorganizations
3. TRANSITION 2
3.1 Agreements made under former policy statement
3.2 Option of conforming with new policy statement
4. DEFINITIONS 2
4.1 Defined terms
4.2 Terms defined in legislation
5. GENERAL MATTERS 5
5.1 Review of opinions and reports
5.2 Requirement for valuation opinion
5.3 Out of pocket costs
5.4 Confirmation of fair value
6. ISSUANCE OF TRADING SHARES 6
6.1 Minimum price and maximum aggregate value
6.2 Interest in operating subsidiary
6.3 Value assigned to non-cash assets
6.4 Purchase of interest in mineral property
6.5 Accumulated deficit related to issuers's
stated business purpose
6.6 Exclusion of amounts by Superintendent
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
PART TITLE PAGE
- ---- ----- ----
<S> <C> <C>
7. ISSUANCE OF PERFORMANCE SHARES 8
7.1 Issuance to principals
7.2 Natural resource issuer
7.3 Industrial issuer
7.4 Escrow requirement
7.5 Escrow agreement
7.6 Limitations on rights of holders of
performance shares
7.7 Rights on ceasing to be a principal
7.8 Undertaking of holding company
8. TRANSFER OF PERFORMANCE SHARES WITHIN ESCROW 10
8.1 Permitted transferees
8.2 Request for consent to transfer
8.3 Documents to be filed with request for
consent to transfer
8.4 Letter of consent or objection
8.5 No transfer during period between
prospectus receipt and listing
9. RELEASE OF PERFORMANCE SHARES FROM ESCROW 11
9.1 Release of shares of natural
resource issuer
9.2 Reduction in release for natural
resource issuer
9.3 Release of shares of industrial issuer
9.4 Adjustment of release calculation
9.5 Requirements for release
9.6 Annual release based on annual audited
financial statements
9.7 Request for consent to release
9.8 Documents to be filed with request for
consent to release
9.9 Letter of consent or objection
9.10 Request by holder of performance
shares for consent to release
10. SURRENDER OF PERFORMANCE SHARES FOR
CANCELLATION 14
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
PART TITLE PAGE
- ---- ----- ----
<S> <C> <C>
11. OTHER CONSIDERATION 14
11.1 Natural resource issuer
11.2 Industrial issuer
</TABLE>
Appendix A Escrow Agreement
Appendix B Examples of earn-out prices for performance
shares issued by an industrial issuer
Appendix C Undertaking Required from Non-Reporting or
Closely Held Company
<PAGE> 19
PART 1 IMPLEMENTATION
1.1 The following local policy statements are hereby rescinded and this local
policy statement substituted therefor, effective March 1, 1990:
(a) Local Policy Statement 3-07, dated February 6, 1987 (the "Former
Policy Statement"), and
(b) Local Policy Statements 3-08, 3-09 and 3-10, each dated February 1,
1987.
PART 2 APPLICATION
2.1 Pre-prospectus -- This local policy statement sets out guidelines for
issuance of shares and payment of consideration for assets by an issuer
intending to do an initial public offering and obtain a listing on the
Vancouver Stock Exchange. This local policy statement addresses
(a) the issuance of trading shares, which are common shares issued as
consideration for cash or assets contributed to the issuer and, in
certain cases, expenses incurred to advance the business of the
issuer,
(b) the issuance of and escrow restrictions imposed on performance shares,
which are common shares issued to directors, officers, promoters and
other principals of the issuer to provide them with both a reasonable
assurance of control during the formative stages of the issuer's
development and an incentive to support the issuer, and
(c) the payment of other consideration by the issuer for assets or
services.
2.2 Reactivations and reorganizations -- This local policy statement applies,
with the necessary changes, to
(a) the reactivation of an issuer by way of a prospectus, carried out in
accordance with Local Policy Statement 3-35 and the policies of the
Vancouver Stock Exchange, and
<PAGE> 20
- 2 -
(b) a major reorganization of an issuer, including a reverse take over,
carried out in accordance with the policies of the British Columbia
Securities Commission and the Vancouver Stock Exchange.
PART 3 TRANSITION
3.1 Agreements made under former policy statement -- Subject to section 3.2,
shares issued in accordance with the Former Policy Statement will continue
to be governed by any agreements made in accordance with the Former Policy
Statement. Such shares, however, will be subject to the transfer
restrictions and procedures set out in Part 8 and the release criteria and
procedures set out in sections 9.5 through 9.10 of this local policy
statement.
3.2 Option of conforming with new policy statement -- An issuer that has issued
shares in accordance with the Former Policy Statement may reorganize its
capital to fully conform with this local policy statement. Before doing so,
the issuer must obtain the approval of its shareholders and the written
consent of the Superintendent of Brokers, if the issuer's shares are not
listed on the Vancouver Stock Exchange, or the Vancouver Stock Exchange, if
the issuer's shares are listed on that exchange. Both the approval and
consent must be obtained by March 1, 1991.
PART 4 DEFINITIONS
4.1 Defined terms -- In this local policy statement:
"Act" means the Securities Act, S.B.C. 1985, c. 83;
"arm's length transaction" means a transaction other than a non-arm's
length transaction;
"cash flow" means net income or loss before tax, adjusted to add back the
following expenses:
(a) depreciation,
(b) amortization of goodwill and deferred research and development costs,
excluding general and administrative costs,
<PAGE> 21
- 3 -
(c) expensed research and development costs, excluding general and
administrative costs, and
(d) any other amounts permitted or required by the Superintendent;
"cumulative cash flow" means, at any time, the aggregate cash flow of an
issuer up to that time from a date no earlier than the issuer's financial
year end immediately preceding the date of its IPO, net of any negative
cash flow;
"earn-out factor" means the number obtained by squaring the performance
share percentage, expressed as a decimal, and multiplying by four;
"EARN-OUT PRICE" means the IPO price multiplied by the earn-out factor;
"escrow agreement" means an agreement in the form attached as Appendix A to
this local policy statement;
"Exchange" means the Vancouver Stock Exchange;
"industrial issuer" means an issuer other than a natural resource issuer;
"IPO" means the initial public offering of common shares of an issuer under
a prospectus which has been filed with, and for which a receipt has been
obtained from, the Superintendent under section 42 of the Act;
"IPO price" means the price per share paid by the public on an issuer's
IPO;
"non-arm's length transaction" means a transaction between the issuer and a
person that, at any time from the date of the transaction until the date of
completion of the issuer's IPO, is
(a) an insider, associate, affiliate or principal of the issuer,
(b) a person that
(i) has a control person, insider or promoter that is a control
person, insider or promoter of the issuer, or
<PAGE> 22
- 4 -
(ii) has a control person, insider or promoter that is an associate
or affiliate of a control person, insider or promoter of the
issuer
except where the person's insiders that are described in paragraphs
(i) and (ii) hold in total less than 10% of the voting securities of
the person, or
(c) determined by the Superintendent not to be at arm's length to the
issuer;
"performance shares" means common shares of an issuer issued in accordance
with Part 7 of this local policy statement, so long as they are held in
escrow in accordance with this local policy statement;
"performance share percentage" means the percentage, determined on the date
the issuer's shares are listed, posted and called for trading on the
Exchange, that the issued performance shares of the issuer are of the total
issued and outstanding voting securities of the issuer;
"principal" means, in relation to an issuer,
(a) a promoter of the issuer,
(b) a director of the issuer or of an operating subsidiary of the issuer,
(c) a full time management employee of the issuer, or of an operating
subsidiary of the issuer, whose direct or indirect employment is with
the issuer or the subsidiary,
(d) a person who has provided key services or contributed a fundamental
asset to the issuer and has elected to be treated as a principal, or
(e) a company all the voting securities of which are owned by one or more
of the persons referred to in subsections (a) through (d);
"Regulation" means the Securities Regulation, B.C. Reg. 270/86;
<PAGE> 23
- 5 -
"Superintendent or the Exchange" means the Superintendent, if the issuer's
shares are not listed on the Exchange, and the Exchange, if the issuer's
shares are listed on the Exchange;
"trading shares" means shares of the class of common shares issued on an
issuer's IPO, excluding performance shares issued in accordance with Part 7
of this local policy statement;
"valuation opinion" means, in respect of
(a) a natural resource issuer, a written opinion prepared by a qualified
expert as to the fair market value of a resource property, determined
either through the computation of present value or some other
recognized method of valuation acceptable to the Superintendent, and
(b) an industrial issuer, a written opinion prepared in accordance with
generally applied valuation approaches by a Chartered Business
Valuator, or another expert acceptable to the Superintendent, as to
the highest price available for the issuer's business, assets or
shares in an open and unrestricted market between informed, prudent
parties, acting at arm's length and under no compulsion to act,
expressed in terms of money or money's worth.
4.2 Terms defined in legislation -- Subject to section 4.1, terms defined in
the Act, the Regulation and the Interpretation Act, R.S.B.C. 1979, c. 206
and used in this local policy statement have the same meaning as in the
Act, the Regulation and the Interpretation Act.
PART 5 GENERAL MATTERS
5.1 Review of opinions and reports -- The Superintendent may, with the
agreement of an issuer, seek the opinion of an engineer, appraiser,
business valuator, accountant or other expert to determine the
acceptability of a valuation opinion or other report filed pursuant to this
local policy statement and, in such circumstances, the issuer will be
liable for the fees charged by such person in connection with providing the
opinion.
<PAGE> 24
- 6 -
5.2 Requirement for valuation opinion -- The Superintendent may, at the time of
reviewing an issuer's prospectus for its IPO, require a valuation opinion
in support of the value attributed to any non-cash assets.
5.3 Out of pocket costs -- Where this local policy statement provides that the
value of trading shares issued or other consideration paid to a person by
an issuer for a non-cash asset must be calculated on the basis of the out
of pocket costs incurred by the person in respect of the non-cash asset,
those out of pocket costs must
(a) be reasonable,
(b) have contributed or be reasonably expected to contribute to the future
operations of the issuer,
(c) be supported by an audited statement of costs, and
(d) in respect of a resource property, be restricted to acquisition costs
and such other costs as are necessary to secure a preliminary
evaluation of the resource property and to lead to the identification
of exploration targets.
5.4 Confirmation of fair value -- The onus will be on an issuer, if questioned,
to satisfy the Superintendent that fair value was received for costs or
expenditures associated with a non-arm's length transaction.
PART 6 ISSUANCE OF TRADING SHARES
6.1 Minimum price and maximum aggregate value -- Although in most cases trading
shares will be paid for in cash, trading shares may be issued for
consideration other than cash. Subject to sections 6.2 through 6.6, an
issuer may issue trading shares at a minimum price of $.25 per share up to
an aggregate value equal to:
(a) the amount of cash paid in as share capital; plus
(b) the fair market value of any non-cash assets contributed as share
capital; plus
(c) the issuer's retained earnings, if any; less
(d) where the issuer has an accumulated deficit, that portion of the
accumulated deficit that does not directly relate to the issuer's
stated business purpose at the time of its IPO.
<PAGE> 25
- 7 -
6.2 Interest in operating subsidiary - Where an issuer has an operating
subsidiary, or is proposing to issue trading shares in order to acquire an
operating subsidiary, and the value of that operating subsidiary is not
supported by a current valuation opinion, the principles of this Part will
apply to the operating subsidiary for the purpose of determining the number
of trading shares that may be issued by the issuer in respect of its
interest in the operating subsidiary.
6.3 Value assigned to non-cash assets - For the purpose of section 6.1(b),
where non-cash assets are contributed to an issuer by a person in a
non-arm's length transaction, the fair market value attributed to the
non-cash assets must be either
(a) supported by a valuation opinion, or
(b) limited to an amount equal to the out of pocket costs incurred by
the person in respect of the non-cash assets, determined in
accordance with section 5.3.
6.4 Purchase of interest in mineral property - A natural resource issuer that,
in an arm's length transaction, agrees to issue trading shares as
consideration for a mineral property or an option on a mineral property,
the value of which is not supported by a current valuation opinion, will
generally be required to meet the following conditions:
(a) The consideration must consist of not more than 200,000 trading shares
issuable in no fewer than four blocks, each block consisting of not
more than 50,000 trading shares.
(b) One block of shares may be issued prior to the date the issuer's
shares are listed, posted and called for trading on the Exchange.
(c) The remaining blocks of shares may be issued in stages upon the filing
with the Exchange of engineering reports, acceptable to the Exchange,
recommending further work on the mineral property.
6.5 Accumulated deficit related to issuer's stated business purpose - For the
purpose of section 6.1(d), that portion of the issuer's accumulated deficit
that directly relates to the issuer's stated business purpose at the time
of its IPO includes
<PAGE> 26
- 8 -
(a) for a natural resource issuer, expenses incurred
(i) in exploring and developing the resource properties upon which
the issuer's IPO proceeds are to be spent, and
(ii) in exploring and developing other resources properties, provided
that these expenses do not exceed the expenses referred to in
paragraph (i), and
(b) for an industrial issuer, expenses incurred in respect of the project
or business to be financed by the issuer's IPO proceeds.
6.6 Exclusion of amounts by Superintendent - The Superintendent may require
that an amount be excluded from the determination of the number of trading
shares that may be issued under this Part if in the circumstances he
considers, that to include any such amount would be inappropriate or
unconscionable. For example, the Superintendent would question the
appropriateness of issuing trading shares for non-cash assets unrelated to
the issuer's stated business purpose at the time of its IPO or for
excessive administrative expenses.
PART 7 ISSUANCE OF PERFORMANCE SHARES
7.1 Issuance to principals - Performance shares may be issued for cash to the
principles of an issuer
(a) to provide the principals with a measure of control to facilitate the
development of the issuer in an orderly fashion,
(b) to provide an incentive for the principals to diligently support the
affairs of the issuer, and
(c) to provide an incentive for the principals to contribute management
services or fundamental assets to the issuer.
7.2 Natural resource issuer - A natural resource issuer may issue to its
principals up to a total of 750,000 performance shares, at a minimum price
of $.01 per share.
7.3 Industrial issuer - An industrial issuer may issue performance shares to
its principals, at a minimum price of $.01 per share, provided that the
resulting performance share percentage does not exceed 65%.
<PAGE> 27
-9-
7.4 Escrow requirement - Performance shares are required to be escrowed. It
should be noted that the higher the performance share percentage, the
more difficult it becomes to obtain a release of the performance shares
from escrow. The table attached as Appendix B to this local policy
statement provides some examples of the operation of the release
provisions for industrial issuers set out in Part 9 of this local policy
statement.
7.5 Escrow agreement - Prior to or at the time of acquiring performance
shares, principals must execute an escrow agreement. The certificates
representing the performance shares must be registered in the names of
the holders of the shares and deposited with the escrow agent in
accordance with the terms of the escrow agreement. Only a trust company
carrying on business in British Columbia or a company approved by the
Superintendent may act as an escrow agent.
7.6 Limitations on rights of holders of performance shares - The escrow
agreement provides that the holders of performance shares waive any
rights attached to those shares to receive dividends or to participate in
the assets and property of the issuer on a winding up or dissolution.
Holders of performance shares do retain the right to vote those shares,
except on a resolution respecting their cancellation.
7.7 Rights on ceasing to be a principal - The escrow agreement requires that
the parties to it set out in the agreement any rights or obligations of
a person who ceases to be a principal, dies or becomes bankrupt to
retain, transfer or surrender to the issuer for cancellation any
performance shares than held by the person.
7.8 Undertaking of holding company - Where performance shares are to be
issued to a non-reporting or closely held company, wherever situate,
rather than to an individual, the company must, prior to or at the time
of acquiring the performance shares, execute an undertaking in the form
attached as Appendix C to this local policy statement. In the
undertaking, the company agrees not to effect or permit any transfer of
ownership of shares of the company nor to issue further shares of any
class in the company without the consent of the Superintendent or the
Exchange, so long as the company continues to hold any of the issuer's
performance shares. An application for consent should be made in the same
manner as an application for consent to a transfer of performance shares
pursuant to Part 8 of this local policy.
<PAGE> 28
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PART 8 TRANSFER OF PERFORMANCE SHARES WITHIN ESCROW
8.1 Permitted transferees - Performance shares may be transferred only to
(a) other principals, including incoming principals,
(b) the issuer of the performance shares, or
(c) an offeror under a formal bid (as defined in section 74 of the Act).
8.2 Request for consent to transfer - In order to transfer performance shares,
the holder of performance shares must deliver to the Superintendent or the
Exchange a written request for consent to the transfer. The request for
consent to the transfer must include:
(a) the name of the escrow agent and the reference date of the escrow
agreement,
(b) an explanation of the reason for the transfer,
(c) a description of the consideration to be paid for the performance
shares,
(d) where the performance shares are to be transferred to a principal,
confirmation that the transferee is a principal or will become a
principal on or before the date of the proposed transfer, and
(e) a description of the exemptions in the Act or the Regulation, if any,
being relied upon to make the transfer.
8.3 Documents to be filed with request for consent to transfer - The request
for consent to the transfer must be accompanied by:
(a) a copy of the transfer agreement,
(b) an acknowledgement and agreement to be bound in the form attached as
Schedule A to the escrow agreement, executed by the transferee,
(c) where the performance shares are to be transferred to a non-reporting
or closely held company, wherever situate, rather than to an
individual, an undertaking by the company in the form attached as
Appendix C to this local policy statement,
<PAGE> 29
-11-
(d) where applicable, evidence that the proposed change of control has
been approved by the shareholders of the issuer, and
(e) the appropriate application fee.
8.4 Letter of consent or objection - Upon receiving a request for consent to a
transfer and accompanying documents that comply with sections 8.2 and 8.3,
the Superintendent or the Exchange will issue to the applicant a letter
that either consents or objects to the transfer. A letter consenting to the
transfer will be copied to the escrow agent.
8.5 No transfer during period between prospectus receipt and listing - The
Superintendent will generally refuse to consent to a transfer or
performance shares during the period between the date of the receipt for
the issuer's prospectus for its IPO and the date the issuer's securities
are listed, posted and called for trading on the Exchange.
PART 9 RELEASE OF PERFORMANCE SHARES FROM ESCROW
9.1 Release of shares of natural resource issuer - Holders of performance
shares of a natural resource issuer will be entitled to the pro-rata
release of those performance shares on the basis of 15% of the original
number of performance shares for every $100,000 expended on exploration and
development of a resource property by
(a) the issuer, or
(b) a person other than the issuer in order to earn an interest in the
resource property, but only in respect of that proportion of the
expenditure equal to the issuer's remaining proportionate interest in
the resource property after the person's interest has been earned,
provided that
(c) no more than 50% of the original number of performance shares may be
released in any 12 month period, and
(d) no expenditure on exploration and development made prior to the date
of the receipt for the issuer's prospectus for its IPO may be
included.
<PAGE> 30
9.2 Reduction in release for natural resource issuer - Where administrative
expenses exceed 33% of total expenditures during the period on which the
calculation in section 9.1 is based,
(a) the pro-rata release factor of 15% will be reduced to 7.5%, and
(b) the percentage of the original number of performance shares available
for release in any 12 month period will be reduced to 25%.
9.3 Release of shares of industrial issuer - Holders of performance shares of
an industrial issuer will be entitled to the pro-rata release of a number
of performance shares equal to the amount of cumulative cash flow, not
previously applied towards release, divided by the earn-out price.
9.4 Adjustment of release calculation - On a consolidation, subdivision,
amalgamation or reclassification of the issuer's shares, the release
calculation must be adjusted so that the proportion of the outstanding
performance shares available for release is unaffected by the
consolidation, subdivision, amalgamation or reclassification.
9.5 Requirements for release - No performance shares may be released from
escrow unless, at the time of the application for release,
(a) the issuer is meeting its current obligations in the ordinary course
of business as they generally become due, as evidenced by a statutory
declaration of the president or chief financial officer of the issuer,
(b) the issuer's shares are listed, posted and called for trading on all
stock exchanges having jurisdiction over it, as evidenced by letters
from those stock exchanges,
(c) the issuer is not in default of any requirement of the Act or the
Regulation, as evidenced by a certificate issued by the Commission,
and
<PAGE> 31
- 13 -
(d) the issuer is in good standing with respect to its filing of returns
with the Registrar of Companies under the Company Act or, if the
issuer is incorporated, organized or continued in a jurisdiction other
than British Columbia, with the registrar of companies or similar
authority in that jurisdiction, as evidenced by a certificate issued
by the Registrar of Companies or by that similar authority.
9.6 Annual release based on annual audited financial statements -- Performance
shares may be released only once during an issuer's financial year. The
release calculation must be based on the issuer's annual audited financial
statements for the year or years during which the release requirements were
met in respect of the performance shares to be released.
9.7 Request for consent to release -- In order to obtain a release of
performance shares, the issuer must deliver to the Superintendent or the
Exchange a written request for consent to the release. The request for
consent to the release must include the name of the escrow agent and the
reference date of the escrow agreement.
9.8 Documents to be filed with request for consent to release -- The request
for consent to release must be accompanied by:
(a) written evidence of compliance with the requirements of section 9.5,
(b) annual audited financial statements of the issuer for the financial
year or years during which the release requirements were met in
respect of the performance shares to be released,
(c) where expenditures on a resource property were made by a person other
than the issuer, an audited statement of costs,
(d) a calculation, prepared by the issuer's auditor, of the number of
performance shares to be released, and
(e) the appropriate application fee.
<PAGE> 32
9.9 Letter of consent or objection -- Upon receiving a request for consent to
a release and accompanying documents that comply with sections 9.7 and
9.8, the Superintendent or the Exchange will issue to the issuer a letter
that either consents or objects to the release. A letter consenting to
the release will be copied to the escrow agent.
9.10 Request by holder of performance shares for consent to release -- A
holder of performance shares may apply to the Superintendent or the
Exchange for release where the issuer is unable or unwilling to do so. If
the president or chief financial officer of the issuer refuses to provide
the statutory declaration referred to in section 9.5(a), the
Superintendent or the Exchange may waive that requirement.
PART 10 SURRENDER OF PERFORMANCE SHARES FOR CANCELLATION
10.1 Performance shares must be surrendered to the issuer for cancellation
(a) at the time of a major reorganization of the issuer, if required as
a condition of the consent to the reorganization by the
Superintendent or the Exchange,
(b) where the issuer's shares have been subject to a cease trade order
issued under the Act for a period of 2 consecutive years, or
(c) 10 years from the later of the date of issue of the performance
shares and the date of the receipt for the issuer's prospectus for
its IPO.
PART 11 OTHER CONSIDERATION
11.1 Natural resource issuer -- Where a natural resource issuer proposes to
acquire from a person a resource property or an option on a resource
property, the value of which is not supported by a valuation opinion, the
following principles apply:
(a) In an arm's length transaction, the issuer may pay the person cash
consideration.
<PAGE> 33
SCHEDULE C TO THE ESCROW AGREEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NUMBER OF SHARES
NAME OF SHAREHOLDER HELD IN ESCROW
- -------------------------------------------------------------------------------
<S> <C>
Thomas A. Appleton 41,255
Clifford Daniel Baker 30,158
Peter John Bodel 50,882
William Brady 5,576
Douglas Ciafa 11,148
Andy Edmun Daem 692,239
Edwin O. Daniel and Darvilla Dammel 6,253
Kenneth Dammel 8,230
Bruce N. Friedman and Sharon Friedman 2,923
Larry Harper 17,891
Maria A. Howell 8,945
Richard Howell 3,344
Dennis Johansen 2,433
Joan Johns 5,576
Elizabeth A. Kilfoy 11,486
Young Kyu Kim 251
Andrew S. Larson and Rebecca B. Larson 17,891
Paul S. Lempio 17,891
Bertrand Andre Levesque 405,344
Norma Morein 22,257
Daniel Alan Pharo 2,102,339
William Stratton 10,654
David C. Teuma 25,065
Elwood Charles Trotter 214,949
Variety Investments Ltd. 725,201
Russell Wiedenman 17,891
Russell Wiedenman, Jr. 1,672
Woodland Hills Psychiatric Medical 2,788
Group Inc. Retirement Trust 17,891
---------
TOTAL 4,460.423
=========
</TABLE>
<PAGE> 1
EXHIBIT 10(h)
1999 NON-QUALIFIED KEY MAN STOCK OPTION PLAN
PURPOSE: The purpose of the Air Packaging Technologies, Inc. 1999
Non-Qualified Key Man Stock Option Plan (hereinafter referred to as the "Plan")
is to provide a special incentive to selected key persons associated with or
employed by Air Packaging Technologies, Inc. (the "Company") and its
subsidiaries, to promote the Company's business. The Plan is designed to
accomplish this purpose by offering such personnel an opportunity to purchase
shares of the common stock of the Company so that they will share in the
Company's success.
1. The Board of Directors shall administer the Plan.
2. Options may be granted to key employees and consultants of the
Company and to Officers and Directors. The Board shall select grantees. Board
members are eligible to receive options.
3. The total number of shares subject to this Plan shall not exceed
5,000,000.
4. The purchase price of shares of common stock issuable upon exercise
of each option granted pursuant to the Plan shall be not less than 100 percent
of the fair market value of the shares on the date the option is granted, as
determined by the Board of Directors.
5. The Options granted under the Plan shall vest at such time as is
fixed at the time of their grant by the Board of Directors.
6. Each option is non transferable, except in the case of death, in
which case it shall be exercisable by the holder's heirs.
7. If any change is made in the shares subject to this Plan or any
option granted hereunder (through merger, consolidation, reorganization,
recapitalization, or change in capital structure), appropriate adjustment shall
be made by the Board in the number of shares and kind of common stock for which
options may be or may have been granted under the Plan, to the end that the
proportionate interests shall be maintained viz-a-viz other shareholders of Air
Packaging Technologies, Inc. in a manner which is the same as before the
occurrence of such event.
8. The Plan participant agrees that all shares purchased by the
Participant under the option, unless they have been registered, are acquired
for investment and not for distribution, and may not be resold, except pursuant
to registration, or an exemption therefrom, under the Securities Act of 1933.
Each notice of exercise of the option shall be accompanied by a written
representation, signed by the Participant, to that effect, and share
certificates upon issuance, shall bear a private placement legend.
Adopted by action of the Board of
Directors of Air Packaging Technologies,
Inc. on _____________________, 1999
- ----------------------------------------
Donald Ochacher, Chief Executive Officer
<PAGE> 1
EXHIBIT 16
May 14, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
.
Dear Sirs:
We have read Item 14 of Air Packaging Technologies, Inc. Form 10, dated May 14,
1999, and are in agreement with the statements contained therein as they relate
to us.
Very truly yours,
/S/HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
May 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AT DEC-31-1998 AND STATEMENT OF OPERATIONS FOR
YEAR-ENDED DEC-31-1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS REPORTED ON FORM 10.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 125,799
<SECURITIES> 0
<RECEIVABLES> 101,982
<ALLOWANCES> (5,130)
<INVENTORY> 408,643
<CURRENT-ASSETS> 706,428
<PP&E> 2,084,010
<DEPRECIATION> (1,273,552)
<TOTAL-ASSETS> 1,810,595
<CURRENT-LIABILITIES> 275,882
<BONDS> 0
0
0
<COMMON> 70,714
<OTHER-SE> 1,463,999
<TOTAL-LIABILITY-AND-EQUITY> 1,810,595
<SALES> 722,268
<TOTAL-REVENUES> 722,268
<CGS> 566,837
<TOTAL-COSTS> 566,837
<OTHER-EXPENSES> 1,975,303
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,470
<INCOME-PRETAX> (1,967,666)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,967,666)
<DISCONTINUED> 0
<EXTRAORDINARY> 244,019
<CHANGES> 0
<NET-INCOME> (1,723,647)
<EPS-BASIC> (.04)<F1>
<EPS-DILUTED> (.04)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AT DEC-31-1997 AND STATEMENT OF OPERATIONS FOR YEAR
ENDED DEC-31-1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS REPORTED ON FORM 10.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 59,462
<SECURITIES> 0
<RECEIVABLES> 38,466
<ALLOWANCES> (3,900)
<INVENTORY> 156,455
<CURRENT-ASSETS> 255,145
<PP&E> 1,670,245
<DEPRECIATION> (1,129,585)
<TOTAL-ASSETS> 1,137,721
<CURRENT-LIABILITIES> 965,400
<BONDS> 0
0
0
<COMMON> 44,762
<OTHER-SE> 88,059
<TOTAL-LIABILITY-AND-EQUITY> 1,137,721
<SALES> 340,624
<TOTAL-REVENUES> 340,624
<CGS> 592,544
<TOTAL-COSTS> 592,544
<OTHER-EXPENSES> 1,575,941
<LOSS-PROVISION> 2,576
<INTEREST-EXPENSE> 17,934
<INCOME-PRETAX> (1,824,199)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,824,199)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,824,199)
<EPS-BASIC> (.06)<F1>
<EPS-DILUTED> (.06)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S STATEMENT OF OPERATIONS FOR YEAR ENDED DEC-31-1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS REPORTED ON FORM 10.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 640,074
<TOTAL-REVENUES> 640,074
<CGS> 705,707
<TOTAL-COSTS> 705,707
<OTHER-EXPENSES> 1,049,160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,927
<INCOME-PRETAX> (1,172,840)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,172,840)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,172,840)
<EPS-BASIC> (.06)<F1>
<EPS-DILUTED> (.06)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
