SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from July 1, 1996 to December 31, 1996
Commission File No. 33-8964
AM-PAC INTERNATIONAL, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Nevada 16-1260971
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
431 East Central Boulevard, Ste. 900
Orlando, FL 32801
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Include Area Code: (407) 841-1350
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
-----------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve (12) months (or
for such shorter period that the registrant was required to file such reports);
and (2) has been subject to such filing requirements for the past ninety (90)
days. Yes X No
----- -----
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $65,991.
As of April 11, 1997, 7,940,522 shares of common stock of the Registrant
were outstanding. As of such date, the aggregate market value of the common
stock held by non-affiliates, based on the average bid and asked price on the
NASD Bulletin Board, was approximately $1,029,360.80.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive annual information statement to be
filed within 120 days of the Registrant's fiscal year ended December 31, 1996
are incorporated by reference into Part III.
Transitional Small Business Disclosure Format: Yes No X
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TABLE OF CONTENTS
Page
----
PART I
ITEM 1. DESCRIPTION OF BUSINESS............................. 1
ITEM 2. DESCRIPTION OF PROPERTIES........................... 2
ITEM 3. LEGAL PROCEEDINGS................................... 2
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS................................. 2
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS......................... 3
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS................ 3
ITEM 7. FINANCIAL STATEMENTS................................ 6
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.............. 6
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT................... 7
ITEM 10. EXECUTIVE COMPENSATION.............................. 7
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT............................... 7
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...... 8
ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K.................... 9
SIGNATURES......................................................... 10
FINANCIAL STATEMENT................................................ F-1
<PAGE>
PART I
This Form 10-KSB contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual result could differ materially from
those set forth in the forward looking statements. Certain factors that might
cause such a difference are discussed in the Section entitled "Certain Risk
Factors Affecting Future Operating Result" beginning on page 5 of this Form
10-KSB.
ITEM 1. DESCRIPTION OF BUSINESS
Am-Pac International, Inc. (the "Company"), a Nevada corporation is the
surviving corporation of a merger with Captain Tony's Pizza, Inc., a New York
corporation (CTP). The Company was incorporated on October 4, 1996 for the
purpose of effecting the merger. Simultaneous with the merger, the shares of CTP
were reversed on a 1:20 basis.
On December 31, 1996, the Company acquired all of the capital stock of
Pacific Foods, Inc., a British Virgin Islands corporation (PFI) for 7,000,000
shares of the Company's common stock. PFI is actively pursuing the sourcing,
licensing and promotion of the U.S. food (particularly fast food), and other
products in the People's Republic of China.
On December 5, 1996, the Company incorporated Captain Tony's Pizza, Inc.
(NCTP) under the laws of the State of Nevada. On December 16, 1996 all of the
assets of the pizza franchising operations were contributed to NCTP.
On December 30, 1996, the Company incorporated Am-Pac Investments, Inc.
under the laws of the State of Florida (APII). On December 30, 1996, APII
acquired two parcels of real estate in Orlando on which is located a restaurant
bar and parking lot.
On December 31, 1996, the Company executed a two-year lease with an option
to buy certain operating assets of T&P Investments, Inc. a Florida corporation,
doing business as the Frat House. The Frat House is a restaurant/bar located in
Orlando, Florida on the real estate acquired by APII on December 30, 1996.
The Company is presently engaged in two active lines of business: the
franchising of Captain Tony's Pizza operations and the operation of a
restaurant/bar in Orlando, Florida. In addition, the Company is actively
exploring the development of U.S. fast food franchises in the People's Republic
of China (PRC).
The Company currently has eleven franchises operating Captain Tony's Pizza
restaurants. These restaurants are principally take out and delivery operations
and sell a variety of items including pasta, chicken wings, submarine sandwiches
and pizza. Of the eleven franchises, one is located in the State of New York,
one in Pennsylvania, one in Arizona, and one in Orlando. There are two
franchises in California and England. There are three franchises in Ohio. A
franchise generally pays a royalty for the use of the Captain Tony's name and
recipes ranging from $100-$400 per week. Franchisees conduct their own
advertising and promotion programs and therefore do not pay advertising
royalties. The restaurant located in Rochester, New York and owned by an officer
and director of the Company does not pay royalties.
As of January 1, 1997, the Company took over the operations of the Frat
House, a restaurant/bar located in Orlando, Florida. This facility caters
principally to college students and features a full line of beer, wine, mixed
drinks and a short order, snack type menu. The restaurant has various game
tables, a dance floor and other recreational activities. The Company plans to
re-do this restaurant/bar and make it the flag ship facility of a chain called
"Headlightz".
The Company is actively exploring the development of U.S. fast food
franchise outlets in the PRC. Although the Company has had numerous meetings
with various franchisors in the United States and inspected sites in the PRC,
1
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there are no franchise agreements which have been executed. However, by the end
of calendar year 1997, the Company hopes to have its first franchise facility
opened in the PRC.
ITEM 2. PROPERTIES
The Company's executive officers are located at 431 East Central Blvd.,
Ste. 900, Orlando, Florida 32801. These premises consist of 3,000 square feet.
This space is provided to the Company by a related party, free of charge. The
related party's lease expires on December 31, 1998.
The Company also owns approximately 8 acres of real estate in Orlando,
Florida. Part of this property is occupied by the Frat House, a restaurant and
bar, the operating assets of which have been leased for two years by the
Company.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of the shareholders of CTI on September 18, 1996, the
shareholders approved the acquisition of Pacific Foods Limited for 7,000,000
post reverse common shares, the acquisition of Leisureshare International P.L.C.
for 2,500,000 post reverse common shares and 15,528 shares of Series A
Convertible Preferred Stock, (a transaction that was subsequently rescinded),
changing the state of incorporation from New York to Nevada, a change in the
corporate name to Am-Pac International, Inc.; a one-for-twenty reverse split and
the election of new directors.
2
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's shares of common stock are traded on the NASDAQ Electronic
Bulletin Board under the symbol AMPC. On April 11, 1997 the bid price for the
Company's common stock was $1.250 per share. However, the trading market in the
Company's common stock is both limited and sporadic. The following table sets
forth the high and low bid price per share of the Company's common stock for
each quarterly period. All prices where appropriate have been adjusted to
reflect the 1:20 reverse split following the Company's redomicile to Nevada and
changing its name on October 4, 1996. These quotations reflect inter dealer
prices without retail markup, mark down or commissions and may not represent
actual transactions.
1996 1995
------------------ ------------------
High Low High Low
------ ------ ------ ------
First Quarter $ 1.60 $ .60 $ 3.60 $ 1.80
Second Quarter $ 1.40 $ .60 $ 4.00 $ 1.20
Third Quarter $ 5.00 $ .60 $ 2.60 $ 1.20
Fourth Quarter $ 4.00 $ 1.25 $ 1.60 $ .80
Record Holders
As of April 15, 1997, there were approximately 7,940,522 record owners of
the common stock of the Company.
Dividends
The Company has never declared or paid any cash dividends on its common
stock and does not expect to declare or pay dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Form 10-KSB contains forward looking statements with the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Risk
Factors Affecting Future Operating Results" beginning on page 5 of this Form
10-KSB.
Am-Pac International, Inc. (the "Company") through its subsidiaries is
engaged in the franchising of pizza restaurants and operations of a restaurant
and bar in Orlando, Florida.
The Company is the successor to Captain Tony's Pizza, Inc. a franchisor and
operator of pizza establishments. As of December 31, 1996, the Company had a
total of ten franchisees, eight operating Captain Tony's restaurants in the
United States and two in England. The Company has no company owned stores.
Revenue is earned from both an initial franchise fee and an ongoing royalty
based on a percentage of sales.
The Company, as of December 31, 1996 leased certain operating assets of T&P
Investments, Inc. a Florida corporation which operates a restaurant/bar in
Orlando, Florida under the name "The Frat House". The land on which this
facility is located was acquired by the Company and accounted for as a pooling
of interest and therefore, the rental income expense for this property is
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included in income. However, the lease transaction was not a pooling of interest
and because it did not occur until December 31, 1996, the result of its
operations are not included in the financial statements.
Results of Operations
The following table sets forth for the periods indicated certain items from
the Consolidated Statements of Income expressed as a percentage of net revenue.
Six Months Ended December 31,
-----------------------------
1996 1995
------- ---------
Franchise fees 23.4% 41.0%
Equipment sales 0% 4.9%
Rental property inc 77.6% 46.0%
Commissions 0% 8.1%
Net revenue 100.0% 100.0%
----- -----
Cost of equipment 0% 5.8%
Rental property expenses 57.4% 49.7%
General and administrative
expenses 353.3% 50.9%
----- ----
Net income (310.7)% (6.4)%
======= =====
Six Months Ended December 31, 1996 Compared to Six Months Ended December 31,
1995.
Revenues: Revenues for 1996 totalled $65,991 compared to revenues of $76,921 for
1995. This decrease in revenue is attributable to a decline in franchise fees
because of the dispute with the Ohio franchise, no equipment sales and a
reduction in commission and other income which were partially offset by an
increase in rental property income.
Cost of food and equipment sales: The cost of food and equipment sales for 1996
totalled $0 compared to costs of $4,441 for 1995. This decrease resulted because
there were no equipment sales in 1996.
Rental property expenses: Rental property expenses for 1996 totalled $37,850
compared to $38,196 for 1995. This slight decrease resulted from the elimination
of rent for the fourth quarter which was partially offset by higher monthly
rentals for the first three quarters.
Operating, general and administrative expenses: Operating, general and
administrative expenses for 1996 totalled $233,172 compared to $39,131 for 1995.
This increase resulted from administrative, accounting and legal services
rendered in connection with the merger of CTP.
Net loss: The net loss for 1996 was $205,031 compared to a net loss of $4,847
for 1995. This increase in net loss is attributable to lower revenues and higher
operating, general and administrative expenses.
4
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Year Ended June 30, 1996 Compared to Year Ended June 30, 1995.
Revenues: Revenues for 1996 totalled $162,963 compared to revenues of $220,142
for 1995. This decrease in revenues is attributable to a decline in franchise
fees and equipment sales which were partially offset by increases in rental
property income and commissions.
Cost of food and equipment sales: The cost of food and equipment sales for 1996
totalled $4,441 compared to $76,885 for 1995. This decrease is the direct result
of decreased food and equipment sales.
Rental property expenses: Rental property expenses for 1996 totalled $76,792
compared to $76,885 for 1995, a decrease of $93, or virtually identical with the
prior period.
Operating, general and administrative expenses: Operating, general and
administrative expenses for 1996 totalled $64,106 compared to $143,423 for 1995.
This decrease resulted principally from a decline in payroll because of reduced
company sales and operations.
Net income (loss): Net income for 1996 totalled $17,634 compared to a net loss
of $49,104 for 1995. The improvement in the Company's net income is attributable
to a smaller loss on food and equipment sales and the reduction of operating,
general and administrative expenses.
Liquidity and Capital Resource
At December 31, 1996, the Company had a working capital deficit of $95,626
and a cash balance of $47,651 as compared to working capital of $19,203 and a
cash balance of $47,839 at June 30, 1996. The change in working capital is
attributable to an increase in accounts payable resulting from the loss from
operations.
At December 31, 1996, the primary obligation of the Company consisted of
two mortgage notes payable totalling $444,794 relating to the real estate
acquisition and loans payable to a shareholder and stockholder owned company of
$114,459. The one mortgage note for $389,331 which is collateralized by land and
a commercial building has an adjustable interest rate currently stated at
9.625%, requires monthly interest and principal payments of $3,666 and is due in
June, 2017. The second mortgage note for $55,463 carries a fixed interest rate
of 10%, is collateralized by land and a residential building, requires monthly
interest and principal payments of $657, and is due in June 2009.
The shareholder and shareholder owned company loans are for $84,459 and
$30,000, respectively. Both notes are demand notes and carry an interest rate of
8% per annum.
The Company is actively seeking funds through the sale of shares or the
placement of debt to advance its business objectives. However, to date, the
Company has no commitments for any debt or equity financing. Although without
additional financing, the Company will be unable to advance its business
objectives, it has sufficient cash to meet its requirements for the next twelve
months.
Certain Risk Factors Affecting Future Operating Results
This Form 10-KSB contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward looking statements. Certain factors that might
cause such a difference include the following: dependence on key personnel;
competition; delays in obtaining additional funding; delays in closing or
payment on contracts occasioned by dealings with governmental and foreign
entities; economic conditions affecting foreign currency exchange; international
political risks and foreign governmental control over the economy. In addition
to the foregoing, the following specific factors may affect the Company's future
operating results.
The Company is currently operating a restaurant and bar in Orlando, Florida
which has a large college-student clientele. Along with leasing certain
restaurant equipment, the Company has entered into an agreement with the Lessor
which provides that the Lessor shall maintain and provide the liquor and food
licensing requirements. The State of Florida regulates both liquor and food
5
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licensing and has historically issued only a limited number of licenses. There
is no assurance that the State will maintain its current licensing policy.
Additionally, under its current operations, the Company is dependent upon the
Lessor's participation in operations relating to the maintenance of its liquor
and food licenses. While the Company anticipates continued operations, there is
no assurance that the liquor and food licenses will be transferrable, or that
any application for a new liquor and/or food license will be approved by the
State Regulatory Agency.
Although the Company is actively exploring the development of US fast food
franchises in the PRC certain risk factors attach to transactions in China. The
Communist party has exercised and continues to exercise substantial control over
virtually ever sector of the Chinese economy through regulation, state ownership
and involvement of governmental party officials. The death of Deng Xiou Ping has
caused political uncertainty and any decision not to continue to support the
current economic reform program begun in 1978 would have a significant impact on
foreign investors and business opportunities.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company, together with the
independent auditors' report thereon of H.J. Swart & Co. P.A. appears on pages
F-2 through F-17 of this report. See index to Financial Statements on pages F-1
of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
For the transitional period ended December 31, 1996, and as a result of the
change in control, the Company changed its independent auditors from Mengel,
Metzger Barr & Co., L.L.P. to H.J. Swart & Company P.A.
There were no disagreements with the prior accountants.
6
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Information Regarding Present Directors and Executive Officers
The following table sets forth the names, and ages of the executive
officers and directors of the Company and the current position held by each.
Name Age Title
- -------------------- --- -----------------------------------------------------
Thomas L. Tedrow 46 President, Chief Executive Officer and Director
Martella J. Martella 40 Secretary, Treasurer, Vice President, Chief Financial
Officer and Director
Sharron C. Martin 36 Director
THOMAS L. TEDROW: Mr. Tedrow has been employed as president, chief
executive officer and director since October, 1996. Mr. Tedrow is a best selling
author of over sixteen books, the publisher of Financial Discoveries Magazine
and since 1987 has been a communications and marketing consultant for both
public and private companies.
MICHAEL J. MARTELLA: Mr. Martella has been employed by the precedence of
the Company, Captain Tony's Pizza, Inc. since 1986 and has been employed by the
Company and served as secretary and director since October, 1996 when Captain
Tony's Pizza, Inc. was acquired by the Company.
SHARRON C. MARTIN: Ms. Martin has been a director of the Company since
October, 1996. For the past five years Ms. Martin has been employed as an
officer and director of Martin Consulting, Inc., a consulting firm specializing
in Sino-foreign joint venture and merger and acquisition consulting in the
United States.
ITEM 10. EXECUTIVE COMPENSATION
The Company paid no salary or other compensation in excess of $100,000 to
any of its officers during 1996. The Company's chief-executive officer received
no compensation of any nature from the Company since joining the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 15, 1997, the number of shares
of the Company's common stock held by executive officers and directors both
individually and as a group, and by beneficial owners of more than five percent
of the Company's common stock.
Name & Address of Amount & Nature Percent
Beneficial Owner of Beneficial Ownership of Class
---------------- ----------------------- --------
Thomas L. Tedrow(1) 3,500,000.00 44.07%
431 East Central Blvd.
Suite 900
Orlando, FL 32801
Michael J. Martella 117,033.30 1.47%
431 East Central Blvd.
Suite 900
Orlando, FL 32801
7
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Sharron C. Martin 3,500,000.00 44.07%
9025 South 700 West
Sandy, UT 84070
Executive Officers and
Directors as a group 7,117,033.30 89.61%
- ------------------------
(1) Thomas Tedrow holds 1,500,000 shares in his name following the acquisition
of PFI. Mr. Tedrow may also be deemed to be the beneficial owner of
2,000,000 shares held in the name of Shipright Assets Limited. Shipright
Assets Limited is a corporation organized under the laws of the British
Virgin Islands, and is owned entirely by Lillian Wai, who holds the shares
in trust for the benefit of Mr. Tedrow.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has one franchise unit that is owned and operated by Michael J.
Martella, the Company's secretary/treasurer and a director. This franchise unit
does not pay franchise fees on its sales.
In July, 1996, the Company issued 10,000 shares of its common stock to
Robert Wood, a prior officer of CTP for services rendered.
The Company has made loans to a stockholder with balances totaling $238,398
at December 31, 1996 and $277,365 at June 30, 1996. The loans are due on demand
and are non-interest bearing. These loans were acquired as part of the pooling
of interests in 1996 with Am-Pac Investments, Inc.
Rental income includes rents received from a company owned by a
stockholder. The amounts received were $45,000 for the six months ended December
31, 1996, $75,000 for the year ended June 30, 1996 and $60,000 for the year
ended June 30, 1995.
In December, 1996 the Company borrowed $114,459 from stockholder owned
entities. These loans have a stated interest rate of 8% and are due upon demand.
The Company entered into an operating lease with a stockholder owned
company in 1997. Minimum lease payments are $10,000 per year.
8
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Part IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Acquisition Agreement between the Shareholders of Pacific Foods,
Ltd. and the Company, without exhibits*
2.2 Acquisition Agreement between Shareholders of T&P Investments,
Inc. and the Company (1)
2.3 Acquisition Agreement between the Shareholders of Am-Pac
Investments, Inc. (1)
3.1 Articles of Incorporation *
3.2 Bylaws, as amended (1)
4.1 Certificate of Designation of Series A Cumulative Convertible
Preferred Stock (1)
10.1 Lease Agreement with T&P Investments, Inc., without exhibits*
16.1 Letter from Mengal, Metzger, Barr & Co. LLP relating to change of
certifying accountant (2)
(b) Reports on Form 8-K
Report dated January 15, 1997
- ------------------------
* Filed herewith
(1) Incorporated by reference to the respective Exhibits files with the
Company's Report on Form 8-K - December 31, 1996
(2) Incorporated by reference to the respective Exhibits filed with the
Company's Report on Form 8-K - September 18, 1996
9
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this amended report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AM-PAC INTERNATIONAL, INC.
By: /s/ Thomas L. Tedrow
-----------------------------------------
Thomas L. Tedrow
Chief Executive Officer
Dated May , 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas L. Tedrow President, Chief Executive Officer and May , 1997
- -------------------- Chairman of the Board of Directors
Thomas L. Tedrow (Principal Executive Officer)
/s/ Michael J. Martella Secretary/Treasurer, Vice President and May , 1997
- ----------------------- Director (Principal Financial and
Michael J. Martella Accounting Officer)
/s/ Sharron C. Martin Director May , 1997
- -----------------------
Sharron C. Martin
10
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AM-PAC INTERNATIONAL, INC.
Index to Consolidated Financial Statements
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1996
and June 30, 1996 F-4
Consolidated Statements of Operations for the Six Months
Ended December 31, 1996 and Six Months Ended December 31, 1995
(Unaudited) and the Years Ended June 30, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 1996 and the Years Ended June 30, 1996 and 1995 F-7
Consolidated Statements of Shareholders' Equity (Deficit) for
the Six Months Ended December 31, 1996 and Year Ended
December 31, 1996 F-8
Notes to Financial Statements F-9
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Am-Pac International, Inc.
We have audited the accompanying consolidated balance sheet of Am-Pac
International, Inc. (formerly Captain Tony's Pizza, Inc.) and subsidiaries as of
December 31, 1996 and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the six months then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The consolidated financial statements
of Captain Tony's Pizza, Inc. as of June 30, 1996 and 1995 were audited by other
auditors whose report dated July 18, 1996 expressed an unqualified opinion on
those statements.
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.
F-2
<PAGE>
To the Board of Directors and Stockholders
Am-Pac International, Inc.
Page 2
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Am-Pac
International, Inc. and subsidiaries as of December 31, 1996, and the results of
their operations and their cash flows for the six months then ended in
conformity with generally accepted accounting principles.
Our audit was conducted for purposes of forming an opinion on the basic
financial statements taken as a whole. The financial information for the six
months ended December 31, 1995 included in the Consolidated Statements of
Operations is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information, marked
"unaudited", has not been subjected to the auditing procedures applied in the
audit of the basic financial statements, and, accordingly, we express no opinion
thereon.
/s/ H. J. Swart & Company, P. A.
--------------------------------------
H. J. Swart & Company, P. A.
April 9, 1997
F-3
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Am-Pac International, Inc.
Consolidated Balance Sheets
December 31, 1996 and June 30, 1996
Assets
December 31, June 30,
---------------------
1996 1996
-------- --------
Current assets
Cash, including interest bearing
accounts of $27,783 at June 30 $ 47,651 $ 47,839
Property and equipment
Buildings and improvements 171,614 162,749
Land and improvements 204,841 194,260
Furniture and equipment 2,000 -0-
-------- --------
378,455 357,009
Less accumulated depreciation 103,313 99,369
-------- --------
Net property and equipment 275,142 257,640
Other assets
Escrow deposits 6,228 14,977
Organizational costs - net 1,837 2,047
Loan receivable - stockholder 238,398 227,365
-------- --------
Total other assets 246,463 244,389
-------- --------
$569,256 $549,868
======== ========
The accompanying notes are an integral part of these financial statements
F-4
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Am-Pac International, Inc.
Consolidated Balance Sheets
December 31, 1996 and June 30, 1996
Liabilities and Stockholders' Equity (Deficit)
December 31, June 30,
1996 1996
------------ ----------
Current liabilities
Accounts payable $ 111,287 $ 5,865
Other liabilities 22,915 14,114
Current portion of long term debt 9,075 8,657
----------- ---------
Total current liabilities 143,277 28,636
Long term debt
Mortgages payable 435,719 440,400
Loans payable 114,459 -0-
---------- ---------
Total long term debt 550,178 440,400
---------- ---------
Total liabilities 693,455 469,036
Stockholders' equity (deficit)
Common stock, $.001 par value,
149,900,000 shares authorized,
7,740,547 shares issued and
outstanding 7,740 7,740
Additional paid in capital 973,058 973,058
Accumulated deficit (1,104,997) (899,966)
----------- ---------
Total stockholders' equity
(deficit) (124,199) 80,832
----------- ---------
$ 569,256 $ 549,868
=========== =========
The accompanying notes are an integral part of these financial statements
F-5
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Am-Pac International, Inc.
Consolidated Statements of Operations
For the six months ended December 31, 1996,
the six months ended December 31, 1995 (Unaudited)
and the years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Six months ended Year ended
December 31, June 30,
1996 1995 1996 1995
---------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Franchise fees $ 15,468 $31,515 $ 59,225 $ 89,416
Food and equipment sales -0- 3,793 3,793 56,329
Rental property income 50,400 35,400 85,800 70,800
Commissions and other 123 6,213 14,155 3,597
--------- ------- -------- --------
Total revenue 65,991 76,921 162,973 220,142
Costs and expenses
Cost of food and equipment sales -0- 4,441 4,441 48,938
Rental property expenses 37,850 38,196 76,792 76,885
Operating, general and
administrative expenses 233,172 39,131 64,106 143,423
--------- ------- -------- --------
Total costs and expenses 271,022 81,768 145,339 269,246
--------- ------- -------- --------
Net income (loss) $(205,031) $(4,847) $ 17,634 $(49,104)
========= ======= ======== ========
Net income (loss) per share $ (.03) $ (.01) $ .01 $ (.07)
========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
Am-Pac International, Inc.
Consolidated Statements of Cash Flows
For the six months ended December 31, 1996 and
years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Six months ended Year ended June 30,
December 31, 1996 1996 1995
----------------- ------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $(205,031) $17,634 $(49,104)
Adjustments to reconcile net
cash provided (used) by
operating activities
Depreciation and amortization 4,154 8,230 8,949
Services paid for by issuance
of common stock -0- 100 -0-
Provision for doubtful accounts
receivable, net -0- 732 1,685
Decrease in accounts receivable -0- 1,406 6,175
Decrease in inventories -0- 2,772 964
Decrease in other assets 8,749 277 3,431
Increase (decrease) in accounts
payable 105,422 (1,757) 29
Increase (decrease) in other current
liabilities 8,801 (898) (665)
-------- ------- -------
Net cash provided (used) by operating
activities (77,905) 28,496 (28,536)
Cash flows from investing activities
Purchase of property and equipment (21,446) -0- -0-
Collection of loan to stockholder -0- -0- 7,340
Loans made to stockholder (11,033) (8,888) -0-
-------- ------- -------
Net cash provided (used) by investing
activities (32,479) (8,888) 7,340
Cash flows from financing activities
Payment of amounts due officer/
stockholder -0- -0- (33,931)
Proceeds from borrowings 114,459 -0- -0-
Repayment of debt (4,263) (8,613) (10,122)
Issuance of common stock -0- 200 -0-
--------- ------- --------
Net cash provided (used) by
financing activities 110,196 (8,413) (44,053)
--------- ------- --------
Net increase (decrease) in cash (188) 11,195 (65,249)
Cash at beginning of period 47,839 36,644 101,893
--------- ------- --------
Cash at end of period $ 47,651 $47,839 $ 36,644
========= ======= ========
Non-cash financing activities
Issuance of 10,000 shares of common
stock as payment for services $ -0- $ 100 $ -0-
========= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
Am-Pac International, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
For the six months ended December 31, 1996
and year ended June 30,1996
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid in Accumulated Stockholders'
Shares Amount Capital Deficit Equity (Deficit)
----------- ---------- -------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance July 1, 1995
As previously reported 8,121,661 $ 8,121 $937,791 $ (911,515) $ 34,397
Adjust for stock split (7,715,553) (7,716) 7,716 -0- -0-
Stock issued for
pooling of interests 333,939 334 34,252 (6,085) 28,501
---------- --------- -------- ----------- ---------
As restated 740,047 739 979,759 (917,600) 62,898
Stock issued for pooling
of interests 7,000,000 7,000 (6,800) -0- 200
Issuance of common stock
for services 500 1 99 -0- 100
Net income year ended
June 30, 1996 -0- -0- -0- 17,634 17,634
---------- --------- -------- ----------- ---------
Balance June 30, 1996 7,740,547 7,740 973,058 (899,966) 80,832
Net loss six months
ended December 31, 1996 -0- -0- -0- (205,031) (205,031)
---------- --------- -------- ----------- ---------
Balance December 31, 1996 7,740,547 $ 7,740 $973,058 $(1,104,997) $(124,199)
========== ========= ======== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-8
<PAGE>
Am-Pac International, Inc.
Notes to Consolidated Financial Statements
December 31, 1996 and June 30, 1996
1. Summary of Significant Accounting Policies
Organization and consolidation
Am-Pac International, Inc., a Nevada corporation, (the Company) is the
surviving corporation of a merger with Captain Tony's Pizza, Inc., a New
York corporation (CTP). Am-Pac was formed on October 4, 1996 as a wholly
owned subsidiary of CTP for the purpose of effecting this merger. In
conjunction with the merger, the Company had a 1 for 20 reverse stock
split. The financial statements have been restated to reflect the effects
of this transaction.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, CTP Equipment, Inc. (CTPE),
Pacific Foods Limited (PFL) and Am-Pac Investments, Inc. (INV). All
intercompany transactions and balances have been eliminated in
consolidation.
As discussed elsewhere in these notes, PFL and INV were acquired by the
Company in the fourth quarter of 1996, subsequent to the merger and reverse
stock split, in separate transactions accounted for as pooling of
interests. All financial statements presented have been restated and
reported as though the combination with INV had taken place prior to July
1, 1995 and as though the combination with PFL had taken place on May 1,
1996, the date of PFL's inception.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
Concentration of credit risk
The Company maintains its cash balances in primarily one financial
institution located in the State of Florida. These balances are insured by
the Federal Deposit Insurance Corporation up to $100,000.
Cash
For cash flow reporting purposes, the Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.
Property and equipment
Property and equipment is stated at cost. Depreciation is provided on the
straight line method over the estimated useful lives of the various assets.
Depreciation expense for the six months ended December 31, 1996, year ended
June 30, 1996, and year ended June 30, 1995 was $3,944, $8,177, and $8,949
respectively.
F-9
<PAGE>
Am-Pac International, Inc.
Notes to Consolidated Financial Statements
December 31, 1996 and June 30, 1996
1. Summary of Significant Accounting Policies (continued)
Preferred stock
The Company has the authority to issue 100,000 shares of non-voting
preferred stock with terms to be established by the Board of Directors,
subject to certain limitations. No shares of this preferred stock have been
issued, nor does the Company have any present plans for the issuance or
sale of any such shares.
Franchise fee revenues
The Company recognizes initial franchise fees when all material services or
conditions relating to the sale are substantially performed. This is
normally upon the opening of the franchise unit. Services consist of
various elective services including facilities and equipment design and
selection and training of the franchisee's management and staff in the
operations and management of a franchise. The direct incremental costs
associated with these services, primarily travel expenses, are deferred
until the related revenue is recognized. Franchise royalty fees, whether
based on a percentage of sales reported by franchisees or a fixed amount,
are recognized as revenue when cash payments are received.
The Company may enter into master franchise agreements which grant master
franchisees the exclusive right to develop and operate specific numbers of
Captain Tony's locations within territories for a fee. Fees from master
franchises are recognized based on the terms and conditions of each
agreement. If initial services must be performed by the Company and the
master franchise fee relates to the number of area outlets, the master
franchise fee is generally deferred and recognized ratably as units are
opened. However, when there is no substantial performance required of the
Company and the fees are non-refundable and do not relate to the number of
area outlets, fees are generally recognized in income when the agreement is
signed.
In certain instances involving individual or master franchises, the Company
may receive a portion of franchise fees in notes. If the notes are
personally guaranteed by individuals whose net worth exceed Company
requirements, or the facts and circumstances support collectibility of the
note, the portion of the fees represented by notes also is recognized in
income. Otherwise, fees are recognized as income on an installment basis as
cash is received.
Generally, master franchise agreements further provide for an initial
franchise fee for each franchise unit opened under the master franchise
agreement, part of which is payable to the Company. These fees are
non-refundable and recognized in income when all material services required
of the Company, if any, are substantially performed, which is normally upon
opening of the franchise unit.
F-10
<PAGE>
Am-Pac International, Inc.
Notes to Consolidated Financial Statements
December 31, 1996 and June 30, 1996
1. Summary of Significant Accounting Policies (continued)
Institutional food sales
The Company sells pizza, on a wholesale basis, to commercial/corporate
customers primarily for resale in the customers' cafeterias, and purchases
the pizza from franchises. No such sales have occurred since April 1, 1995.
Equipment sales
The Company, through CTPE, a wholly-owned subsidiary, sells restaurant
equipment to Company franchisees. The Company franchisees are not obligated
to purchase equipment from CTPE, but they often do. An equipment inventory
is not maintained by the Company. All franchisee orders for equipment must
be accompanied by receipt of cash payment before the Company orders the
equipment from a third-party vendor. The Company charges the franchisees
with the direct cost of the equipment plus a reasonable profit margin.
Commissions
During 1996, the Company discontinued purchasing and reselling food and
other items to franchisees. Instead, the Company receives commissions on
food purchases that franchisees make from a specific vendor.
New business venture
In 1997 the Company began developing a sports bar and restaurant concept
called HeadLightZ, with the flagship unit located in Orlando, Florida. The
Company owns all trademarks for franchising, beer, magazines, and licensed
products. Expansion is planned through acquisition of additional facilities
and franchising.
Advertising costs
The Company expenses advertising and promotion costs as incurred.
Advertising and promotion costs for the six months ended December 31, 1996
and years ended June 30, 1996 and 1995 were $600, $2,181 and $16
respectively.
Income taxes
Deferred income tax assets and liabilities arise from temporary differences
associated with differences between the financial statement and tax bases
of assets and liabilities, as measured by the enacted tax rates which are
expected to be in effect when these differences reverse. Deferred tax
assets and liabilities are classified as current or noncurrent, depending
on the classification of the assets and liabilities to which they relate.
Deferred tax assets and liabilities not related to an asset or liability
are classified as current or non current depending on the periods in which
the temporary differences are expected to reverse. The principal type of
temporary difference between assets and liabilities for financial
statements and tax return purposes is net operating loss carryforwards.
F-11
<PAGE>
Am-Pac International, Inc.
Notes to Consolidated Financial Statements
December 31, 1996 and June 30, 1996
1. Summary of Significant Accounting Policies (continued)
Per share data
Per share data is based on the weighted average number of common shares
outstanding during the periods, giving retroactive effect to the 1 for 20
reverse stock split.
Fiscal-year change
In October 1996, the Board of Directors approved a change in the Company's
fiscal year end from June 30 to December 31, effective the calendar year
beginning January 1, 1997. A six-month fiscal transition period from July
1, 1996 through December 31, 1996 will precede the start of the new
calendar-year cycle. Fiscal years presented and referred to in these
consolidated financial statements and notes thereto are on a June 30 fiscal
year basis unless otherwise indicated.
2. Franchise Operations
During fiscal year 1995, four franchised units closed, leaving a total of
fourteen remaining at June 30, 1995. One unit transferred ownership
resulting in transfer franchise fee revenue of $2,500.
During fiscal year 1996, four franchise units closed, leaving a total of
ten remaining at June 30, 1996. Two units transferred ownership resulting
in transfer franchise fee revenue of $5,000.
There were no changes in the number of franchise units or their ownership
during the six months ended December 31, 1996.
3. Income Taxes
The Company has net operating loss carryforwards of approximately $850,000
that are available to offset future taxable income and expire at various
dates through the year 2011.
No related deferred tax asset has been recognized in the financial
statements since the valuation allowance is equal to any such tax benefit.
4. Related Party Transactions
As of December 31, 1996, the Company has one franchise unit that is owned
and operated by a related party. The franchise is owned by a stockholder
and officer of the Company, and does not pay franchise fees on its sales.
During the year ended June 30, 1996, the Company issued 10,000 shares of
common stock to a director of the Company for services rendered. The stock
was valued at $.01 per share based upon an independent appraisal.
F-12
<PAGE>
Am-Pac International, Inc.
Notes to Consolidated Financial Statements
December 31, 1996 and June 30, 1996
4. Related Party Transactions (continued)
During the year ended June 30, 1995, the Company purchased pizza from
franchises owned by the related party for resale to commercial/corporate
customers. In the year ended June 30, 1995 the entire cost of institutional
food sales resulted from these purchases. There have been no institutional
food sales since April 1, 1995.
The Company has made loans to a stockholder with balances totaling $238,398
at December 31, 1996 and $227,365 at June 30, 1996. The loans are due on
demand and are non-interest bearing. These loans were acquired as part of
the pooling of interests in 1996 with Am-Pac Investments, Inc.
Rental income includes rents received from a company owned by a
stockholder. The amounts received were $45,000 for the six months ended
December 31, 1996, $75,000 for the year ended June 30, 1996 and $60,000 for
the year ended June 30, 1995.
In December, 1996 the Company borrowed $114,459 from stockholder owned
entities. These loans have a stated interest rate of 8% and are due upon
demand.
As discussed in the subsequent events note, the Company entered into an
operating lease with a stockholder owned company in 1997. Minimum lease
payments are $10,000 per year.
5. Commitments
The Company had a lease agreement for office space with an unrelated party
which expired November 30, 1995. Further, the Company had a lease agreement
for restaurant space with an unrelated party which expired in fiscal 1995.
These agreements were classified as operating leases.
Following is a summary of rental expenses under all operating leases:
Six months ended Years ened June 30,
December 31, 1996 1996 1995
----------------- ------ -------
Rent expense $ -0- $1,875 $12,360
Less sublease
rentals -0- -0- 8,000
-------- ------ -------
$ -0- $1,875 $ 4,360
======== ====== =======
F-13
<PAGE>
Am-Pac International, Inc.
Notes to Consolidated Financial Statements
December 31, 1996 and June 30, 1996
6. Long Term Debt
Long term debt consists of the following:
December 31, 1996 June 30, 1996
----------------- -------------
Mortgage payable to bank at
an adjustable interest rate,
currently stated at 9.625%,
collateralized by land and
commercial building, with
current principal and interest
payments of $3,666 per month,
due June 2017 $389,331 $392,455
Mortgage payable to mortgage
company at an interest rate
of 10%, collateralized by land
and residential building, with
payments of principal and interest
of $657 per month, due June 2009 55,463 56,602
Loans payable to a stockholder
owned company at an interest
rate of 8%, due upon demand 84,459 -0-
Loans payable to a stockholder
owned company at an interest
rate of 8%, due upon demand 30,000 -0-
-------- --------
Total long term debt 559,253 449,057
Less current portion 9,075 8,657
-------- --------
$550,178 $440,400
======== ========
Current maturities of long term debt are as follows:
1997 $ 9,075
1998 9,970
1999 10,954
2000 12,035
2001 13,223
2002 and thereafter 503,996
--------
$559,253
========
7. Supplemental Cash Flow Information
There were no cash payments for income taxes for the six months ended
December 31, 1996 and years ended June 30, 1996 and 1995. Interest paid for
the six months ended December 31, 1996 and years ended June 30, 1996 and
1995 was $20,927, $44,250 and $46,335, respectively.
F-14
<PAGE>
Am-Pac International, Inc.
Notes to Consolidated Financial Statements
December 31, 1996 and June 30, 1996
8. Segment and Major Customer Information
The Company operates in generally four industry segments: franchising,
restaurant equipment sales, institutional food sales and real estate
rental.
Financial information by industry segment is as follows:
Six months Years
ended ended
December 31, June 30,
1996 1996 1995
-------- -------- --------
Revenues:
Franchising $ 15,468 $ 76,493 $109,023
Institutional food sales -0- -0- 35,790
Equipment sales -0- 392 1,063
Real estate rental 50,400 85,800 70,800
-------- -------- --------
$ 65,868 $162,685 $216,676
======== ======== ========
Income (loss) from operations:
Franchising $(41,498) $ 8,372 $(48,350)
Institutional food sales -0- -0- 1,824
Equipment sales -0- 19 41
Real estate rental 33,448 52,988 38,810
-------- -------- --------
$ (8,050) $ 61,379 $ (7,675)
-------- -------- --------
Identifiable assets:
Franchising $ -0- $ -0- $ 6,299
Real estate rental 259,924 272,617 281,491
-------- -------- --------
$259,924 $272,617 $287,790
======== ======== ========
Only cash cannot be identified with a particular segment. All other assets
are identified with the franchising segment and real estate rental
segments.
During fiscal 1995 the Company had a customer from whom it derived more
than 10% of its consolidated revenues. Sales to the customer represented
100% of the sales in the institutional food sales segment, or approximately
17% of consolidated revenues for fiscal 1995.
During the six months ended December 31, 1996 and during fiscal 1996 and
1995, the Company had a lessee from whom it derived more than 10% of its
consolidated revenues. Rents received from this lessee represented 89%, 87%
and 85% of rental income respectively, or approximately 68%, 46% and 28% of
the consolidated revenues respectively.
F-15
<PAGE>
Am-Pac International, Inc.
Notes to Consolidated Financial Statements
December 31, 1996 and June 30, 1996
9. Other Matters
In April 1995, the Board of Directors approved for submission to a vote of
the shareholders at the Annual Meeting on June 5, 1995, the Purchase and
Sale Agreements hereinafter described. On May 10, 1995, the Company
executed a Stock Purchase and Sale Agreement which provided for the sale of
5,000,000 shares of the Company's authorized and unissued common stock to
an unrelated party for cash consideration of $50,000. An Asset Purchase and
Sale Agreement provided for the sale of substantially all operating assets
of the Company, except cash and certain other assets and including, among
other assets, all franchise contracts, to an officer/stockholder of the
Company for consideration of $10,500, consisting of 1,050,000 shares of the
Company's issued and outstanding common stock owned by the
officer/stockholder. This Agreement also provided for the assumption of
certain liabilities related to the operating assets sold. The Company had
received an independent opinion of the fairness of the consideration to be
paid for the operating assets.
Prior to the vote, the unrelated party exercised its right to cancel the
Stock Purchase and Sale Agreement because of the threat of dissenting
action by a single stockholder pursuant to certain provisions of the New
York Business Corporation Law. The Asset Purchase and Sale Agreement was
approved by stockholders and extended for six months to enable the Company
to find a substitute party to agree to the same or similar terms contained
in the canceled Stock Purchase and Sale Agreement. No such party was found,
and as of June 30, 1996 the Asset Purchase and Sale Agreement has expired.
10. Acquisitions
On October 15, 1996 the Company acquired all of the outstanding common
stock of Pacific Foods Limited, a British Virgin Islands corporation (PFL)
in exchange for 7,000,000 post reverse split shares of the Company's common
stock. The acquisition has been accounted for as a pooling of interests
and, accordingly, the accompanying consolidated financial statements for
periods prior to the date of acquisition reflect the accounts and
operations of PFL.
On December 31, 1996 the Company acquired all of the outstanding common
stock of Am-Pac Investments, Inc., (INV) in exchange for 333,939 shares of
the Company's common stock. The acquisition has been accounted for as a
pooling of interests and accordingly, the accompanying consolidated
financial statements for periods prior to the date of acquisition reflect
the accounts and operations of INV.
F-16
<PAGE>
Am-Pac International, Inc.
Notes to Consolidated Financial Statements
December 31, 1996 and June 30, 1996
11. Subsequent Events
Effective January 1, 1997 the Company entered into an operating lease with
a stockholder owned company to rent certain personal property and
intangible rights and licenses utilized in the operation of a restaurant.
The term of this lease is for a period of two years with a minimum lease
payment of $10,000 per year. At any time during the lease term the Company
has the right to purchase all of the Company's common stock.
On January 2, 1997, the Company granted an officer and director of the
Company an option to purchase 250,000 shares of the Company's common stock
for a period of five years beginning January 2, 1997 at a price of $3.75
per share.
In March 1997, the Company acquired all of the outstanding common stock of
WSI Holdings, Inc. (WSI) in exchange for 1,240,000 shares of the Company's
common stock. The acquisition will be accounted for as a pooling of
interests and, accordingly, historical financial data in future reports
will be restated to include WSI.
F-17
ACQUISITION AGREEMENT
AGREEMENT, dated as of July , 1996 by and between Captain Tony's Pizza,
Inc. a New York corporation (hereinafter "Tony's"), and Thomas L. Tedrow and
Sharron C. Martin (hereinafter "Shareholders") Shareholders of Pacific Foods
Limited, a British Virgin Islands corporation (hereinafter "Foods").
RECITALS
WHEREAS, the Shareholders are the owners of all of the issued and
outstanding shares of Foods;
WHEREAS, the Shareholders are desirous of exchanging their shares of Foods
after completion of the one for twenty reverse split for shares of common stock
("Common Stock") of Tony's;
WHEREAS, Tony's wishes to acquire all of the issued and outstanding shares
of Foods in exchange for shares of Common Stock of Tony's, $.001 par value per
share;
NOW THEREFORE, in consideration of the premises herein contained, the
adequacy of which is hereby acknowledged, and the mutual covenants hereinafter
set forth, the parties hereto have agreed, and by these presents, do hereby
contract as follows:
TERMS
1. Exchange of Securities. Subject to the terms and conditions hereinafter set
forth, at the time of the closing referred to in Section 6 hereof
(hereinafter the "Closing Date"), Tony's will issue and deliver, or cause
to be issued and delivered, to the Shareholders, 700,000 post reverse split
shares of Tony's common stock in exchange for all of the issued and
outstanding Common Stock of Foods.
2. Representations and Warranties of the shareholders. The Shareholders
represent and warrant to Tony's, all of which representations and
warranties shall be true and complete at the Closing Date, and shall
survive the Closing Date for a period of two (2) years from the Closing
Date, except as to the warranties and representations set forth in
subsection (f) hereof which shall survive for a period of three (3) years
from the Closing Date, and those set forth in subsection (h) which shall
survive for a period of six (6) months from the Closing Date, or from the
date when the accounts receivable become due and payable, whichever is the
later, that:
(a) Foods is corporation duly organized and validly existing and in good
standing under the laws of the British Virgin Islands and has the
corporate powers to own its property and carry on its business as and
where it is now being conducted. A Certified copy of the Memorandum
1
<PAGE>
and Articles of Association of Foods which have hereto been furnished
by the Shareholders to Tony's, are a true and correct copy of the
Memorandum and Articles of Association and include all amendments to
the date hereof.
(b) The authorized capital stock of Foods consists of 50,000 shares of
Common Stock, $1.00 par value per share of which 200 shares have been
validly issued and are now outstanding.
(c) The Shareholders have the full power and authority to exchange the
shares of the capital stock of Foods upon the terms and conditions
provided for in this Agreement, and all such shares are duly and
validly issued and are free and clear of any lien or other
encumbrance.
(d) The unaudited balance sheet prepared by management, but which will be
audited by H.J. Swart & Company, P.A., Certified Public Accountants,
as of May 31, 1996, attached hereto as Exhibit B, constitute true and
correct statements as of the date thereof of the financial condition
of Foods and of its assets and liabilities prepared in accordance with
generally accepted accounting principles consistently applied, and
that from May 31, 1996, and until the Closing Date, no dividends or
distributions of capital, surplus, or profits shall be paid or
declared by Foods in redemption of its outstanding shares or
otherwise, nor shall any additional shares be issued by Foods.
(e) Since May 31, 1996, Foods has not engaged in any transaction other
than transactions in the normal course of the operations of its
business, except as specifically authorized by Tony's in writing.
(f) Foods is not involved in any pending or threatened litigation which
would materially affect its financial condition as shown by its
balance sheets of May 31, 1996, shown on Exhibit B hereto, which has
not been provided for on such balance sheet, or referred to in such
balance sheet, or disclosed to Tony's in writing.
(g) Foods has and will have at the Closing Date, good and marketable title
to all of its property and assets shown on Exhibit B hereto, free and
clear of any and all liens or encumbrances or restrictions, except as
shown on Exhibit B hereto, and except for taxes and assessments due
and payable after the Closing Date and easements or minor restrictions
with respect to its real property which do not materially affect the
present use of such real property.
(h) The accounts receivable of Foods, as reflected in Exhibit B and as
specifically set forth in separate schedules furnished by Foods prior
to the execution hereof, which shall become due and payable on or
before the closing shall be good and collectible and can reasonably be
anticipated to be paid within 180 days after the Closing Date.
2
<PAGE>
(i) Foods does not now have nor will it have on the Closing Date any
long-term contracts ("long-term" being defined as more than one year)
except for such contracts as are set forth as Exhibit C.
(j) Foods does not now have nor will it have on the Closing Date any
pension plan, profit-sharing plan, or stock-purchase plan for any of
its employees.
3. Representations and Warranties by Tony's. Tony's represents and warrants to
the Shareholders of Foods, all of which representations and warranties
shall be true at the Closing Date, and shall survive the closing for a
period of three (3) years from the Closing Date as follows:
(a) Tony's is a corporation duly organized and validly existing and in
good standing under the laws of the State of New York and has the
corporate powers to own its properties and carry on its business as
now being conducted and has authorized capital stock consisting of
150,000,000 shares of Common Stock, $.001 par value per share, of
which 8,131,161 shares are issued and outstanding. These shares will
be reverse split as a one for twenty basis prior to closing.
(b) Tony's has the corporate power to execute and perform this Agreement
and to deliver the stock required to be delivered to the Shareholders
of Foods hereunder.
(c) The execution and delivery of this Agreement, and the issuance of the
stock required hereunder, have been duly authorized by all necessary
corporate action, and neither the execution nor delivery of this
Agreement, nor the issuance of the stock, nor the performance,
observance or compliance with the terms and provisions of this
Agreement will violate any provision of law, any order of any court or
other governmental agency, the Certificate of Incorporation or By-Laws
of Tony's or any indenture, agreement or other instrument to which
Tony's is a party, or by which Tony's is bound or by which any of its
property is bound.
(d) The shares of Tony's Common Stock deliverable hereunder will, on
delivery in accordance with the terms hereof, be duly authorized,
validly issued, fully paid and nonassessable. Such shares will be
restricted shares and cannot be sold or exchanged except pursuant to
registration or an exemption therefrom.
(e) The financial statements prepared by Mengel, Metzger Barr & Co.,
Certified Public Accountants, for the year ending June 30, 1995,
attached hereto as Exhibit E constitute true and correct statements as
of such date of the financial condition of Tony's and of its assets,
liabilities and income prepared in accordance with generally accepted
accounting principles consistently applied and that from June 30,
3
<PAGE>
1995, and until the Closing Date, no dividends or distributions of
capital, surplus, or profits have been paid or declared by Tony's in
redemption of its outstanding shares or otherwise, nor have any
additional shares been issued by Tony's.
(f) Since June 30, 1995, Tony's has not engaged in any transaction other
than transactions in the normal course of the operations of its
business, except as specifically authorized by the Shareholders of
Foods in writing. Such authorization specifically includes a bonus to
Martella of Tony's cash, which distribution shall occur at Closing.
(g) Tony's is not involved in any pending or threatened litigation which
would materially adversely affect its financial condition as shown by
the balance sheets of December 31, 1995, attached hereto as Exhibit E,
which has not been provided for on such balance sheet or referred to
in such balance sheet or disclosed to the Shareholders of Foods in its
10-KSB or other filings.
4. Conditions to the Obligations of Tony's. The obligations of Tony's
hereunder shall be subject to the conditions that:
(a) Tony's shall not have discovered any material error or misstatement in
any of the representations and warranties made by the Shareholders of
Foods herein and all the terms and conditions of this Agreement to be
performed and complied with shall have been performed and complied
with.
(b) There shall have been no substantial adverse changes in the
conditions, financial, business or otherwise of Foods from May 31,
1996, to the Closing Date, except for changes resulting from those
operations in the usual and ordinary course of the business, and
between such dates the business and assets of Foods shall not have
been materially adversely affected as the result of any fire,
explosion, earthquake, flood, accident, strike, lockout, combination
or workmen, taking over of any such assets by any governmental
authorities, riot, activities or armed forces, or acts of God or of
the public enemies.
(c) Tony's shall have received the opinion of Messrs. Vanderkam & Sanders,
legal counsel for Foods, to the effect that (1) Foods is duly
organized and validly existing under the laws of the jurisdiction of
its incorporation and has the power and authority to own their
properties and to carry on their respective business wherever the same
may be located and operated as of the Closing Date, and (2) the
Agreement has been duly executed, and when delivered by the
Shareholders is enforceable in accordance with its terms.
(d) An Employment Contract with Michael Martella providing for his
continued employment with the surviving entity of Tony's shall have
been executed by all parties a signator thereto and shall constitute a
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valid and binding obligation of Tony's after the acquisition of Foods.
5. Conditions to the Obligations of the Shareholders of Foods. The obligations
of the Shareholders of Foods hereunder are subject to the conditions that:
(a) The Shareholders shall not have discovered any material error or
misstatement in any of the representations or warranties made by
Tony's herein and all the terms and conditions of this Agreement to be
performed and complied with by Tony's shall have been performed and
complied with.
(b) The Shareholders shall have received the opinion of Patrick J. Lane,
P.C., counsel for Tony's, to the effect that (1) Tony's is a
corporation duly organized and validly existing under the laws of the
State of New York, and has the power to own and operate its properties
wherever the same shall be located as of the Closing Date; (2) the
execution, delivery and performance of Tony's has been duly authorized
by all necessary corporate action including approval by the
shareholders at a lawfully convened meeting and constitutes a legal,
valid and binding obligation of Tony's enforceable in accordance with
its terms; (3) the stock to be delivered to Tony's puruant to the
terms of this Agreement has been validly issued, is fully paid and
nonassessable; and (4) the exchange of the stock herein contemplated
does not require the registration of the Tony's Common Stock pursuant
to any Federal law dealing with the issuance, sale, transfer, and/or
exchange of corporate securities as the shares issued are exempt from
registration under the provisions of Regulation D of Rule 506. Tony's
common shares will however bear a Rule 144 Restrictive Legend.
6. Closing Date. The closing shall take place at 10:00 A.M. Central Standard
Time, on July , 1996, at the offices of Vanderkam & Sanders in Houston,
Texas, or at such other time and place as the parties hereto shall agree
upon. This Agreement shall be effective as of the close of business on the
Closing Date.
7. Actions at the Closing. At the closing, Tony's and the Shareholders of
Foods will each deliver, or cause to be delivered to the other, the
securities to be exchanged in accordance with Section 1 of this Agreement
and each party shall pay any and all Federal and State taxes required to be
paid in connection with the issuance and the delivery of their own party to
which the same are deliverable.
In addition, the following transactions will take place.
(a) Tony's will deliver to the Shareholders of Foods:
(i) Duly certified copies of all corporate resolutions and other
corporate proceedings taken by Tony's to authorize the execution,
delivery and performance of this Agreement.
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(ii) The opinion of Patrick J. Lane, P.C., counsel for Tony's, as
provided in Section 5 (b) of this Agreement.
(iii)A Certificate executed by a principal officer of Tony's
attesting to the fact that all of the representations and
warranties of Tony's are true and correct as of the Closing Date,
and that all of the conditions to the obligations of the
Shareholders of Foods to be performed by Tony's have been
performed as of the Closing Date.
(iv) A Certificate of Incumbency and Signatures of the officers of
Tony's dated as of the date of this Agreement.
(v) The written resignations of all directors and such officers and
auditors of Tony's as are requested by the Shareholders, which
resignations shall contain an acknowledgment from each resignee
that they have no claims against Tony's for loss of office or
otherwise.
(vi) All registration certificates, statutory books, minutes books and
common seals of Tony's, all accounts books and all documents of
title relating to Tony's's assets (unless already in the
possession of the Shareholders) as are required by the
Shareholders.
(vii)In addition, Martella shall receive a bonus equal to one-hundred
percent of the cash on hand at Tony's.
(b) The Shareholders of Foods will deliver to Tony's:
(i) The opinion of Vanderkam & Sanders, counsel for the Shareholders
of Foods, as provided for in Section 4(c) hereof.
(ii) A Certificate from the Shareholders of Foods signed by all the
Shareholders that each of the representations and warranties of
the Shareholders are true and correct as of the Closing Date and
that all of the conditions to the obligations of Tony's to be
performed by the Shareholders have been performed as of the
Closing Date.
(iii) All of the outstanding common share certificates of Foods.
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8. Conduct and Business, etc. Between the date hereof and the Closing Date,
Foods shall conduct its business in the same manner in which it has
heretofore been conducted and the Shareholders will not permit it to (1)
enter into any contract, etc., other than in the ordinary course of
business, or (2) declare or make any distribution of any kind to the
Shareholders, without first obtaining the written consent of Tony's.
9. Access to the Properties and Books of Foods. The Shareholders of Foods
hereby grant to Tony's, through its duly authorized representatives and
during normal business hours between the date hereof and the Closing Date,
the right of full and complete access to the properties of Foods, and full
opportunity to examine Foods's books and records. A similar access to
Tony's's properties, books and records in likewise granted to the
Shareholders of Foods.
10. Costs and Expenses. Foods shall pay the expenses and costs incident to the
preparation of this Agreement and to the consummation of the transaction
contemplated herein.
11. Funding of Captain Tony's Pizza. The Shareholders agree to fund the Pizza
franchising business with a minimum of two million dollars during the
twelve months following the date of this agreement for expansion and
working capital.
12. Miscellaneous.
(a) This Agreement shall be controlled, construed and enforced in
accordance with the laws of the State of New York.
(b) This Agreement shall not be assignable by either party without the
prior written consent of the other.
(c) All paragraph headings herein are inserted for the parties convenience
in identifying the provisions of this Agreement, and shall not effect
the construction or interpretation of the provisions of this
Agreement.
(d) This Agreement sets forth the entire understanding between the
parties, there being no terms, conditions, warranties or
representations other than those contained herein, and no amendments
hereto shall be valid unless made in writing and signed by the parties
hereto.
(e) This Agreement shall be binding upon and shall inure to the benefit of
the heirs, executors, administrators and assigns of Foods and upon the
successors and assigns of Tony's.
(f) The company "Tony's" shall change its Name to "Am Pac Corporation"
(g) All notices, requests, instructions, or other documents to be given
hereunder shall be in writing and sent by registered mail:
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If to the Share Thomas L. Tedrow
holders of Foods: Sharon C. Martin
2440 S. Progress Drive
Salt Lake City, UT 84119
with copies to: Messrs. Vanderkam & Sanders
1111 Caroline, Ste. 2905
Houston, Texas 77010
If to Tony's: Captain Tony's Pizza, Inc.
P.O. Box 82
Deland, FL 32721
with copies to: Patrick J. Lane
----------------------------
----------------------------
(h) For purposes of this Agreement only, facsimile signatures shall be
considered original signatures.
(i) This agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original, and all of which taken
together shall constitute one and the same agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date and year first above written.
CAPTAIN TONY'S PIZZA, INC.
By: /s/ Michael J. Martella
----------------------------------------
Michael J. Martella
President
ATTEST:
By:
-------------------------------
Its:
------------------------------
/s/ Thomas Tedrow
----------------------------------------
Thomas Tedrow
/s/ Sharron C. Martin
----------------------------------------
Sharron C. Martin
SHAREHOLDERS OF
PACIFIC FOODS LIMITED
9
ARTICLES OF INCORPORATION
OF
AM-PAC INTERNATIONAL, INC.
The undersigned natural persons of the age of eighteen (18) years or more acting
as incorporator of a corporation under the Nevada Revised Civil Statute 78,
hereby adopts the following Articles of Incorporation:
ARTICLE I
NAME
The name of the corporation (hereinafter called "Corporation") is Am-Pac
International, Inc.
ARTICLE II
PERIOD OF DURATION
The period of duration of the Corporation is perpetual.
ARTICLE III
PURPOSES AND POWERS
The purpose for which this Corporation is organized is to engage in the business
of investing in investments of all forms and nature and to engage in any and all
other lawful business.
ARTICLE IV
CAPITALIZATION
The total number of shares of stock which the Corporation shall have the
authority to issue is one hundred fifty million (150,000,000) shares, consisting
of one hundred forty nine million (149,900,000) shares of Common Stock having a
par value of $.001 per share and one hundred thousand (100,000) shares of
Preferred Stock having a par value of $.001 per share.
A. Preferred Stock
The Board of Directors is authorized, subject to the limitations prescribed
by law and the provisions of this Article, to provide for the issuance of
the shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Nevada, to establish from
time to time the number of shares to be included in each such series and to
fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof.
1. The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
a. The number of shares constituting that series and the distinctive
designation of that series;
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b. The dividend rate on the shares of that series, whether dividends
shall be cumulative, and if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on
shares of that series;
c. Whether that series shall have voting rights, in addition to the
voting rights provided by law, and if so, the terms of such
voting rights;
d. Whether that series shall have conversion privileges and, if so,
the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board
of Directors shall determine;
e. Whether or not the shares of that series shall be redeemable and,
if so, the terms and conditions of such redemption, including the
date or dates upon or after which they shall be redeemable and
the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption
dates;
f. Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series and, if so, the terms and
amount of such sinking fund;
g. The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
h. Any other relative rights, preferences and limitations of that
series.
2. Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment, before any dividends shall be paid
or declared and set apart for payment on Common Stock with respect to
the same dividend period.
3. If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets available for distribution
to holders of shares of Preferred Stock of all series shall be
insufficient to pay such holders the full preferential amount to which
they are entitled, then such assets shall be distributed ratably among
the shares of all series of Preferred Stock in accordance with the
respective preferential amounts (including unpaid cumulative
dividends, if any) payable with respect thereto.
4. Unless otherwise provided in any resolution of the Board of Directors
providing for the issuance of any particular series of Preferred
Stock, no holder of Preferred Stock shall have any pre-emptive right
as such holder to subscribe for, purchase or receive any part of any
new or additional issue of capital stock of any class or series,
including unissued and treasury stock, or obligations or other
securities convertible into or exchangeable for capital stock of any
class or series, or warrants or other instruments evidencing rights or
options to subscribe for, purchase or receive any capital stock of any
class or series, whether now or hereafter authorized and whether
issued for cash or other consideration or by way of dividend.
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B. Common Stock
1. Subject to the prior and superior rights of the Preferred Stock and on
the conditions set forth in the foregoing parts of this Article or in
any resolution of the Board of Directors providing for the issuance of
any particular series of Preferred Stock, and not otherwise, such
dividends (payable in cash, stock or otherwise) as may be determined
by the Board of Directors may be declared and paid on the Common Stock
from time to time out of any funds legally available therefor.
2. Except as otherwise provided by law, by this Certificate of
Incorporation or by the resolution or resolutions of the Board of
Directors providing for the issue of any series of the Preferred
Stock, the Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes, each holder of the
Common Stock being entitled to one vote for each share held.
3. Upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, and after the holders of the
Preferred Stock of each series shall have been paid in full the amount
to which they respectively shall be entitled, or a sum sufficient for
such payments in assets of the Corporation shall be distributed pro
rata to the holders of the Common Stock in accordance with their
respective rights and interests, to the exclusion of the holders of
the Preferred Stock.
ARTICLE V
REGISTERED OFFICE AND AGENT
The name and address of the corporation's registered agent and address is The
Corporation Trust Company of Nevada, One, East First Street, Reno, Nevada 89501.
ARTICLE VI
DIRECTORS
The Corporation shall be governed by a Board of Directors consisting of such
number of directors as shall be fixed the Corporation's bylaws. The number of
directors constituting the initial board of directors of the corporation is five
and the names and addresses of the directors are as follows:
Name Address
---- -------
Thomas L. Tedrow 431 E. Central Blvd., Suite 900
Orlando, Florida 32801
Michael J. Martella 431 E. Central Blvd., Suite 900
Orlando, Florida 32801
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<PAGE>
Malcolm Wright 431 E. Central Blvd., Suite 900
Orlando, Florida 32801
Linda Xu 2440 South Progress Dr.
Salt Lake City, Utah 84109
Sharron C. Martin 2440 South Progress Dr.
Salt Lake City, Utah 84109
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
There shall be no preemptive right to acquire unissued and/or treasury shares of
the stock of the Corporation.
ARTICLE VIII
LIABILITY OF OFFICERS AND DIRECTORS
A director or officer of the Corporation shall not be liable to the Corporation
or its shareholders for damages for breach of fiduciary duty as a director or
officer unless the act or omission involves intentional misconduct, fraud, a
knowing violation of law or the payment of an unlawful dividend in violation of
NRS 78.300.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall indemnify any and all persons who may serve or who have
served at any time as directors or officers or who, at the request of the Board
of Directors of the Corporation, may serve or at any time have served as
directors or officers of another corporation in which the Corporation at such
time owned or may own shares of stock or of which it was or may be a creditor,
and their respective heirs, administrators, successors and assigns, against any
and all expenses, including amounts paid upon judgments, counsel fees and
amounts paid in settlement (before or after suit is commenced), actually and
necessarily by such persons in connection with the defense or settlement of any
claim, action, suit or proceeding in which they, or any of them, are made
parties, or a party, or which may be asserted against them or any of them, by
reason of being or having been directors or officers of the Corporation, or of
such other corporation, except in relation to matters as to which any such
director or officer of the Corporation, or of such other corporation or former
director or officer or person shall be adjudged in any action, suit or
proceeding to be liable for his own negligence or misconduct in the performance
of his duty. Such indemnification shall be in addition to any other rights to
which those indemnified may be entitled under any law, by law, agreement, vote
of shareholder or otherwise.
DATED this 4th day of October, 1996.
Incorporator:
/s/ William Erwin
---------------------------------------
William Erwin
CT Corporation System
811 Dallas Ave.
Houston, Texas 77002
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<PAGE>
STATE OF TEXAS )
)
COUNTY OF HARRIS )
On October 4, 1996, personally appeared before me, a Notary Public, William
Erwin, who acknowledged that he executed the above document in his capacity as
duly authorized agent of the C T Corporation System and Incorporator Am-Pac
International, Inc.
---------------------------------------
Notary Public
Certificate of Acceptance of Appointment of Resident Agent
The Corporation Trust Company of Nevada hereby accepts appointment as Resident
Agent for the above named corporation.
Dated:
--------------------------------
Corporation Trust Company of Nevada
- --------------------------------------
By:
-----------------------------------
Title:
--------------------------------
5
LEASE AGREEMENT
LEASE AGREEMENT, entered into this day of , 1996, by and between AM- PAC
INTERNATIONAL, INC., a Nevada corporation (hereinafter referred to as "AM-PAC"),
and T&P INVESTMENTS, INC., a Florida corporation (hereinafter referred to as
"T&P").
RECITALS
WHEREAS, T&P is engaged in the operation, and owns various personal
property, licenses and other rights utilized in the operation, of a
restaurant/club in Orlando, Florida known as the "Frat House;"
WHEREAS, AM-PAC, T&P and Thomas Sweeney, the sole shareholder of T&P
("Sweeney"), previously entered into an Exchange Agreement (the "Exchange
Agreement") pursuant to which AM-PAC agreed to acquire from Sweeney, and Sweeney
agreed to convey to AM-PAC, 100% of the stock of T&P in exchange for stock of
AM-PAC;
WHEREAS, Sweeney and T&P were unable to satisfy various covenants and
obligations under the Exchange Agreement and, accordingly, the Exchange
Agreement was terminated; and
WHEREAS, AM-PAC desires to lease from T&P, and T&P desires to lease to
AM-PAC, all personal property and intangible rights and licenses utilized in the
operation of the Frat House in order that AM-PAC may carry on the operations of
the Frat House for a period of two years after which time AM-PAC shall have the
right, at its sole option, to acquire all such assets on the terms described
herein.
NOW, THEREFORE, on the stated premises and for and in consideration of the
mutual covenants and agreements hereinafter set forth and the mutual benefits to
the parties to be derived herefrom, it is agreed as follows:
ARTICLE 1
DESCRIPTION OF LEASED PROPERTY
The property to be leased consists of substantially all personal property,
licenses and other intangible rights associated with the operation of the Frat
House, which property is described in the attached Schedule.
ARTICLE 2
TERM OF LEASE
The term of this Lease is for two years commencing on the date first set
forth hereinabove.
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<PAGE>
ARTICLE 3
PAYMENTS BY AM-PAC
3.01. Percentage Rent. AM-PAC agrees to pay to T&P during each lease year
rent in the manner and amount and upon the conditions and at the time set forth
in this section as follows:
(a) Annual rent in an amount equal to one percent (1%) of the gross annual
receipts, as defined in subsection (d) of this Section 3.01, but in no event
less than $10,000. Rent is payable at the offices of T&P or at such other place
as T&P may designate, without any prior demand and without any set-off or
deduction whatsoever.
(b) AM-PAC must pay the sum of $10,000 on or before the last day of each
calendar year as advance rent for that year.
(c) As soon as practicable, but in no event later than one hundred twenty
days after the end of each lease year, AM-PAC shall furnish to T&P audited
financial statements which show the total gross receipts for the full lease
year. If, at the end of any lease year, the total amount of rent paid by AM-PAC
was less than the total amount of rent to be paid under Section 3.01(a), AM-PAC
shall pay to T&P the amount of this deficiency no later than thirty (30) days
after the amount of the deficiency is determined. If, at the end of any lease
year, the total amount of rent paid by AM-PAC exceeds the total amount of rent
required to be paid under subsection (a) of this Section 3.01, AM-PAC shall
receive a credit equivalent to this excess, which AM-PAC may apply to subsequent
payments of rent due under this article. If no subsequent payments of rent are
due under this article, the amount of credit will be refunded to AM-PAC no later
than thirty (30) days after the amount of the credit is determined.
(d) The term "gross receipts" as used in this section means receipts from
gross sales of food and beverages from all operations of the Frat House, whether
these sales are evidenced by check, credit, charge account, exchange or
otherwise. Gross receipts do not include sales of food or beverage for which
cash has been refunded or charge accounts credited as a result of returns of
such items. Gross receipts do not include the amount of any sales, use, value
added, or gross receipts tax imposed by any federal, state, municipal or other
governmental authority directly on sales and collected from customers, provided
that the amount of the tax is added to or absorbed in the selling price and paid
by AM- PAC. No franchise or capital stock tax and no income or similar tax based
on income or profits as such shall be deducted from gross receipts. Each charge
or sale on installment or credit is to be treated as a sale for the full price
in the month during which the charge or sale is made, irrespective of when
AM-PAC receives payment.
(e) For the purpose of ascertaining the amount payable as rent, AM-PAC
agrees to prepare and maintain on the leased premises, for a period of not less
than one year following the end of each lease year, adequate records which will
show inventories and receipts of merchandise at the Frat House, and daily
receipts from all sales and other transactions on or from the Frat House by
AM-PAC and any other persons conducting any business at or from the Frat House.
AM-PAC shall record at the time of sale, in the presence of the customer, all
receipts from sales and other transactions, whether for cash or credit, in a
cash register or registers having a cumulative total, which shall be sealed in a
manner approved by T&P, and having such other features as shall be approved by
T&P. For purposes hereof, the use of cash registers and other similar features
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<PAGE>
utilized by T&P in the operations of the Frat House, which registers or features
are leased to AM-PAC hereunder, shall be deemed to satisfy the foregoing
requirement. AM-PAC further agrees to maintain on the premises of the Frat House
for at least one year following the end of each lease year the gross income,
sales, and occupation tax returns with respect to the lease years, and all
pertinent original sales records. Pertinent original sales records include all
cash register tapes, serially numbered sales slips and credit card records.
(f) T&P and authorized representatives of T&P have the right to examine the
records described in Section 3.01(e) during regular business hours. If, on
examination of the books and records of AM-PAC, an error is revealed which
results in additional rent due to T&P, then the reasonable costs of the
examination must be paid by AM-PAC to T&P. AM-PAC must pay these reasonable
costs within thirty (30) days of notification by T&P of the error.
3.02. Late Payment. Any rental payment not made by AM-PAC within ten (10)
days of its due date shall be subject to a late charge of five percent (5%) of
the amount not paid when due.
3.03. Security Deposit. As security for the prompt and full payment of rent
and the complete and timely performance of all provisions of this Lease, AM-PAC
will deposit with T&P the amount set forth in the attached Schedule as the
Security Deposit. If any default occurs in the performance of any covenants in
this Lease by AM-PAC, T&P shall have the right, but shall not be obligated, to
apply the Security Deposit in order to cure the default. Any such application by
T&P shall not be a defense to any action by T&P arising out of the default. On
the expiration or earlier termination of this Lease, provided AM-PAC has paid
all of the required rent and fully performed all of the other provisions of this
Lease, T&P will return to AM-PAC any remaining balance of the Security Deposit.
ARTICLE 4
USE OF PROPERTY
4.01. Rights of AM-PAC. AM-PAC shall be entitled to the right to the use,
operation, possession and control of the leased property during the Lease term,
provided AM-PAC is not in default of any provision of the Lease, and subject to
any security interest T&P may have given or may give to any third party during
the Lease term. Included in the rights granted to AM-PAC hereunder is the right
to utilize the name the "Frat House" and any other names which such business may
operate under at the time of the execution of this Lease. T&P shall cooperate
with AM-PAC in the execution and filing of any documents necessary to transfer
to AM-PAC during the term of this Lease any rights to utilize assumed names
which the Frat House has operated under and any liquor or other licenses or
intangible assets utilized in the operation of the Frat House; provided,
however, that, in the event any such assumed name, liquor licenses, other
licenses or other intangible property generally associated with the operation of
the Frat House cannot, by reason of law or otherwise, be transferred to and used
by AM-PAC pursuant to this Lease, such inability to transfer such intangible
rights pursuant to this Lease shall not be deemed to be a default by T&P under
this Lease provided that T&P cooperates fully and executes such consents and
waivers as may be required for AM-PAC to secure on its own behalf such rights
and licenses. AM-PAC shall employ and have absolute control, supervision, and
responsibility over any operators or users of the property, subject to the
restrictions set forth below.
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<PAGE>
4.02. Duties of AM-PAC. AM-PAC must use the leased property in a careful
and proper manner, and agrees not to permit any leased property to be operated
or used in violation of any applicable federal, state, or local statute, law,
ordinance, rule, or regulation relating to the possession, use, or maintenance
of the property. AM-PAC agrees that the leased property will be used in
accordance with any applicable vendor's or manufacturer's manuals or
instructions, by competent and fully qualified personnel only. AM-PAC agrees to
reimburse T&P in full for all damage to the property arising from any misuse or
negligent act by AM-PAC, its employees, and its agents. AM-PAC will indemnify
and hold T&P harmless from all liabilities, fines, forfeitures, or penalties for
violations of any statute, law, ordinance, rule, or regulation of any duly
constituted public authority.
4.03. Commercial Use Limitation. AM-PAC represents and warrants that the
leased equipment will be used for commercial or business purposes only.
ARTICLE 5
MAINTENANCE, REPAIRS, AND ALTERATIONS
PERFORMED BY LESSEE
5.01. Maintenance and Repairs. AM-PAC shall assume all obligation and
liability concerning possession of the property, and for its use, operation,
condition, and storage during the lease term. AM-PAC shall, at AM-PAC's expense,
maintain the property in good mechanical condition and running order, excepting
reasonable wear and tear resulting from the ordinary use of the property. AM-PAC
shall at its own expense provide all parts, mechanisms, and devices required to
keep the leased property in good repair, condition, and running order. T&P shall
not be under any liability or obligation in any manner to provide service,
maintenance, repairs, or parts for the leased property.
5.02. Alterations. Without the prior written consent of T&P, AM-PAC shall
not make any alterations, additions or improvements to the equipment, other than
those required to keep the property in good condition and running order, as
described in Section 5.01.
5.03. Accession. Any installation, addition, replacement, and substitution
of parts or accessories with respect to any item under this Lease shall
constitute an accession, and parts and accessories shall become part of the
leased property owned by T&P and be subject to the terms of this Lease.
ARTICLE 6
OPERATING EXPENSES
AM-PAC agrees to pay for all expenses of operating the leased property,
including but not limited to license fees, registration fees, taxes and all
other charges in connection with the operation of the property and of the Frat
House.
4
<PAGE>
ARTICLE 7
TAXES
7.01. AM-PAC's Obligation to Pay Taxes. AM-PAC is liable for, and required
to pay on or before their due dates, all sales taxes, use taxes, personal
property taxes, and any other taxes or governmental charges imposed on the
leased property or based on the amount of rent to be paid under this Lease or
assessed in connection with this Lease. AM- PAC shall promptly notify T&P and
T&P copies of any notices, reports, and inquiries received by AM-PAC from taxing
authorities concerning delinquent taxes, fees, charges or other assessments.
7.02. Taxes Required to be Paid by T&P. If any taxing authority requires
that a tax as set forth in Section 7.01 be paid to the taxing authority directly
by T&P, AM-PAC shall, on notice from T&P, pay to T&P the amount of the tax,
together with the next rent installment.
7.03. Contested Taxes. AM-PAC shall have the right at AM-PAC's own expense
to contest the validity or amount of any tax referred to in Section 7.01 by
legal proceedings promptly instituted and diligently conducted. AM-PAC shall pay
the tax demanded by the taxing authority before initiating any proceedings. If
taxes are reduced or canceled, AM- PAC shall be entitled to the refund for any
taxes previously paid by AM-PAC, provided that AM-PAC is not in default under
any of the terms and conditions of this Lease.
ARTICLE 8
T&P'S RIGHT OF INSPECTION AND REPAIR
It is agreed that T&P, at its discretion during AM-PAC's regular business
hours, and with two days' prior notice to AM-PAC, has the right to enter the
premises where the leased property is located or operated, for the purpose of
inspecting the property in order to make a determination of its condition and
manner of use. If any property covered by this Lease is not being properly
maintained or utilized according to the provisions of this Lease, T&P has the
right, but not the obligation, to have it repaired or maintained at a service
facility at the expense of AM-PAC.
ARTICLE 9
OWNERSHIP
9.01. No Sale or Security Interest Intended. This Agreement constitutes a
Lease of the property described in the attached Schedule and not a sale or the
creation of a security interest. T&P shall at all times retain sole ownership
and title of the leased property, and AM-PAC shall not have or at any time
acquire any right, title, equity, or other interest in the property, except the
right to possession and use as provided for in this Agreement.
9.02. Identification Markings. T&P shall have the right to place and
maintain on the exterior or interior of each piece of property an inscription
indicating T&P's ownership of such property. If this Lease is assigned by T&P,
the assignee shall have the same right. AM-PAC shall not remove, obscure,
deface, or obliterate the inscription or permit any other person to do so.
9.03. Return of Property at Termination of Lease. Upon the termination of
this Lease, AM-PAC shall turn-over to T&P, or T&P's assignee, possession of all
property leased hereunder including all documents of title, if any, and shall
execute such assignments, releases, consents, waivers and other documents as
shall be necessary to evidence the ongoing ownership of all tangible and
intangible property rights leased hereunder.
5
<PAGE>
ARTICLE 10
INSURANCE
10.01. AM-PAC's Obligation to Insure. AM-PAC agrees at its own cost and
expense to maintain in full force and effect insurance against loss, theft,
damage, or destruction of the leased property in an amount not less than the
full replacement cost of such property at the time of this Lease. Lessee also
agrees to carry public liability and property damage insurance issued by
companies satisfactory to T&P, insuring the interests of T&P, AM-PAC, and their
authorized agents and employees in amounts consistent with industry practice.
10.02. Insurance Certificate. AM-PAC agrees to have the insurer furnish to
T&P, no later than five days prior to the date on which the property is
delivered to AM-PAC and no later than five days prior to the expiration date of
any existing insurance, a certificate evidencing the insurance coverage required
under Section 10.1. The insurance policy must provide that the insurer will not
cancel or materially modify the insurance except on 30 days' advance written
notice to T&P. If AM-PAC fails to procure, maintain or renew the insurance
required under Section 10.1, such failure on AM-PAC's part shall constitute a
default. T&P may, but is not obligated to, obtain insurance for AM-PAC and for
the account of AM-PAC without prejudice to any other rights T&P may have under
this Lease.
10.03. Excess Liability Indemnity. AM-PAC agrees to indemnify and hold
T&P, its agents, and employees harmless from all loss, liability, and expense,
including reasonable attorney's fees, in excess of the limits of liability
insurance for bodily injury, death, or property damage caused by or arising out
of the ownership, maintenance, use, or operation of the leased property, as
provided for in this Article. AM-PAC further agrees to indemnify and hold
harmless T&P, its agents, and employees from and against loss, liability, and
expense, including reasonable attorney's fees, because of AM-PAC's failure to
comply with any terms, provisions, and conditions of any insurance policy
insuring T&P and AM-PAC or because of AM-PAC's failure to comply with the terms
and provisions of this Article.
ARTICLE 11
INDEMNIFICATION AND LIABILITY
11.01. Risk of Liability Assumed by AM-PAC. AM-PAC assumes all risk and
liability for the loss of or damage to the leased property, for the death of or
injury to any person or property of another, and for all other risks and
liabilities arising from the use, operation, condition, possession, or storage
of the leased property. Nothing in this Lease shall authorize AM-PAC or any
other person to operate any of the property so as to impose any liability or
other obligation on T&P.
11.02. AM-PAC's Duty to Indemnify. AM-PAC agrees to indemnify, defend, and
hold harmless T&P, its agents, and employees from all claims, loss, or damage
T&P may sustain for any of the following reasons:
6
<PAGE>
(a) Loss of, or damage to, any leased property by any cause.
(b) Injury to, or death of, any person, including but not limited to agents
or employees of AM-PAC.
(c) Damage to any property arising from the use, possession, selection,
delivery, return, condition, or operation of any leased property.
AM-PAC shall reimburse T&P for all expenses, losses, liabilities, fines,
penalties, and claims of every type, including reasonable attorney's fees,
imposed on or incurred by T&P by AM-PAC's use or operation of any leased
property, or because of the failure by AM- PAC to perform any of the Lease
terms. AM-PAC shall also pay interest at the legal rate from the day any such
payment is made by T&P until the date T&P is reimbursed by AM- PAC.
ARTICLE 12
ACCIDENT, LOSS OF, OR DAMAGE TO PROPERTY
12.01. Notification to T&P. If any property under this Lease is damaged,
lost, stolen, or destroyed as a result of its operation, use, maintenance, or
possession, AM-PAC shall promptly notify T&P of the occurrence and shall file
all necessary accident reports, including those required by law and those
required by interested insurance companies.
12.02. Cooperation in Defense of Claims. AM-PAC and its employees and
agents shall cooperate fully with T&P in the investigation and defense of all
claims or suits. AM- PAC shall promptly deliver to T&P all papers, notices, and
documents served on, or delivered to, AM-PAC or its employees and agents in
connection with any claim, suit, action, or proceeding at law or in equity
commenced or threatened against AM-PAC or T&P concerning the leased property.
12.03. Options of T&P. In the event of loss or damage of any kind to any
item of leased property, AM-PAC, at the option of T&P, shall:
(a) Place such property in good repair, condition, and working order; or
(b) Replace such property with like property in good repair, condition, and
working order.
12.04. Stipulated Loss Value. If any property becomes lost, stolen,
destroyed, or damaged beyond repair, AM-PAC shall pay T&P in cash the Stipulated
Loss Value as set forth in Schedule, less any net proceeds of insurance received
by T&P for loss or damage to the property. Upon such payment, this Lease shall
terminate with respect to that item of property, and AM-PAC shall become
entitled t the property on an as-is basis, without warranty by T&P, express or
implied, for any matter concerning the property.
7
<PAGE>
ARTICLE 13
ASSIGNMENT
13.01. Assignment by T&P. T&P may assign this Lease or any rights under it
at any time without AM-PAC's consent, but AM-PAC shall be obligated to any
assignee of T&P only after written notice of such assignment from T&P or the
assignee. In the event of any assignment, T&P's assignee shall have all of the
rights, powers, privileges, and remedies of T&P set forth in this Lease.
13.02. Assignment or Subletting by AM-PAC. It is agreed that AM-PAC may
assign all of the rights and benefits of this Lease, but T&P shall not be
obligated to any assignee of AM-PAC unless T&P has given its prior written
consent to such assignment.
ARTICLE 14
CIRCUMSTANCES CONSTITUTING DEFAULT
At its option, T&P may by written notice to AM-PAC declare AM-PAC in
default on the occurrence of any of the following events:
(a) Failure by AM-PAC to make rental payments or perform any other of its
obligations as set forth in this Lease.
(b) Expiration or cancellation of any insurance policy to be paid for by
AM- PAC as provided for under the terms of this Lease.
(c) Involuntary transfer of AM-PAC's interest in this Lease by operation of
law.
(d) AM-PAC's assignment of any interest in this Lease that is not
authorized by Article 13.
ARTICLE 15
RIGHTS, REMEDIES, AND OBLIGATIONS
ON DEFAULT
15.01. T&P's Rights and Remedies. If any default of AM-PAC as set forth in
Article 14 shall continue for ten days after written notice of such default has
been provided, T&P shall have the right to exercise any one or more of the
following remedies:
(a) To terminate the Lease and AM-PAC's rights under this Lease as to any
or all items of property.
(b) To declare the balance of all unpaid rent and all other charges of any
kind required of AM-PAC under the Lease to be due and payable immediately, in
which event T&P shall be entitled to the balance due, together with interest at
the rate of ten percent (10%) per annum from the date of notification of default
to the date of payment.
8
<PAGE>
(c) To repossess the property without legal process. AM-PAC agrees that,
upon default, T&P or T&P's agent may enter upon any premises where the property
is located and repossess and remove it. AM-PAC specifically waives any right of
action AM- PAC might otherwise have arising out of the entry and repossession,
and releases T&P of any claim for trespass or damage caused by reason of the
entry, repossession, or removal. Any repossession of a particular item under
this Lease with respect to which AM-PAC is in default shall not constitute a
termination of this Lease as to any other items of equipment, unless T&P
expressly so notifies AM-PAC in writing.
15.02. AM-PAC's Obligation for T&P's Costs and Attorney's Fees. Upon
default, AM-PAC shall reimburse T&P for all reasonable expenses of repossession
and enforcement of T&P's rights and remedies, together with interest at the rate
of ten percent (10%) per annum until the date of payment. Notwithstanding any
other provisions of this Lease, if T&P places all or any part of T&P's claim
against AM-PAC in the hands of any attorney for collection, AM-PAC shall pay T&P
an attorney's fee, which AM-PAC acknowledges is reasonable, as follows: twenty
percent (20%) of the amount owing and in default.
15.03. Remedies Cumulative. The remedies of T&P set forth in this Article
are cumulative to the extent permitted by law and may be exercised partially,
concurrently, or separately. The exercise of one remedy shall not be deemed to
preclude the exercise of any other remedy.
15.04. Failure to Enforce Not Waiver. Any failure or delay on the part of
T&P to exercise any remedy or right under this Lease shall not operate as a
waiver. The failure of T&P to require performance of any of the terms,
covenants, or provisions of this Lease by AM-PAC shall not constitute a waiver
of any of the rights under the Lease. No forbearance by T&P to exercise any
rights or privileges under this Lease shall be construed as a waiver, but all
rights and privileges shall continue in effect as if no forbearance had
occurred. Acceptance by T&P of rent or other payments made by AM-PAC after
default shall not be deemed a waiver of T&P's rights and remedies arising from
AM-PAC's default. No covenant or condition of this Lease may be waived except by
the written consent of T&P. Any such written waiver of any term of this Lease
shall be effective only in the specific instance and for the specific purpose
given.
ARTICLE 16
SALE OR ENCUMBRANCE
16.01. Sale or Disposal. AM-PAC shall not part with possession or control
of, sell, or attempt to sell or mortgage any of the leased property or otherwise
dispose of any interest under this Lease.
16.02. Encumbrance. AM-PAC shall not pledge, encumber, create a security
interest in, or permit any lien to become effective on any property leased by
the Agreement. On the occurrence of any of these events, AM-PAC shall be deemed
to be in default, at the option of T&P. AM-PAC must promptly notify T&P of any
liens, charges, or other encumbrances of which AM-PAC has knowledge. AM-PAC must
promptly pay or satisfy any obligation from which any lien or encumbrance
arises, and shall otherwise keep the property and all right, title, and interest
free and clear of all liens, charges, and encumbrances. AM-PAC shall deliver to
T&P appropriate satisfactions, waivers, or evidence of payment of any lien or
encumbrance.
9
<PAGE>
ARTICLE 17
RETURN OF PROPERTY ON EXPIRATION
17.01. AM-PAC's Duty to Return. On the expiration or earlier termination of
this Lease with respect to any item of leased property, AM-PAC must return the
property to T&P in good repair, condition, and working order, less normal wear,
tear and depreciation, unless AM-PAC has paid T&P in cash the Stipulated Loss
Value of such item of property, pursuant to Section 12.03 above. All property
required to be surrendered must be returned in the following manner, as may be
specified by T&P:
(a) By delivering the property at AM-PAC's cost and expense to such place
as T&P shall specify within the city or county in which it was delivered to
AM-PAC or to which it was moved with the written consent of T&P.
(b) By loading the property at AM-PAC's cost and expense on board a carrier
T&P designates and shipping the property, freight collect, to the destination
designated by T&P.
17.02. Right of T&P to Repossess. If upon the expiration or earlier
termination of this Lease, AM-PAC fails or refuses to return the property to
T&P, T&P shall have the right to take possession of the property and for that
purpose to enter any premises where the property is located, without being
liable to AM-PAC for such removal in any suit, action or other proceedings.
ARTICLE 18
PURCHASE OPTION
At any time after one month from the date the lease term commences, but not
later than the last day of the term of this Lease, as set forth in Article 2, if
AM-PAC has made all payments required under this Lease, AM-PAC shall have the
right, at its option, to purchase all, but not less than all, of the property
hereby leased in exchange for 313,427 shares of common stock of AM-PAC. Upon the
exercise of this option, T&P will execute and deliver to AM-PAC all documents
necessary and proper to effect transfer of ownership of the property leased
hereunder to AM-PAC, free and clear of all encumbrances, security interest, and
liens. Upon payment by AM-PAC of the option price, this Lease shall terminate
and no further rents shall become due under this Lease.
ARTICLE 19
NOTICES
All notices required to be given under this Lease must be given by
certified or registered mail with postage pre-paid, or by facsimile
transmission, to the party to be notified and shall be deemed given when mailed
or transmitted to the address or facsimile number last provided in writing by
the addressee.
10
<PAGE>
ARTICLE 20
AMENDMENT AND MODIFICATION
Additional property may from time to time be added as the subject matter of
this Lease, as agreed upon by the parties. Any additional property shall be
added to the attached Schedule in an amendment describing the property and the
applicable rental, lease term, security deposit and Stipulated Loss Value of
additional property, if any. All amendments to the attached Schedule must be in
writing and signed by both parties. Other than the foregoing, this Lease shall
not be amended, modified, or altered in any manner except in writing signed by
both parties.
ARTICLE 21
ENTIRE AGREEMENT
This Lease and the attached Schedule, which is incorporated by reference
and made an integral part of this Lease, constitute the entire agreement between
the parties. No agreements, representations, or warranties other than those
specifically set forth in this Lease or in the annexed Schedule shall be binding
on any of the parties unless set forth in writing and signed by both parties.
ARTICLE 22
GOVERNING LAW
This Lease has been executed and delivered in the State of Florida and
shall be interpreted under, and construed in accordance with, the law of
Florida. It is agreed that Florida law shall control the validity of, and the
obligations created by, this Lease.
ARTICLE 23
EFFECT OF PARTIAL INVALIDITY
If one or more of the provisions of this Lease, or the application of any
provision to any party or circumstance, is held invalid, unenforceable, or
illegal in any respect, the remainder of this Lease and the application of the
provision to the other parties or circumstances shall remain valid and in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have entered into this Lease
Agreement on and effective as of the day and date herein first set forth.
T&P INVESTMENTS, INC.
By:
------------------------------------------
Title:
AM-PAC INTERNATIONAL, INC.
By:
------------------------------------------
Title:
11
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