-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jb/Z2IJVUS0gB66VCw0fZo4jSPNttJDkrW2K+cW9bTHzrYpvsZTrkcqW8aHO6SnO /1Soq5GWYbdmhorefV/aJA== 0000910647-01-500055.txt : 20010224 0000910647-01-500055.hdr.sgml : 20010224 ACCESSION NUMBER: 0000910647-01-500055 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20010221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHINA PREMIUM FOOD CORP CENTRAL INDEX KEY: 0001061029 STANDARD INDUSTRIAL CLASSIFICATION: DAIRY PRODUCTS [2020] IRS NUMBER: 621681831 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-76551 FILM NUMBER: 1551500 BUSINESS ADDRESS: STREET 1: 11300 US HIGHWAY 1 SUITE 202 CITY: NORTH PALM BEACH STATE: FL ZIP: 33408 BUSINESS PHONE: 5616251411 MAIL ADDRESS: STREET 1: 11300 US HIGHWAY 1 SUITE 202 CITY: NORTH PALM BEACH STATE: FL ZIP: 33408 FORMER COMPANY: FORMER CONFORMED NAME: CHINA PEREGRINE FOOD CORP DATE OF NAME CHANGE: 19981104 SB-2/A 1 chinsb3a.txt AMENDMENT NO. 3 TO FORM SB-2/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 File No. 333-76511 PRE-EFFECTIVE AMENDMENT NO. 3 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 CHINA PREMIUM FOOD CORPORATION ---------------------------------------------- (Name of Small Business Issuer in its Amended Charter) Delaware 2026 62-1681831 - ------------------------------- ---------- ------------------- (State or other jurisdiction of SIC Number (I.R.S. Employer incorporation or organization) Identification No.) 11300 US Highway 1, Suite 202, North Palm Beach, Florida 33408 USA ------------------------------------------------------------------ (Address of principal executive offices) Telephone number: (561) 625-1411 -------------- Susan Lurvey, Secretary China Premium Food Corporation 11300 US Highway 1, Suite 202 North Palm Beach, FL 33408 (561) 625-1411 (Name, address and telephone number of agent for service) Copies To: Roy D. Toulan, Jr., Esquire Stibel & Toulan LLP 183 State Street Boston, Massachusetts 02109 (617) 523-6000 _____________ Approximate date of proposed sale to the public: From time to time after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 426(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed class of Number of maximum maximum securities Securities offering aggregate Amount of to be to be Dollar amount price offer registration registered registered to be registered per unit (3) price (2)(3) fee - ------------- ---------- ---------------- ------------ ------------ ------------ Common Stock, 12,250,000 (2) $12,250,000 $1.00 $12,250,000 $3,336 $.001 par value per share (1) Common Stock issued upon conversion of Series D Convertible Preferred Stock, dividends payable in connection therewith, and the exercise of Warrants issued in connection therewith. The issue of Series D Convertible Preferred Stock took place pursuant to a Subscription Agreement, dated March 9, 1999. Pursuant to Rule 416 under the Securities Act of 1933, also includes an indeterminate number of additional shares of Common Stock that may become issuable to prevent dilution resulting from stock splits, stock dividends and conversion price or exercise price adjustments. Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the securities act of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said section 8(a), may determine. (ii) =========================================================================== The information in this prospectus is not complete and may be changed. These securities may not be sold by the selling shareholders until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. =========================================================================== SUBJECT TO COMPLETION, DATED ___, 2001 PROSPECTUS [COMPANY LOGO] --------------------------------- THE RESALE BY CERTAIN SELLING SHAREHOLDERS OF 12,250,000 SHARES OF COMMON STOCK --------------------------------- This prospectus relates to the public offering, which is not being underwritten, for the resale of up to 12,250,000 shares of our common stock by the selling stockholders identified in this prospectus. The prices at which the selling stockholders may resell the shares will be determined by the prevailing market prices for the shares or in negotiated transactions. We will not receive any of the proceeds from the sale of the shares. Our common stock is quoted on the OTC Bulletin Board under the symbol "CHPF." On January 31, 2001, the last sale price for our common stock as reported on the OTC Bulletin Board was $ 0.5938 per share. Investing in the common stock involves risks. See "Risk Factors" beginning page 5 Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense The date of this Prospectus is , 2001. TABLE OF CONTENTS PROSPECTUS SUMMARY 4 The Company 4 The Offering 4 RISK FACTORS 5 We have a limited operating history and revenues 5 We are not profitable and we will have a need for additional financing 5 We may need to sell equity for financing at below market prices 6 Future Sales of common stock could depress the market price 6 Our large percentage of tradable shares may depress the market for our stock 6 There exist potential risks of low priced "penny" stock 7 We depend upon key personnel 7 We have limited ability to compete effectively in China 8 We do not control our distribution channels 8 Risks associated with doing business in China 8 SELLING SHAREHOLDERS 9 PLAN OF DISTRIBUTION 13 THE COMPANY 14 Our business 15 Principal products and markets for milk in China 19 Marketing and advertising 20 Employees 20 Changes in and termination of relationships 20 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 23 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 27 DESCRIPTION OF SECURITIES 30 Common Stock 31 Series A Convertible Preferred Stock 32 Series B Convertible Preferred Stock 32 Series C Convertible Preferred Stock 33 Series D Convertible Preferred Stock 33 Series E Convertible Preferred Stock 34 Series F Convertible Preferred Stock 35 Series G Convertible Preferred Stock 36 INTEREST OF NAMED EXPERTS AND COUNSEL 37 DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES 38 2 ADDITIONAL INFORMATION 38 MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATIONS 39 Years ended December 31, 1998 and 1999 39 Period from January 1, 2000 to September 30, 2000 41 Liquidity and capital resources 43 Debt structure 45 Effects of inflation 46 Effect of fluctuation in foreign exchange rates 46 New accounting standards not yet adopted 46 DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS 46 DESCRIPTION OF PROPERTY 47 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 47 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 49 EXECUTIVE COMPENSATION 51 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 55 FINANCIAL STATEMENTS F-1 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The selling stockholders listed in this prospectus on page 9 are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. You can contact us by mail at China Premium Food Corporation, 11300 Us Highway 1, Suite 202, North Palm Beach, Fl 33408 or by phone at (561) 625- 1411. 3 PROSPECTUS SUMMARY The Company China Premium Food Corporation markets, co-produces and distributes licensed branded Looney Tunes(TM) milk products in the People's Republic of China and in the United States, and imports branded snack foods into China. In addition, we have established a business to business e-commerce portal in China to facilitate the sale of United States food products in China on a wholesale level. This business is accomplished in the Shanghai and Hangzhou PRC urban markets through our Chinese wholly owned subsidiary, China Premium Feed (Shanghai) Co., Ltd. In the United States, we co-produce, market and promote branded Looney Tunes(TM) flavored milk products through production contracts between our U.S. wholly owned subsidiary, Bravo! Foods, Inc., and regional dairies. Looney Tunes(TM) flavored milks are sold in the Tennessee and contiguous states area, and in the Colorado market. Commencing in January 2001, Looney Tunes(TM) flavored milks will be sold in Pennsylvania and upstate New York. We have been selling Looney Tunes(TM) flavored milks and selling imported snack foods in China since August 2000. In the United States, we have been marketing and co-producing Looney Tunes(TM) flavored milks since September 2000. The Offering The common stock offered for resale by the selling shareholders includes shares of common stock issued by us to the selling shareholders * upon conversion of convertible preferred stock * upon the exercise of warrants * to prevent dilution resulting from stock splits, stock dividends and conversion price or warrant exercise price adjustments. We will not receive any proceeds from the resale of the common stock covered by this prospectus, all of which will be paid by purchasers to the selling shareholders. 4 RISK FACTORS An investment in the common stock offered by this prospectus involves a high degree of risk. You should carefully consider the risks described below before deciding to purchase the shares of common stock. The risks described below are not the only ones that we face. Additional risks that generally apply to publicly traded companies that we believe are immaterial, may also adversely affect our company. Any of the following factors could adversely affect our business, financial condition or results of operations. The trading price of our common stock could, in turn, decline and you could lose all or part of your investment. Since we are just starting to generate limited revenues from our new business strategy of licensing, marketing, importing and distributing of Looney Tunes(TM) branded food products in China and the US, we may be unable to meet the objectives of our new business plan, including its financial projections. - --------------------------------------------------------------------------- While we anticipate favorable results from our business strategy, we have yet to realize any significant income from this new business direction. Without more substantial revenues and profitability, our business may fail and our common stock will be worthless. During the first two quarters of 2000, we continued to shift ours business focus and strategy from the production of milk products to a company involved in the marketing and distribution of a broad range of food products in China, including premium branded items. Our strategy of distributing branded Looney Tunes(TM) retail consumer food products at premium prices in China is untested. We have not as yet sold sufficient products to determine whether this strategy or any projections of profitability based upon this strategy will be successful. Similarly, our U.S. strategy of alliances with regional dairies to produce Looney Tunes(TM) flavored milk products is untested. We have had initial sales of these flavored milks beginning late September of 2000. The history of three months of sales in insufficient for us to determine whether our business objectives can be met through this new business model. Since our revenues from the licensing, marketing, importing and distributing of Looney Tunes(TM) branded food products to date are limited, we are not yet a profitable business. We will have a need for additional financing to meet the costs associated with the licensing, marketing, importing and distributing of products in the US and in China. Our failure to raise additional money may have an adverse effect on our business plans. - --------------------------------------------------------------------------- Our failure to obtain additional financing could materially slow or prevent * our development of a distribution system in China for our food products * our development of a business to distribute premium food products to major hotels in China * our development of a business to business e-commerce portal as a sales tool for our premium food distribution business * our ability to increase sales in these areas or achieve and sustain profitability. 5 While we have been successful to date in raising sufficient money to support our marketing and development efforts, there can be no assurance that additional financing will be available on satisfactory terms or at all. If we are required to sell equity securities to obtain financing in the future at below the prices at which the selling shareholders resell the common stock offered by this prospectus, the value of the common stock purchased in this offering may be less than anticipated. - --------------------------------------------------------------------------- If we sell additional equity securities at a price per share less than the purchase price at which the shares of common stock are offered, investors purchasing common stock in this offering would incur additional dilution. As a result, shareholders' investments may be worth less than they may have anticipated. The sale of shares of common stock underlying the exercise of warrants held by the selling shareholders, other shares eligible for future sale in the market and the perception that such shares are available for sale, could adversely affect the market price of our common stock and make the sale of our common stock more difficult in the future. - --------------------------------------------------------------------------- As of January 31, 2001, we had outstanding securities convertible into or exercisable for the following amounts of common stock: * 12,250,000 shares issuable upon the conversion of outstanding shares of Series D, F and G convertible preferred stock, including the exercise of warrants associated therewith and dilution adjustments * 242,559 shares issuable upon the conversion of outstanding shares of Series B convertible preferred stock The 12,250,000 shares issuable upon the conversion of outstanding shares of Series D, F and G convertible preferred stock, including the exercise of warrants associated therewith, are registered pursuant to the registration statement associated with this prospectus. The balance of the securities listed above were issued at least one year prior to the date of this prospectus and, subject to the requirements and limitations of Rule 144, the common stock underlying these securities, may be resold without registration. Approximately 71% of our common stock will be available for resale which could depress the market price. - --------------------------------------------------------------------------- After the offering, we will have outstanding approximately 25,300,000 shares of common stock. Of that amount, approximately 17,500,000 shares or 71%, will be available for resale. While we cannot predict the impact of the public resale into the market of any of these shares on the public trading price of our common stock, sales of substantial amounts of our shares or the availability of substantial amounts of our common stock for sale could lower market prices. 6 If the price per share of our common stock on the OTC Bulletin Board continues to trade at below $5 per share, our common stock will continue to be within the definition of "penny stock, and the price of our stock in the market may be adversely effected. - --------------------------------------------------------------------------- The penny stock rules could have the effect of limiting the trading market for our common stock and the ability of purchasers in this offering to sell any shares of our common stock in the market. If the trading market for our common stock were so limited, it could have an adverse effect on the liquidity of the shares and could have the effect of materially increasing the risks of an investment in our common stock. Under certain rules and regulations of the SEC, any broker-dealer seeking to effect a transaction in a penny stock not otherwise exempt from the rules must first deliver to the potential customer a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salespersons in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. This information must be given to the customer orally or in writing before the transaction and in writing before or with delivery of the customer's confirmation of the transaction. Under the penny stock rules, the broker-dealer must make a special determination of the suitability of the suggested investment for the individual customer and must receive the customer's written consent to the transaction. Since we depend upon key personnel having significant business contacts in China and the US, the loss of one or more of our management team may have a negative effect on our business. - --------------------------------------------------------------------------- The unexpected loss of the services of any member of the management team could have a material adverse effect on our ability to conduct and grow both our local and import businesses in China. We are and will be dependent on our current management teams for the foreseeable future * to obtain needed additional financing * to develop and maintain government and private contacts in China for the local production of our Looney Tunes(TM) branded milk products * to develop and maintain government and private contacts in China for the importation of food products into China by our wholly owned Chinese subsidiary Our CEO, Roy Warren, has developed important contacts with Chinese entrepreneurs with whom we either consult or plan business ventures in China. He also has developed a significant and crucial network of existing and potential investor contacts in the United States. In addition, Steve Langley, our Chief Operating Officer in China, has the benefit of important business contacts developed during his living and working in China for the past six years. A loss of any member of our management team would require us to seek a replacement and reestablish the personal contacts lost. 7 Since we are smaller than our competitors in the Shanghai market, and since we have limited resources and sell our branded products at premium prices, we have had difficulty in developing and maintaining our market share in the consumer milk and snack foods market. This difficulty could adversely affect our ability to achieve our business goals to develop and increase the awareness of our branded products in an effort to increase sales while maintaining a premium price structure. - --------------------------------------------------------------------------- The ability of our competition to sell dairy and other food products at prices below prices charged by us for our products may represent an obstacle to our ability to secure a market share at revenue levels sufficient to achieve profitability. In Shanghai, our largest milk competitor, Shanghai Dairy, controls 80% of the consumer dairy market, is well financed, and has an experienced and long term management team in place. Similarly, our largest competitor in the snack cracker market is large and well financed. We will require a significant expenditure of money to provide marketing and logistic support our Looney Tunes(TM) premium milk products and imported snack crackers through an initial launch and on a continuing basis. In addition, our competitors enjoy long term relationships with local food stores and store chains, and are better financed and benefit from an enhanced distribution system when compared to that employed by us. Since we are dependent on distributors to sell our products in China and since , in the United States, we do not control the sales or distribution channels of Looney Tunes(TM) milk products, we have limited ability to directly control or affect our revenues. A reduction in sales effort or discontinuance of sales of our products by our co-producers in the United States or by our distributors in China could lead to reduced sales. - --------------------------------------------------------------------------- In China, we produce milk products through supply agreements with local dairies and sell our products primarily through distributors. Our agreements with distributors, in large part, are nonexclusive and may be terminated on short notice by either party without cause. Our distributors are not within our control, are not obligated to purchase products from us and may represent other lines of products. While we are using several "jobber" distributors to cover the various areas of our market in China for our Looney Tunes(TM) branded milk products and snack crackers, the loss or ineffectiveness of any of our major distributors could adversely affect our operating results. In the United States, we grant the rights to produce and sell branded milk products to regional dairies under production agreements. Our role in these agreements, in addition to granting the rights to produce the branded milks as part of the sale of flavor ingredient packages to dairies, is limited to marketing and promotion assistance and control over packaging and advertising design issues. Producer dairies in the United States have complete control over sales and distribution of the branded milk products. With these arrangements, we have little ability to directly affect the promotion and sales of the branded milk products. The failure of one or more of the producer dairies to exploit the branded milk concept fully could adversely affect our operating results. Doing business through a wholly foreign owned enterprise in China is subject to unpredictable political and economic conditions, which may change the scope of the business allowed under our subsidiary's present business license as well as interfere with our ability to receive distribution of profits from our Chinese subsidiary. - --------------------------------------------------------------------------- Investments in China involve several risks including internal and international political risks, evolving national economic policies as well as financial and accounting standards, expropriation and the potential for a reversal in economic conditions. 8 The revenues of our Chinese subsidiaries will be in Chinese renminbi ("RMB). In order to pay fees and dividends to us, these subsidiaries will need to convert RMB into US dollars. Under current Chinese law, the conversion of RMB into foreign currency requires government consent. At present, standardized procedures are in place to convert RMB to US dollars for the payment of current accounts, including loan repayments, and dividends based on profits. Government authorities, however, may impose restrictions, which could impact this established procedure. To expand or change the business operations of a foreign invested Chinese enterprise may need various levels of central and local government approval. These approvals may include business permits, site permits, health permits and approval for transfer of assets. While we believe that, because of the importance attached to nutrition and agricultural issues by the central government, the cooperation of local and national governmental approval agencies will be forthcoming, there can be no assurance of continuation of government support for these projects. With respect to the conditions and activities of Chinese companies with which we are involved pursuant to business contracts, the operations of these Chinese companies must be viewed in the context of the Chinese business environment existing in the People's Republic of China. There can be no assurance that the sources from which information is provided concerning the day to day activities of such companies, including their respective relationships to local governmental and regulatory authorities, are wholly reliable. Official statistics also may be produced on a basis different to that used in western countries. Any of the statements as to operations contained in this document must be subject to some degree of uncertainty due to doubts about the reliability of available information from and with regard to the companies relied upon by us to fulfill our business goals. Moreover, while the government of the People's Republic of China has pursued a policy which has prioritized the development of children's food, in particular milk products, to better serve its people resulting in a focus on the role of agriculture, in general, in China, there can be no assurance that this policy will continue in the long term. Similarly, the recent changes in the laws of China pertaining to the future ownership of commercial facilities presently owned by the state, which has resulted in a perceived policy shift from a controlled economy to a free market system in the dairy industry, may not be accurate in concept or in execution. As such, the risk is present that the acquisition strategy set forth in this document may not be successful owing to a change in government approach, or that the very existence of the joint venture businesses in which the we have controlling interests may be affected adversely. Furthermore, many countries in Asia have experienced significant economic downturns since the middle of 1997, resulting in slower real gross domestic product growth for the entire region as a result of higher interest rates and currency fluctuations. Declining economic growth rates could disrupt consumer spending for premium products and negatively affect our business and our profitability over time. The economic downturn in Asia also could lead to a devaluation of the currency of China, which would decrease our revenues U.S. dollar terms. In addition, economic reforms in the region could affect our business in ways that are difficult to predict. For example, since the late 1970s, the Chinese government has been reforming the Chinese economic system to emphasize enterprise autonomy and the utilization of market mechanisms. Although we believe that these reforms measures have had a positive effect on the economic development in China, we cannot be sure that they will be effective or that they will benefit our business. 9 SELLING SHAREHOLDERS The following table lists the beneficial ownership of our common stock by the selling shareholders as of the effective date of this registration statement, the number of shares of common stock covered by this prospectus, and includes * the names and addresses of the selling shareholders * the number of shares of common stock that each selling shareholder owns, assuming full conversion of the preferred at $0.80 per share and the exercise of all warrants * the percentage of all outstanding shares of common stock that ownership represents * the number of shares of common stock owned by each selling shareholder that may be offered for sale from time to time by this prospectus * the number of shares of common stock owned assuming the sale of all shares covered by this prospectus and the percentage of all outstanding shares of common stock that ownership represents The shares may be offered by the selling stockholders, none of which are broker-dealers, or by pledgees, donees, transferees or other successors in interest that receive such shares as a gift or through another non-sale related transfer. We may amend or supplement this prospectus from time to time to update the information provided in the table.
Number of Shares Number of Shares Number of Shares Beneficially Owned Being Offered Beneficially Owned Prior to Offering After Offering Name and Address Of Stockholder # of Shares % of Class # of Shares # of Shares % of Class ----------- ---------- ----------- ----------- ---------- AUSTINVEST ANSTALT BALZERS 2,802,841 11% 2,802.841 -0- -0- Landstrasse 938 9494 Furstentums Balzers, Liechtenstein ESQUIRE TRADE & FINANCE INC. 2,802,841 11% 2,802,841 -0- -0- Trident Chambers P.O. Box 146 Road Town, Tortola, B.V.I. AMRO INTERNATIONAL, S.A. 2,903,284 11.5% 2,903,284 -0- -0- c/o Ultra Finanz Grossmuenster Platz 26 P.O. Box 4401 Zurich, Switzerland CH 8022 SETTONDOWN CAPITAL 201,493 0.80% 201,493 -0- -0- INTERNATIONAL, LTD. 600 California Street, 14th Floor San Franciso, CA 94108 10 LIBRA FINANCE, S.A. 1,662,500 6.5% 62,500 -0- -0- P.O. Box 4603 Zurich, Switzerland THE KESHET FUND L.P. 349,960 1.38% 349,960 -0- -0- Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom KESHET L.P. 585,290 2.31% 585,290 -0- -0- Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom NESHER LTD. 218,750 0.86% 218,750 -0- -0- Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom TALBIYA B. INVESTMENTS LTD. 200,000 0.79% 200,000 -0- -0- Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom ALON ENTERPRISES LTD. 459,107 0.18% 459,107 -0- -0- Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom
The following table lists the source, by amount, of the shares offered for resale.
Selling Shareholder Common Preferred Common Warrants (and extra Converted Series Now Owned Common Issued Upon From Preferred Warrant Exercise*) AUSTINVEST 437,841 D 132,943 422,500 ANSTALT BALZERS 771,298 F - 1,038,259 ESQUIRE TRADE 437,841 D 132,943 422,500 & FINANCE INC. 771,298 F - 1,038,259 AMRO INTERNATIONAL, 456,890 D 161,823 455,000 S.A. 778,812 F - 1,038,259 +12,500* SETTONDOWN CAPITAL - D 151,493 50,000 INTERNATIONAL, LTD. LIBRA FINANCE, S.A. - F 1,600,000 + 62,500* THE KESHET FUND L.P. 349,960 G - - KESHET L.P. 585,290 G - - 11 NESHER LTD. 218,750 G - - TALBIYA B. 200,000 G - - INVESTMENTS LTD. ALON ENTERPRISES LTD. - G - 459,107 (finder's fee only)
The Series D, F and G selling shareholders have agreed to restrict their ownership of the common stock to no more than 9.999% of the issued and outstanding shares of common stock at any given time. BENEFICIAL OWNERS Austinvest Anstalt Balzers, is owned by Bank fur Arbeit und Wirtschaft AG (B.A.W. A.G. Bank), Vienna, Austria. B.A.W. A.G. Bank is involved in involved in banking services in Austria and Central Europe and maintains strategic partners and alliances in the world's major financial centers. Esquire Trade & Finance Inc., is owned by Mr. Matithyahu Kaniel, Israel. Esquire is an international investment entity. Amro International, S.A., is owned by Mr. Mark Perkins, Monte Carlo, Monaco. Mr. Perkins is a British citizen. Amro is an investment firm with world wide interests. Settondown Capital International, Ltd., is owned by Mr. Anthony Inderriden, Nassau, Bahamas. Settondown is a financial advisor and consulting firm, which assists small companies in obtaining financing through the introduction of sophisticated financial sources. Libra Finance, S.A. is owned by Mr. Rar Al Najjab, Hashemite Kingdom of Jordan. Libra Finance is an international investment and financial consultant entity. Among other investment activities, Libra advises investors on financially assisting small companies in need of capital. The Keshet Fund L.P. is a New York limited partnership, which is a resident of and conducts its investment business from the Isle of Man, United Kingdom. Keshet Management, Ltd., a U.K. Isle of Man corporation, is the general partner. Mr. John Clarke is the Director of Keshet Management, Ltd., and is responsible for the investment business of these entities. Keshet L.P. is a British Virgin Island limited partnership, which is a resident of and conducts its investment business from the Isle of Man, United Kingdom. Keshet Management, Ltd., a U.K. Isle of Man corporation, is the general partner. Mr. John Clarke is the Director of Keshet Management, Ltd., and is responsible for the investment business of these entities. Nesher Ltd. and Talbiya B. Investments Ltd. are U.K. Isle of Man corporations owned by Mr. Abraham Grin, who is responsible for the investment business of these entities. Alon Enterprises Ltd. is a B.V.I. corporation owned by Mr. Shmuel Lmakias, Jerusalem, Israel, who is responsible for the computer related and investment business of this entity. None of the selling shareholders or their beneficial owners are broker-dealers or affiliates of our company. 12 PLAN OF DISTRIBUTION The shares of common stock covered by this prospectus may be offered and sold from time to time by the selling shareholders. The selling shareholders will act independently of us in making decisions with respect to the timing, manner and size of each sale of the common stock offered. The selling shareholders may sell the shares offered through the OTC Bulletin Board or otherwise. The shares may be offered at market prices and at terms then prevailing or in private sales at negotiated prices. Private sales may be made directly or through a broker or brokers, who may act as agent or as principal or by a combination of such methods of sale. The selling shareholders and any underwriter, dealer or agent who participates in the distribution of these shares may be deemed to be "underwriters" under the Securities Act, and any discount, commission or concession received might be deemed to be an underwriting discount or commission under the Securities Act. The selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with these transactions, broker-dealers or other financial institutions may engage in short sales of our common stock in the course of hedging the positions they assume with selling shareholders. The selling shareholders may also sell our common stock short and deliver the shares offered to close out such short positions. The selling shareholders also may enter into option or other transactions with broker-dealer or other financial institutions. These transactions may require the delivery of shares offered to broker- dealers or other financial institution, who may resell the shares pursuant to this prospectus (as supplemented or amended to reflect such transaction). The selling shareholders also may pledge the shares offered under this prospectus to a broker-dealer or other financial institution. If a default occurs under the pledge, such broker-dealer or other financial institution may effect sales of the pledged shares pursuant to this prospectus (as supplemented or amended to reflect such transaction). In addition, any shares offered that qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than under this prospectus. Any broker-dealer participating as an agent in the sale of the shares offered may receive commissions from the selling shareholders (and, if acting as agent for the purchaser of shares, from that purchaser). Usual and customary brokerage fees will be paid by the selling shareholders. Broker-dealers may agree with the selling shareholders to sell a specified number of shares at a stipulated price per share. To the extent a broker- dealer is unable to sell all of the shares allotted, it may purchase as principal any unsold shares at the price required to fulfill the broker- dealer commitment to the selling shareholders. Broker-dealers who acquire shares as principal may resell such shares from time to time in transactions in the over-the-counter market, in negotiated transactions or by a combination of these methods of sale. These resales may be at market prices prevailing at the time of sale or at negotiated prices. Broker- dealers may pay to or receive commissions from the purchasers of such shares. We have advised the selling shareholders that the anti-manipulation of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling shareholders and their affiliates. We will make copies of this prospectus available to the selling shareholders and we have informed them of the need for delivery of copies of this prospectus to purchasers on or prior to sales of the shares offered. The selling shareholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act. If any broker-dealers purchase shares as principal, commissions paid or any discounts or concessions allowed to any broker-dealers, and any profits received on the resale of the shares, may be deemed to be underwriting discounts and commissions under the Securities Act. 13 In order to comply with the securities laws of certain states, the common stock will be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states, the common stock may not be sold unless the shares have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is met. We cannot guarantee that the selling stockholders will sell all or any of the shares of common stock offered under this prospectus. THE COMPANY We are a Delaware corporation, which formerly owned the majority interest in two Sino-American joint ventures in China, known as Green Food Peregrine Children's Food Co. Ltd. and Hangzhou Meilijian Dairy Products Co., Ltd. Presently, we wholly own a so called "free trade zone" subsidiary in Shanghai, known as China Premium Food (Shanghai) Co., Ltd., as well as a U.S. subsidiary, known as Bravo! Foods, Inc. We were formed on April 26, 1996, and were formerly known as Shakespeare Holding, Inc. In February, 1997, Shakespeare merged with Manor Products Corp., a Delaware company established on January 26, 1996, and changed its name to China Peregrine Food Corporation. Manor was a shell company with 331 shareholders and no operating history. Similarly, China Peregrine Food Corporation was a company without substantial assets or operating activity until it purchased the assets of China Peregrine Enterprises Limited in March, 1997. Our March 5, 1997 purchase of the assets of China Peregrine Enterprises Limited resulted in our becoming an operating entity. These assets consisted of the equity position and contractual rights which China Peregrine Enterprises had in the Green Food Peregrine Chinese joint venture. In consideration for this purchase, we issued 45% of its outstanding common stock to the limited partnership. On February 1, 2000, we changed ours name from China Peregrine Food Corporation to China Premium Food Corporation. On September 3, 1997 and June 28, 1998, respectively, we executed agreements to acquire a 52% interest in Hangzhou Meilijian Dairy from American Flavors China, Inc., a Delaware corporation, which acquisition was approved by the Chinese government in 1998. The remaining 48% of Hangzhou Meilijian is owned by Hangzhou Dairy Co., a controlled entity of the regional Chinese government. In December 1999, we obtained Chinese government approval for the registration of a new wholly owned subsidiary in the Wai Gao Qiao "free trade zone" in Shanghai, China. We formed this import-export company to import, export and distribute food products on a wholesale level in China. China Premium (Shanghai) is our legal presence in China with respect to contractual arrangements for the marketing and distribution of branded food products. In December of 1999, we formed Bravo! Foods, Inc., a wholly owned Delaware subsidiary, which we will utilize to advance our business strategy of promoting and distributing branded Looney Tunes(TM) products in the United States, through strategic arrangements with local dairy processors. 14 Our Business In early 1997, we purchased the majority equity interest in Green Food Peregrine to exploit the introduction of western styled pasteurized milk in China. Through the end of 1999, $6 million dollars was invested in the Green Food Peregrine effort. Despite various business strategies, product shifts and attempted management changes, Green Food Peregrine's pasteurized milk business failed to reach economic viability, never having penetrated more than 3% of the relevant market. The business activities of Green Food Peregrine ceased in December of 1999. Accordingly, we doubt that we will recover our investment in that joint venture and have written off that investment as of December 31, 1999. The Hangzhou Meilijian joint venture, although technologically limited by western standards, is the dominant dairy and juice producer in Hangzhou, a city of 6 million people, with an 80% market share. With new capital invested in advanced processing equipment, delivery systems, and marketing efforts, this joint venture was close to breakeven in 1999. While we believed that new product launches in 2000, including Looney Tunes(TM) branded items, would have result in profitability, we encountered management difficulties with this joint venture around new product issues. In December 2000, the Chinese government approved the buy out of our equity interest in this joint venture by our Chinese partner. That buy out transaction has closed and we have received $900,000 for our interest. In light of our non profitable experiences with our existing joint venture experiences, during 1999 and 2000 several initiatives were undertaken to differentiate our products, marketing and, ultimately, business strategy. These initiatives moved us from a capital intensive production business toward a business which supplies value added branded rights, promotion and marketing support to existing production facilities operated by others. Our goal was and is to avoid the costly problems associated with capital intensive production facilities and to better control our business interests directly and through wholly owned subsidiaries. Our business model has two distinct aspects. The first is to function as a licensing company in the US and China for international brands by entering into contracts with production companies under which we grant certain production rights for branded products and provide promotion and marketing support for those products. The second is to serve as an import/export company in China for food products, while utilizing a business to business website to facilitate the sale and distribution of those food products on a wholesale basis in China. Our plan calls for our being out of production in China by the end of 2000, with the launch of the business model in the US in the third quarter of 2000 and in China by the second quarter of 2001. We have taken several steps to implement this plan. First - licensing agreement with Warner Bros. - --------------------------------------------- In March of 1999, we commenced a licensing agreement with Warner Bros. Consumer Products, permitting us to produce and distribute a line of high quality, flavored milks branded with the Warner Bros. Looney Tunes(TM) logos, characters and names in the Shanghai and Hangzhou greater metropolitan areas. This licensing agreement now extends through June 2003 and covers all of China. Through taste testing and product development in the summer and fall of 1999, a line of white and flavored milk drinks for the Chinese urban market was created. These products each feature a different Looney Tunes(TM) character and have particular packaging and flavor profiles for each different cartoon character. Carrefour hypermarkets, Shanghai's largest food retailer, introduced the first four flavored milks during their October, 1999 20th anniversary promotion in Shanghai, including Tweety 15 orange milk, Daffy banana milk, Taz chocolate milk and Silvester vanilla milk. Despite a retail price premium of 40% over the major competitor's flavored milks, these new products outsold the competitive brands by 4 to 1, with no external advertising and minimal in-store promotion. To obtain this license, we agreed to pay 3% royalty fee of net invoiced price of each licensed product and a guaranteed royalty consideration of $300,000, of which $45,000 was paid at the beginning of the agreement. The balance will be paid by 10 installments of $21,250 in each quarter starting on September 30, 1999 and a balloon payment of $42,500 on or before March 31, 2002. The licensing agreement is for a term of 4 years, commencing March 1999. We agreed to pay an additional $100,000 for the expanded license and the installment payment has been increase to $33,750. We have signed supply agreements with Hangzhou Meilijian and Huai Nan Dairy to produce branded Looney Tunes(TM) white and flavored milks for us, which we will sell in Shanghai, through 21 hyperstores and 600 convenience type stores. We also will sell these products in 10 hyperstores outside of Shanghai in Hangzhou, Ningbo, Nanjing, Fuzhou, Wuxi and Suzhou. Sales of Looney Tunes(TM) flavored milks in Shanghai commenced in September 2000. Hangzhou Meilijian produces white whole and low fat milk, as well as lactase milk in 500 milliliter aseptic Tetra-Pak "pillow pouches". These "fresh" milk products have an unrefrigerated shelf life of 30 days. Huai Nan Dairy produces flavored milk in 250 milliliter aseptic pillow pouches. Both dairy processors utilize Tetra-Pak aseptic packaging using the latest Tetra-Pak machines. Ingredients for the flavored milks are formulated to our specifications and supplied on an exclusive basis by Givaudan Roure. Based upon the China Premium (Shanghai) supply contracts with these dairy processors, we anticipate the following monthly gross profit
Type Production Retail Price Gross Profit - ---- ---------- ------------ ------------ white milk 12.50 metric tons RMB 3.95/500ml RMB 14,000/US $1,687 lactase 6.25 metric tons RMB 4.19/500ml RMB 2,250/US $271 flavored 9.5 metric tons RMB 2.95/250ml RMB 28,500/UC $3,434
We do not have reliable information on the volume of product sold by potential competitors. While there is no direct competition - no one sells branded white or flavored milk products, Parmalat sells white milk in 500ml pouches for RMB 2.75 - 2.90 and 250ml pouches for RMB 1.60 - 1.70. Nestle sells Chocolate and Strawberry in 250ml aseptic boxes for RMB 1.70. Local dairy processors in Shanghai - Bright, Quan Jia and Jun Yao - sell 950ml white in non aseptic packaging for RMB 6.8 (Bright) and 4.95 (Quan Jia and Jun Yao). Bright sells chocolate in 250ml non aseptic packaging for RMB 2.10. Our flavors have been specifically formulated for Chinese tastes, determined by several blind taste tests at local schools in Shanghai. We believe that our flavors are unique and superior to the potential competition and that, combined with our Looney Tunes(TM) packaging, will command premium pricing of our products. Demographic statistics confirm that urban consumers have the financial capability to pay a premium price for premium value at the consumer products level. See, Chinese State Statistical Bureau Reports for 1997 and China The Consumer Revolution, Conhua Li, Deloitte & Touche Consulting Group, John Wiley & Sons, Publishers, 1998. The Looney Tunes(TM) milk products presently produced under supply agreements with two local dairies, and Lance snack products, are distributed these milk in the greater Shanghai area under two distribution agreements with local distributors. As of November 2000, our Looney Tunes(TM) milk 16 products are being sold in hyper or super stores and food markets in the Shanghai area, representing approximately three tonnes of milk per day. The timing of the distribution of our Looney Tunes(TM) milk products is non critical owing to the 30 day non refrigerated shelf life of the milk in the Tetra-Pak aseptic packaging. The distribution/sales costs are included in the gross profit presentation at an estimated cost of 24% of wholesale pricing. Administration of supply, distribution, marketing and sales of the Looney Tunes(TM) branded milk products in China will be the responsibility of China Premium (Shanghai). Second - elimination of production joint ventures. - -------------------------------------------------- Beginning in the third quarter of 1999, we recognized that Green Food Peregrine would require considerable additional resources to make any appreciable progress toward profitability. In addition, in order to take advantage of the new Looney Tunes(TM) products, planned advertising and promotional support in Shanghai, we realized that much greater distribution and reach than possible with Green Food Peregrine was essential for a successful product launch. This analysis led to a strategic decision to exit the production business in Shanghai and to establish strategic arrangements throughout China with large producers of dairy and healthy beverages for Looney Tunes(TM) product production. We contemplated our contribution to be our Looney Tunes(TM) production rights, including advertising and marketing support, with production handled by existing, well established dairies in China. Similarly, commencing in the second quarter of 2000, we engaged in discussions and negotiations with our Chinese partner in Hangzhou Meilijian in an effort to determine whether our presence in that joint venture would best serve our refocused goals. Specifically, our concern over the commitment of our partner to embrace fully our plans for Looney Tunes(TM) branded milk products led us to the execution of a letter of intent and agreement for our exit from the joint venture on a buy out basis. The execution of our supply contract with Hangzhou Meilijian Dairy was in anticipation of this buy out transaction. As with our termination of the Green Food Peregrine joint venture, this move will enable us to better utilize our capital resources for a direct return on our promotion, marketing, distribution and sales efforts, without the heavy financial burdens of maintaining production facilities. In addition, our direct promotion and distribution experience will enable us to broaden our imported product base in China through the attraction of U.S. companies who wish to avail themselves of Chinese consumer markets. Third - establishment of China Premium (Shanghai) import/export company. - ------------------------------------------------------------------------ In December 1999, we moved further away from production by positioning ourselves in the business of food distribution in China. We obtained government approval for the registration of China Premium Food Corporation (Shanghai) Co., Ltd., our wholly owned subsidiary in the Wai Gao Qiao Free Trade Zone in Shanghai, China. This subsidiary offers foreign companies all the infrastructure necessary to facilitate import/export transactions in or with China, including tax and legal compliance, customs and foreign currency exchange. Pursuant to Wai Gao Qiao rules, this subsidiary can distribute products that it imports into China, while maintaining reasonable price/profit margins owing to its status as a direct importer. In April of 1999, we announced a definitive, exclusive, private label agreement with Lance, Inc. to export snack foods to China. Lance will serve as our exclusive supplier of cookies, cakes, crackers, 17 meat snacks, nuts and chips for the Chinese market. We have imported our first shipment of Lance crackers and will distribute them in China through China Premium (Shanghai). These Lance products are and will continue to be marketed as branded Looney Tunes(TM) products. Based upon our contacts with Lance and Warner Bros., we anticipate the following monthly gross profit
Supermarket Distribution Gross Direct Distribution Gross Distribution Cost Profit Distribution Cost Profit 165,000 17% RMB 39.600 165,000 27% RMB 6,600 sleeves US $4,771 Sleeves US $795
Initially, we will use local "jobbers" for distribution of the Lance products to small stores on a direct distribution basis, which means an individual delivery to every store. In addition, China Premium (Shanghai) has reached an agreement with Jian Shang, a local high end retail chain having 150 outlets. Snack crackers and cookies in Shanghai retail from RMB 1,70 to 2.30 per 100 to 125 gram package. The major competitors are imported goods from Keebler and Danone. Snack crackers from local companies are at the lower end of the price scale. Our Lance/Looney Tunes crackers will retail at approximately RMB 2.95 for a 39 gram package. We believe that Lance's premium quality, unique flavors - no competitor has a peanut butter cracker in its line- and branded packaging will support the premium price. Our informal tests with point purchase displays in selected locations in the Pu Dong business district of Shanghai, confirms our price acceptance and sales expectations. We are in the process of extending our China Premium (Shanghai)'s import/export business through the Yangling District of Shaanxi Province. This strategy is the result of our research into what we have learned is the broad scope of the business license already held by China Premium (Shanghai), which avoids the necessity for a new joint venture company in Yangling. The details and nature of the relationship between China Premium (Shanghai) and the Yangling District currently is under discussion and negotiation. This collaboration will be designed to service the premium food needs of four and five star hotels throughout China, both directly and through a business to business e-commerce portal. This internet portal, which will be available to U.S. companies from the supply side, has been launched in a demo version and shortly will be beta tested. Imported products will comprise a significant portion of the food products offered. China Premium (Shanghai) will assume the responsibility for the importation of these products, as well as the maintenance of the e-commence site. Fourth - Bravo! Foods, Inc. - --------------------------- In December of 1999, we formed, a wholly owned subsidiary, Bravo! Foods, Inc., which will be utilized to advance our business strategy of promoting and distributing branded products in the United States. On July 27, 2000, Bravo! executed licensing agreement with Warner Bros. to use Looney Tunes(TM) characters and names on milk products in the entire United States. This licensing agreement grants Bravo! the right to use the cartoon characters Bugs Bunny, Tweety, Tasmanian Devil, Road Runner, Wilie B. Coyote, Lola Bunny, Marvin the Martian, Sylvester and Daffy Duck on milk products for sale in specified retail outlets in the fifty United States, Puerto Rico and the United States Virgin Islands. The initial term of the agreement is for 3 years, from January 1, 2000 through December 31, 2002. The licensing agreement recognizes that Bravo! will use third party production agreements for the processing of white and flavored milk products, and that the 18 milk products will be produced and sold directly by those processors. Bravo!'s responsibilities are to design and provide Warner Bros. approved packaging artwork, to help determine the best tasting flavors for the particular market, and to assist in the administration, promotion and expansion of the Looney Tunes(TM) branded milk program. Ingredients for the flavored milks are formulated to our specifications and supplied on an exclusive basis by Givaudan Roure. Bravo! will not be responsible for the handling of any of the flavor ingredients nor will it participate in sales or distribution. We have agreed to a royalty rate of 5% on the amount invoiced to the producer dairies for the right to use the Looney Tunes(TM) characters, flavor ingredients and for administrative and promotional assistance. The processor dairies targeted for this program are members of the Quality Chekd cooperative, which has over 40 member dairies. Bravo! and Quality Chekd have entered into a promotion agreement which governs the administration, promotion and marketing of this member dairy program. A back to school Looney Tunes(TM) launch with Turner Dairy and Sinton Dairy occurred in September 2000, for fresh flavored milks. Two additional dairies have executed production agreements with Bravo! for the processing, distribution and sale of Looney Tunes flavored milks in the Pennsylvania and upstate New York regions and in northern California, to commence in the first quarter 2001. These dairies do not believe that the Looney Tunes(TM) flavored milk line will diminish their existing sales of traditional milk. Rather, they believe that these products will develop their own market as an adjunct to existing sales. Participating dairies each expect to sell the equivalent of 2,000,000 pints of Looney Tunes(TM) flavored milk per year. Based upon a revenue and cost analysis of Bravo! obligations under the licensing agreement, we expect Bravo! to realize a post royalty gross profit of $0.0572 for each pint of chocolate flavored milk processed and $0.0566 for all other flavors. Costs of sales and overhead run approximately $450,000 per year. With a modest ramp up to four participating dairies, we expect Bravo! to break even financially. With ten participating dairies, we believe that Bravo! will report annualized pre- tax net profits of approximately $650,000.00. Our sales to date with two dairies support these projections. Principal products and markets for milk in China Historically and at present, the predominant milk product available to consumers in major cities in the People's Republic of China has been non-refrigerated "baggie milk," prepared for retail consumption on a daily basis. The processing of baggie milk customarily has involved either a type of pasteurization that has not met western bacteria count standards, or the utilization of an ultra high temperature (UHT) process. Hangzhou Meilijian utilizes the UHT process for the production of its milk products. The distribution of milk in China has been through a methodology known as the "reserve system" which was put in place more than a decade ago as a way to deliver state-produced milk directly to milk stations and public housing units. Since refrigeration is not part of this distribution system, the trend in recent years has been to utilize UHT processed milk products in an attempt to meet bacteria count standards. Our past attempts to produce and sell western quality fresh, pasteurized, refrigerated milk in gable topped cartons were not successful. "Gable topped" cartons are traditional Western style treated paper box like containers with triangular "gable" tops. The insurmountable problem for us was the lack of sufficient capital to develop an appropriately scaled efficient distribution system for fresh, refrigerated milk. With less trucks than ideal, deliveries often were made after the normal peak buying hours for milk. This resulted in our milk sitting on the shelf for more time than our competitors. Since the lack of adequate home refrigeration has created a date conscious consumer public, our milk often was by passed in favor of more recent product. 19 Besides moving away from production, two events in China have changed the way we can run our milk business. First, the introduction and acceptance of aseptic Tetra-Pak pillow pouches and boxes has resulted in milk product that has an unrefrigerated 30 day shelf life. This extended life places us on a more level playing field with our competitors. Second, the advent of hyperstores in major Chinese cities has made selling and delivering milk products significantly more efficient and less costly. Hyperstores also are changing the dominance of the "reserve system" market to a more traditional western consumer model, with its own resultant efficiencies. We believe that we have positioned our milk business in China to eliminate our past problems and take advantage of the new, more efficient paradigm presented to us. The final piece in our China milk strategy is to differentiate our product from that of our competitors. We believe that our Looney Tunes(TM) branded milk program will be more and more successful at this differentiation as Looney Tunes(TM) characters become more widely known in China. This differentiation, together with the superior taste of our flavored milks, we believe will lead to a greater acceptance of our premium pricing and our resultant profitability. Marketing and Advertising In China, the viewing rate for television is over 80% for those who have watched television as recently as the previous day. This figure rises to 86% for urban population. Nationwide, 54% of households own black and white televisions and another 40% have color televisions. In Beijing and Shanghai, 94% of households own color televisions. At this time, there virtually is no advertising for milk or ready-to-feed infant formula in Shanghai. There is TV and print advertising for other carbonated and non- carbonated beverages, and multi-national company branded, aseptic and powdered products. We believe 0that all beverage advertising for branded quality products will increase overall awareness and consumption for these categories. After our September 2000, launch of our Looney Tunes(TM) branded products and expanded distribution, we intend to begin print and television advertising. We hope to coordinate ours advertising efforts with national awareness campaigns by Warner Bros. in China for Looney Tunes(TM) characters. Employees We have five full time employees located at its North Palm Beach corporate offices. China Premium (Shanghai) has ten employees in management with two clerical staff. Bravo! will have one full time employee, with two other management positions shared with our staff. Changes in and termination of certain relationships Green Food Peregrine. The business of Green Food Peregrine joint venture was the manufacture, distribution and marketing of children's fresh milk in Shanghai. While the joint venture contract envisioned the expansion of this business to other cities having a population exceeding 2 million, Green Food Peregrine never did business beyond the Shanghai metropolitan area. While the term of the joint venture contract is fifty years, it may be terminated by written notice prior to the expiration of the stated term upon certain events including a violation of the joint venture contract by any party, without resolution; accumulated losses in excess of the total registered capital, without resolution; assignment of equity ownership by one party without approval; and the violation of 20 Chinese laws in the operation of the joint venture. Upon a written notice of termination, the parties to the joint venture contract are charged with making attempts to negotiate a resolution of the circumstances which led to the notice of termination within sixty days after the issuance of the termination notice. If the parties cannot reach an agreement to settle the matter, the Board of Directors is directed to submit an application to the examination and approval authority for dissolution. In January, 2000, we commenced the termination process under the joint venture contract. The termination notice was based upon * the violation of the joint venture contract by our Chinese partner for refusal to cooperate in our attempts to exercise contractual right to change management of the joint venture * the existence of accumulated losses in excess of the total registered capital of the joint venture company We are pursuing the termination process. This joint venture ceased operations at the end of 1999 and, as of December 31, 1999, we wrote off our investment in this company. Green Food Peregrine Legal Proceedings. In June of 1998, Green Food Peregrine entered into an agreement with State Development Bank of China and the Construction Bank of China with respect to two loans aggregating approximately US $1,200,000. These agreements called for the quarterly payment of approximately US $50,000 to each bank. We did not guarantee or collateralize these loans. In late December 1999, the State Development Bank of China and the Construction Bank of China commenced lawsuits against Green Food Peregrine aggregating approximately US $1,200,000. In early December 1999, Eastsea Cow Farm, a raw milk supplier, commenced an action to recover approximately US $43,000. In January 2000, another milk supplier, the Zhejiang Xing Ye Group Co., Ltd., commenced an action for approximately US $6,600 and has obtained a court order seizing the property (including production and office facilities) of Green Food Peregrine. We have retained Llinks Law Office, a Chinese law firm located in Shanghai, PRC, to represent our business interests generally in China. While judgments have been entered against Green Food Peregrine in these lawsuits, we have been advised by our Chinese counsel that we do not have any liability with respect to these claims against Green Food Peregrine. Our lack of liability is based upon the status of Green Food Peregrine as a limited liability company under the Company Law of the PRC. Similar to United States corporations, equity holders of PRC limited liability companies do not have liability for the negligent acts of company employees or for the legal obligations of the limited liability company, unless expressly assumed, as with a guarantee. We have neither assumed nor guaranteed any debt or obligation of Green Food Peregrine. Hangzhou Meilijian Dairy Products Co., Ltd. The joint venture contract between Hangzhou Dairy Complex and American Flavors China, Inc. was executed on July 25, 1993. The total registered capital for this joint venture is US $5,000,000, with American Flavors China initially contributing 52% of that amount. The contribution of capital was paid into the joint venture entity in cash and equipment. In 1998, we purchased the majority equity interest in this joint venture. On July 27, 2000, we executed a letter of intent with our Chinese partner for the sale of our joint venture interest to our Chinese partner, conditioned upon the parties negotiating a satisfactory sale price with guidance from a government sanctioned valuation appraisal of the joint venture company. The 21 final appraisal was completed in September and stated the value of this joint venture at approximately US $900,000. On December 4, 2000, the PRC Ministry of Foreign Trade and Economic Cooperation approved the buy out. Pursuant to our agreement with Hangzhou Dairy Complex, we have received $179,000 in equivalent RMB and $721,000 in US dollars for our 52% equity interest in Hangzhou Meilijian Dairy. Yangling Mandarin Premium Foods Co., Ltd. In May 2000, we executed a definitive agreement to purchase a controlling interest in Mandarin Fine Foods Co., a Chinese registered limited liability company, which promotes and distributes premium food products to four and five star hotels throughout China. That agreement was subject to certain conditions, including the satisfactory completion of due diligence concerning, among other things, the ability of Mandarin to keep its broad business license with a foreign investor. Mandarin Fine Foods is owned by Mr. Li Zhiyun, a citizen of China. During the course of our due diligence for this transaction, we became aware that our acquisition of Mandarin would significantly limit the scope of its business license under PRC regulations concerning Foreign Investment Enterprises. We also became aware, however, of an agricultural development program funded by the national government in the Western China Shaanxi Province, known as the Yangling Model District for Agricultural High-tech and New-tech Industry. Through this program, the government of Shaanxi Province is authorized to issue business licenses which are much broader in scope than normal to new companies in the Yangling Model District, including foreign investment joint ventures. Owing to the enhanced scope of the business license offered in the Yangling District, we agreed with Mr. Li to forego the purchase of Mandarin Fine Foods in favor of establishing a new joint venture company in Yangling. In negotiating the terms of the proposed new Yangling Mandarin joint venture, we became aware of the potential beneficial impact of anticipated rule changes in China on our China Premium (Shanghai) operation. As a Chinese registered company in the Wai Gao Qiao ("Free Trade Zone") district of Shanghai, China Premium (Shanghai) will be capable of operating under its present business license to the same extent possible under the broad joint venture business license offered by the Yangling District. Further discussions with representatives of the Yangling District and Mr. Li revealed the possibility of working with the Yangling District and Mr. Li under routine arm's length supply contracts, without he necessity of a joint equity arrangement. As a result, we are continuing to explore the possible utilization of the existing business license of our wholly owned subsidiary, China Premium (Shanghai), to establish a country wide sales and distribution system for consumer food products and for food service products such as offered by Mandarin Fine Foods Company. In addition to allowing us to own 100% of this business, the utilization of our existing China Premium (Shanghai) subsidiary would eliminate the necessity of our capital contribution for the Yangling Mandarin joint venture. 22 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS The directors, executive officers and significant employees/advisors are as follows. Our directors serve for staggered terms of two years or until their successors are elected.
Name of Officer Position with the Company Year Appointed --------------- ------------------------- -------------- China Premium Food Corporation Stanley A. Hirschman Chairman and Director 2000 Roy G. Warren Director and Chief Executive Officer 1997/1999 John McCormack Director, President & Chief Operating Officer 1997/2000 Michael L. Davis Chief Financial Officer 1997 Susan E. Lurvey Treasurer and Secretary 1997 Arthur W. Blanding Director 1999 Robert Cummings Director 1997 Paul Downes Director 1997 George Holdsworth Director 1997 Robert L. Holz Director 2000 Michael Lucci Director 1998 Phillip Pearce Director 1997 Bravo! Foods, Inc. - US subsidiary Arthur W. Blanding Chairman and Director 2000 Roy G. Warren Director and Treasurer 1999 Anthony P. Guiliano Director, President & Chief Operating Officer 2000 Stanley A. Hirschman Director 2000 John McCormack Director and Chief Executive Officer 2000/2001 Phillip Pearce Director 2000 China Premium Food (Shanghai) Co., Ltd. - Chinese subsidiary Stephen Langley Chairman, Director and General Manager 1999 Roy G. Warren Director since December 1999 Anthony P. Guiliano Director since December 1999
The experience and background of our executive officers and directors follows: Mr. Stanley A. Hirschman - Chairman and Director since September 2000 Mr. Hirschman is president of CPointe Associates, Inc., an executive management and consulting firm specializing in solutions for emerging companies with technology-based products. CPointe was formed in 1996. In addition, he is a director of ObjectSoft Corp., RetailHighway.com and former chairman of the board of Mustang.com. Prior to establishing CPointe Associates, Mr. Hirschman was vice president of operations of Software, Etc., Inc., a retail software chain, from 1989 until 1996. Mr. Hirschman has also held senior management positions with retailers T.J. Maxx, Gap Stores and Banana Republic. 23 Mr. Hirschman currently serves on the Executive Committee of our board of directors and is a director of our US subsidiary Bravo! Foods. Inc. Mr. Roy G. Warren - Chief Executive Officer since May 1999; Director since 1997 Mr. Warren serves as our Chief Executive Officer and as a director. Mr. Warren was in charge of our day to day operations as from 1997 until the appointment of John McCormack as President and Chief Operating Officer in December 2000. As Chief Executive Officer, Mr. Warren continues to develop strategy for our growth and external financial matters. For 15 years from 1981 through 1996, Mr. Warren was in the securities brokerage industry. During those years, Mr. Warren acted as executive officer, principal, securities broker, and partner with brokerage firms in Florida, most notably Kemper Financial Companies, Alex Brown & Sons and Laffer Warren & Company. Mr. Warren currently serves on the Executive Committee of our board of directors. Mr. Warren also serves as a director of our U.S. subsidiary, Bravo! Foods, Inc. and our wholly owned Chinese subsidiary, China Premium Food (Shanghai) Co., Ltd. Mr. John McCormack - President, Chief Operating Officer since December 2000; Director since 1997 Prior to his appointment as our President and Chief Operating Officer, Mr. McCormack served as an executive with Dean Foods Co. for over 15 years. Dean Foods is a US national processor and distributor of a full line of branded and private label products, including fluid milk, cottage cheese and ice cream, as well as frozen vegetable brands which include BirdsEye, Freshlike and Veg-All. Prior to a 1999 move to the Chicago area for Dean Foods, Mr. McCormack managed McArthur Dairy in Miami, Florida, a wholly- owned subsidiary of Dean Foods Co. As a Vice President of Dean Foods, he was in charge of Dean Food's mid-western division out of Chicago, Illinois. Mr. McCormack currently serves on the compensation committee of our board of directors and is a director of our U.S. subsidiary, Bravo! Foods, Inc. Mr. Michael L. Davis - Chief Financial Officer since October, 1997 Mr. Davis has been associated with the securities industry over 35 years, as a securities and special situations analyst with ValueLine, and as a tactical planner, general portfolio manager and short sale portfolio manager with a number of hedge funds. In 1972, he was a member of the Investment Committee at Anchor Corp. which supervised its $2.5 billion family of funds, as well as serving as Anchor's chief market analyst. From 1978 through 1989, Mr. Davis was the portfolio manager of Merrill Lynch's Special Value Fund. In addition to his position with us, for the past eight years, Mr. Davis has operated a private consulting firm, M.L. Davis Financial Services. Mr. Davis advises clients on stock selection and general market timing considerations. He researches and writes investment reports on selected small and mid-cap growth companies. In addition. Mr. Davis supervises an investment portfolio for a group of United Arab Emirates investors. 24 Mr. Arthur W. Blanding - Director Since November, 1999 Mr. Blanding is president of The Omega Company, an international dairy industry consulting company. Mr. Blanding has over 50 years experience in management of dairy processing, sales and strategic planning consulting. He graduated from Michigan State University in 1956, with a degree in food science, and in 1964 from Oregon State University with a degree in Food Microbiology, and attended Harvard Business School. As President of The Omega Company for the past 20 years, Mr. Blanding has completed over 200 projects successfully, both in the U.S. and abroad. Clients of The Omega Company include Abbott International, Cumberland Farms, Dairy Gold, Farm Fresh, Inc., Haagen Dazs, Labatt, Ross Laboratories, and Stop & Shop Company, among others. Mr. Blanding was a consultant for the design and construction of the dairy processing facility built in Shanghai by Green Food Peregrine. The Omega Company is a party to a consulting contract with us concerning technical and production issues. Mr. Blanding also serves as a director and Chairman of our U.S. subsidiary, Bravo! Foods, Inc. Mr. Robert J. Cummings - Director Since 1997 Mr. Cummings' work experience includes ten years in purchasing at Ford Motor Company. In 1975, he founded and currently operates J & J Production Service, Inc., a manufacturing representative business, which is currently responsible for over $300 million in annual sales. Mr. Cummings currently serves on the executive committee of the our board of directors. Mr. Paul Downes - Director Since 1997 Mr. Downes is a director and, from August of 1997 to April of 1998, served as our Chairman. For the past 12 years, Mr. Downes has managed his personal diverse portfolio of international investments with concentration in the United Kingdom, Eastern Europe, North Africa and Asia. In 1985, he founded a group of nursing homes for the elderly in Great Britain which he sold in 1990. Prior to that time, Mr. Downes, spent several years organizing golf tournaments and international golf matches in Malaysia, Singapore, Thailand, Philippines, Indonesia and Hong Kong, spending two years living in Southeast Asia. Mr. Downes is one of our "founders" and played a leading role in our initial raising efforts. From March of 1999, Mr. Downes has served as the Chairman of a start up marble quarry company located in Alabama. Mr. George Holdsworth - Director Since 1997 From March of 1997 until May, 1998, Mr. Holdsworth was responsible for the operational aspects of our China operations. Since 1998, Mr. Holdsworth has managed his personal investment portfolio and has served as a director and consultant to U.S. Stone Corporation, a start up marble quarry company located in Alabama. Mr. Holdsworth is a graduate of the University of London with a B.S. in Mathematics and an Associate of the London College of Music. He started in business as a manufacturing manager in Earlsdon Components, Ltd., where he became Director of Operations, then owner and Managing Director. In 1993, Mr. Holdsworth became owner of Earlsdon Technology, Ltd., a JV Partner of 25 Shanghai Earlsdon Valve Company, Ltd., and lived in Shanghai for four years, until May, 1998. Mr. Holdsworth sold his interest in Shanghai Earlsdon and commenced his duties for us in March, 1997. Mr. Robert L. Holz - Director since 2000 For the past six years, Mr. Holz has managed a portfolio of private investments in start up companies under the aegis of Explorer Fund Management, L.L.C., an entity which he founded in 1994. Prior to 1994, Mr. Holz held senior management positions in securities related firms such as Nomura Securities International, Inc., National Investment Services of America and was a partner in Kidder, Peabody & Co., Inc. Mr. Holz specializes in identifying and analyzing new business opportunities and managing resources for goal realization. Mr. Holz currently serves on our audit committee. Michael G. Lucci - Director Since 1998 Mr. Lucci is a former All Pro linebacker who played for the Detroit Lions of the National Football League from 1964 through his retirement from professional football in 1973. Mr. Lucci became associated with Bally's Total Fitness Corporation in 1971 and rose through the ranks to become that corporation's Vice President of club operations in the mid-west, Senior Vice-President, and President and Chief Operating Officer in 1993. Mr. Lucci retired in 1996 and, since that time, has managed a diverse investment portfolio for himself and directed the business of his construction company in the Detroit MI area. Mr. Lucci serves on the executive committee of our board of directors. Mr. Phillip Pearce - Director Since 1997 Mr. Pearce is a "retired" member of the securities industry. Mr. Pearce served as Chairman of the NASD during which time he was instrumental in the founding of NASDAQ. Additionally, Mr. Pearce was a former Director of E.F. Hutton and has served as Governor of the New York Stock Exchange. Since his retirement in 1988, Mr. Pearce has remained active in the securities industry as a corporate financial consultant. Mr. Pearce serves on the compensation committee of our board of directors. Mr. Pearce also serves on our audit committee and is a director of our U.S. subsidiary, Bravo! Foods, Inc. Mr. Stephen Langley - Chairman, Director and General Manager of our wholly owned Chinese subsidiary, China Premium Food (Shanghai) Co., Ltd. since October 1999 Mr. Langley's has been in the sales, marketing, and management of the agribusiness for approximately 22 years. Seventeen of those years have been with multinational companies, including IBP Inc., a processor of fresh beef and pork. Mr. Langley was responsible for establishing a market presence for IBP in China in 1997 for the sales of products imported from IBP-US which amounted to US$ 250,000 in 1997 and grew to over US $7 million in 1998. Mr. Langley was responsible for the development of business strategy and directed all sales activities in China for IBP. 26 Mr. Langley and his family have lived in China continuously for the last 6 years. He studied Chinese full time for two years from 1993-1995 and achieved Chinese language Level 3 fluency (Foreign Service scale of 1-5, with Level 5 equal to native speaker.) Mr. Anthony P. Guiliano - President and Director of our US subsidiary, Bravo! Foods, Inc. Mr. Guiliano has 20 years of experience in senior level marketing and management positions with consumer products companies, including Dial Co., Welch Foods, Kayser-Roth, Cleo, a division of Gibson Greetings, and Schering-Plough. While with these companies, Mr. Guiliano's responsibilities included marketing and sales management of branded consumer products, launching new branded consumer products and negotiating licensing for product brands, including Looney Tunes(TM), Lion King and Disney. Prior to his appointment as President and his election Bravo!'s board in 2000, Mr. Guiliano served as a consultant to us since 1998 for our China sales and marketing efforts. Mr. Guiliano has been an independent consumer products sales and marketing consultant since 1996 and an employee of our Bravo! subsidiary since 2000. As of the date of this prospectus, there have been no family relationships among the directors and executive officers. Further, no director, executive officer, promoter or control person has been involved in any legal proceedings during the past five years that are material to an evaluation of the ability or integrity of such director, person nominated to become a director, executive officer, promoter or control person of the Company. None of the individuals listed above has had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of such bankruptcy, if any, or within two years prior to that time. No director, executive officer, promoter or control person was or has been convicted in a criminal proceeding or is subject to a pending criminal proceeding or subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, borrowing, or otherwise limiting his or her involvement in any type of business, securities or banking activities. No director, executive officer, promoter or control person has been found by a court of competent jurisdiction in a civil action to have violated federal or state securities or commodities law. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of our common stock on of January 31, 2001, as to * each person known by us to beneficially own more than 5% of our common stock * each of our directors * each of our named executive officers * all of our directors and officers as a group The following conditions apply to all of the following tables: * except as otherwise noted, the named beneficial owners have direct ownership of the stock and have sole voting and investment power with respect to the shares shown * the class listed as "common" includes the shares of common stock underlying our issued convertible preferred stock, options and warrants 27 * Amro International, S.A., Austinvest Anstalt Balzers and Esquire Trade & Finance Inc. have agreed to limit their ownership of our outstanding common stock to not more than 9.999%. Holders of 5% or more of our common stock follows:
Name & Address of Amount & Nature of Percent Title of Class Beneficial owner Beneficial Ownership of Class - -------------- ----------------- -------------------- -------- Common Amro International, S.A. 2,903,284 11.5% Grossmuenster Platz 26 P.O. Box 4401 Zurich, Switzerland CH 8022 Common Austinvest Anstalt Balzers 2,802,841 11% Landstrasse 938 9494 Furstentums Balzers, Liechtenstein Common Esquire Trade & Finance Inc. 2,802,841 11% Trident Chambers P.O. Box 146 Road Town, Tortola, B.V.I. Common Mr. Dale Reese 2,457,985 9.7% 125 Kingston Road Media, PA Common Paul Downes 24,182 (direct) 0.095% Tamarind Management Ltd. 2,098,145 (indirect/control) 8.29% 5646 Windrift Lane Boca Raton, FL 33433 Common Libra Finance, S.A. 1,662,500 6.57% P.O. Box 4603 Zurich, Switzerland Common American Flavors China, Inc. 1,531,685 6.05% Florence & Noam Sender (principal beneficial owners) 1007 Chestnut Street Newton, MA 02164 28 Common stock owned by our directors follows: Name & Address of Amount & Nature of Percent Title of Class Beneficial owner Beneficial Ownership of Class - -------------- ----------------- -------------------- -------- Common Paul Downes 24,182 (direct) 0.095% Tamarind Management Ltd. 2,098,145 (indirect/control) 8.29% 5646 Windrift Lane Boca Raton, FL 33433 Common Roy G. Warren 717,414 2.83% 1128 Country Club Road N. Palm Beach, FL 33408 Common Robert Cummings 310,000 1.22% 2829 N.E. 44th Street Lighthouse Point, FL 33064 Common Michael G. Lucci 210,000 0.83% 49 Spanish River Drive Ocean Ridge, FL 33435 Common John McCormack 200,000 0.79% 8750 South Grant Burridge, IL 60521 Common Mr. Arthur W. Blanding 75,811 0.29% Janesville, WI 53545 Common Phillip Pearce 25,000 0.098% 6624 Glenleaf Court Charlotte, NC 28270 Common Stanley Hirschman 9,670 0.038% 2600 Rutgers Court Plano, TX 75093 Common stock owned by our executive officers follows: Name & Address of Amount & Nature of Percent Title of Class Beneficial owner Beneficial Ownership of Class - -------------- ----------------- -------------------- -------- Common Roy G. Warren 717,414 2.83% CEO/Director Common John McCormack 200,000 0.79% President/COO/Director Common Stephen Langley 88,199 0.34% Chairman/GM- China 29 Common Michael L. Davis 25,000 0.098% Chief Financial Officer Common Susan Lurvey 12,000 0.049% Treasurer/Secretary Common stock owned by our directors and executive officers as a group 3,758,421 14.85%
The following is a breakdown of the amount of underlying common stock the listed holders have the right to acquire within sixty (60) days from convertible preferred stock, options and warrants. This underlying common stock has been included as part of the "common stock" listed in the above tables. For Amro International, S.A., Austinvest Anstalt Balzers, Esquire Trade & Finance Inc., Libra Finance, S.A., please refer to page 11 of this prospectus.
Total Equity and Underlying Holder Rights to Equity Type of Security Common Stock - ------ ---------------- ---------------- ------------ Mr. Dale Reese 2,457,985 Options 700,000 Tamarind 2,122,327 Series B Convertible 107,440 Management, Ltd. Preferred (Mr. Paul Downes) Options 1,383,705 Roy G. Warren 717,414 Options 410,914 Michael L. Davis 25,000 Options 25,000 Steve Langley 70,000 Options 50,000
There currently are no arrangements that may result in a change of ownership or control of the Company. DESCRIPTION OF SECURITIES We are authorized to issue 20,000,000 shares of common stock, having a par value of $0.001 per share, and 5,000,000 shares of preferred stock, also having a par value of $0.001 per share. We have made five designations of preferred stock: * 500,000 Series A convertible preferred shares with a stated value of $1.00 per share * 1,260,000 Series B convertible preferred shares with a stated value of $1.00 per share 30 * 400,000 Series C convertible preferred shares with a stated value of $3.00 per share * 165,000 Series D convertible preferred shares with a stated value of $10.00 per share * 1,500,000 Series E convertible preferred shares with a stated value of $2.50 per share * 165,000 Series F convertible preferred shares with a stated value of $10.00 per share * 200,000 Series G convertible preferred shares with a stated value of $10.00 per share The following sets forth the number of issued and outstanding shares of our common stock and preferred stock remaining, after conversion, as of the date of this prospectus. * Common Stock 13,095,441 * Series A Convertible Preferred Stock -0- * Series B Convertible Preferred Stock 107,440 * Series C Convertible Preferred Stock -0- * Series D Convertible Preferred Stock 105,000 * Series E Convertible Preferred Stock -0- * Series F Convertible Preferred Stock 174,999 * Series G Convertible Preferred Stock 100,000
Common Stock The following is a summary of certain rights and provisions of the shares of our common stock. This summary includes all of the material rights and provisions of these shares. Dividend Rights - --------------- The holders of common stock are entitled to receive dividends and other distributions as and when declared by our board of directors out of the assets and available funds. Voting Rights - ------------- The holders of common stock are entitled to one vote per share on all matters presented for a shareholder vote. There is no provision for cumulative voting. Our business is controlled by our board of directors. This board is elected by a majority vote of the shareholders and bylaws have been adopted for our guidance and control. Amendments to the bylaws can be made by majority vote of the board of directors. The vote of the holders of a majority of the outstanding shares of the voting stock of the common stock, Series A and Series B Convertible Preferred Stock is required for mergers, consolidations or other similar transactions. Liquidation Rights - ------------------ Upon the voluntary or involuntary dissolution, liquidation, or winding up of our business affairs, the holders of common will receive the remainder of ours assets, if any, after * the payment in full of our debts and other liabilities * the payment of dividends due to the holders of preferred stock * the distribution of assets to the holders of preferred stock The directors, at their discretion, may authorize and issue debt obligations, whether or not subordinated, without prior approval of the shareholders. The issuance of debt obligations may reduce the liquidation value of the shares of common stock. 31 Preemptive Rights - ----------------- Owners of our common stock not have the preemptive right to purchase additional shares offered by the Company in the future. That is, we may sell additional shares of common stock to particular shareholders or to non-shareholders without first offering shares to current shareholders. Redemption - ---------- We do not have the discretionary right to redeem our common stock. Preferred Stock Series A Convertible Preferred Stock consisting of 500,000 authorized shares. Currently, there are no issued and outstanding shares of Series A Convertible Preferred Stock Series B Convertible Preferred Stock consisting of 1,260,000 authorized shares. Dividends - --------- Series B Convertible Preferred Stock shall pay or accrue dividends at the rate of 9% per annum, payable only upon liquidation or redemption, as a percentage of the stated value, out of the assets and available funds. Voting Rights - ------------- Voting rights of the Series B Convertible Preferred Stock are the same as our common stock. Conversion - ---------- Series B Convertible Preferred Stock is convertible anytime after December 31, 1997 to our common stock at the fixed ratio of one share of common stock for one share of Series B Convertible Preferred Stock surrendered for conversion. Adjustments to Conversion Ratio - ------------------------------- The ratio for conversion can be proportionally increased or reduced to reflect * a division of the common stock of the Corporation or a combination thereof * a reorganization or reclassification or distribution to the holders of common stock of stock, debt securities or other assets * a legal merger, consolidation, corporate combination, share exchange, or a sale or lease of substantially all of our assets resulting in the distribution to our common stock holders, stock, debt securities or other assets * the issuance or sale of common stock, options, warrants or other rights to purchase the common stock of the Corporation for less than the stated value Liquidation Preference - ---------------------- Holders of Series B Convertible Preferred Stock shall be entitled to receive for each share of Series B Convertible Preferred Stock a cash payment equal to the stated value plus all accrued 32 dividends. If our assets are insufficient to make the payment, the assets shall be distributed ratably to the holders. Liquidation - ----------- Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Series B Convertible Preferred Stock shall be entitled to receive for each share of Series B Convertible Preferred Stock an amount equal to the Stated Value plus all accrued dividends attributable to each such share. Redemption - ---------- We have the right to redeem any or all of the outstanding shares of Series B Convertible Preferred Stock at a redemption price equal to the stated value of the Series B Convertible Preferred Stock redeemed plus accumulated dividends. Series C Convertible Preferred Stock consisting of 400,000 authorized shares. Currently, there are no issued and outstanding shares of Series B Convertible Preferred Stock Series D Convertible Preferred Stock consisting of 165,000 authorizes shares. Dividends - --------- Each share of Series D Convertible preferred stock entitles the holder to receive or accrue dividends at the rate of 6% simple interest per annum, as a percentage of the stated value of the Series D Convertible Preferred Stock. Dividends are payable in cash or common stock quarterly at our option. The payment of dividends shall be made first to the Series D Convertible preferred stockholders before dividends or other distributions are made on any common stock or prior preferred stock. Voting Rights - ------------- Except as otherwise required by law, the Series D Convertible Preferred Stock shall have no voting rights. So long as any shares of Series D Convertible Preferred Stock are outstanding, we shall not * alter or change adversely the powers, preferences or rights given to the Series D Convertible Preferred Stock * alter or amend the certificate of designation * amend its certificate of incorporation, bylaws or other charter documents so as to affect adversely any rights of any holders * increase the authorized number of shares of Series D Convertible Preferred Stock * enter into any agreement with respect to the foregoing, without the affirmative vote of the holders of a majority of the shares of the Series D Convertible Preferred Stock then outstanding 33 Conversion - ---------- The holders of Series D Convertible Preferred stock shall be entitled to convert such stock into our common stock at any time subsequent to the 91st day after issuance of such stock or upon the effectiveness of a registration statement for the resale of the common stock underlying the Series D Convertible Preferred stock. The number of shares of common stock issuable upon conversion of each share of Series D Preferred Stock shall equal the sum of the stated value per share and, at the holder's election, accrued and unpaid dividends on such shares. This sum will then be divided by the conversion price. The conversion price shall be equal to the lesser of 100% of the average of the closing bid price of our common stock for the trading day immediately preceding the date of issuance of the shares of Series D Preferred Stock to the holders, or 80% of the average of the three lowest closing bid prices for the 22 trading days immediately preceding the conversion of the Series D Preferred Stock. Adjustments to Conversion Price - ------------------------------- The conversion price will be adjusted if we * issue common stock pay a stock dividend or otherwise make a distribution or distributions on shares of our junior securities * subdivide our common stock into a larger number of shares * combine our common stock into a smaller number of shares * issue capital stock by reclassification of shares of common stock Liquidation Preference - ---------------------- Upon any liquidation, dissolution or winding-up of our business, whether voluntary or involuntary, after our payment of debt and liabilities, the holders of Series D Convertible Preferred Stock shall be entitled to receive out of our assets an amount equal to the stated value plus all accrued but unpaid dividends per share, whether declared or not. This payment, will be made before any distribution or payment to the holders of any junior securities, including the holders of common stock and preferred stock. If the assets shall be insufficient to make this payment, then the assets shall be distributed ratably among the holders of Series D Convertible Preferred Stock. Redemption - ---------- We have the option of redeeming the Series D Preferred Stock starting 40 days after the effective date of the registration statement for the resale of the common stock underlying the Series D Convertible Preferred stock. The redemption price shall be equal to the closing bid price of the common stock on the date notice of redemption is given to a holder, multiplied by the number of shares of common stock that would be issued upon conversion of the designated amount being redeemed, including common stock that would have been issued as dividends, at the conversion price in effect on the redemption date. In no event may the redemption amount be less than 120% of the stated value plus the dollar amount of accrued dividends of the Series D Preferred Stock being redeemed. Series E Convertible Preferred Stock Consisting of 1,500,000 authorized shares. Currently, there are no issued and outstanding shares of Series E Convertible Preferred Stock 34 Series F Convertible Preferred Stock consisting of 165,000 authorized shares. Dividends - --------- Each share of Series F Convertible preferred stock entitles the holder to receive or accrue dividends at the rate of 6% simple interest per annum, as a percentage of the stated value of the Series F Convertible Preferred Stock. Dividends are payable in cash or common stock quarterly at our option. The payment of dividends shall be made first to the Series F Convertible preferred stockholders before dividends or other distributions are made on any common stock or prior preferred stock. Voting Rights - ------------- Except as otherwise required by law, the Series F Convertible Preferred Stock shall have no voting rights. So long as any shares of Series F Convertible Preferred Stock are outstanding, we shall not * alter or change adversely the powers, preferences or rights given to the Series F Convertible Preferred Stock * alter or amend the certificate of designation * amend its certificate of incorporation, bylaws or other charter documents so as to affect adversely any rights of any holders * increase the authorized number of shares of Series F Convertible Preferred Stock * enter into any agreement with respect to the foregoing, without the affirmative vote of the holders of a majority of the shares of the Series F Convertible Preferred Stock then outstanding Conversion - ---------- The holders of Series F Convertible Preferred stock shall be entitled to convert such stock into our common stock at any time subsequent to the 91st day after issuance of such stock or upon the effectiveness of a registration statement for the resale of the common stock underlying the Series F Convertible Preferred stock. The number of shares of common stock issuable upon conversion of each share of Series F Preferred Stock shall equal the sum of the stated value per share and, at the holder's election, accrued and unpaid dividends on such shares. This sum will then be divided by the conversion price. The conversion price shall be equal to the lesser of 100% of the average of the closing bid price of our common stock for the trading day immediately preceding the date of issuance of the shares of Series F Preferred Stock to the holders, or 80% of the average of the three lowest closing bid prices for the 22 trading days immediately preceding the conversion of the Series F Preferred Stock. Adjustments to Conversion Price - ------------------------------- The conversion price will be adjusted if we * issue common stock pay a stock dividend or otherwise make a distribution or distributions on shares of our junior securities * subdivide our common stock into a larger number of shares * combine our common stock into a smaller number of shares * issue capital stock by reclassification of shares of common stock 35 Liquidation Preference - ---------------------- Upon any liquidation, dissolution or winding-up of our business, whether voluntary or involuntary, after our payment of debt and liabilities, the holders of Series F Convertible Preferred Stock shall be entitled to receive out of our assets an amount equal to the stated value plus all accrued but unpaid dividends per share, whether declared or not. This payment, will be made before any distribution or payment to the holders of any junior securities, including the holders of common stock and preferred stock. If the assets shall be insufficient to make this payment, then the assets shall be distributed ratably among the holders of Series F Convertible Preferred Stock. Redemption - ---------- We have the option of redeeming the Series F Preferred Stock starting 40 days after the effective date of the registration statement for the resale of the common stock underlying the Series F Convertible Preferred stock. The redemption price shall be equal to the closing bid price of the common stock on the date notice of redemption is given to a holder, multiplied by the number of shares of common stock that would be issued upon conversion of the designated amount being redeemed, including common stock that would have been issued as dividends, at the conversion price in effect on the redemption date. In no event may the redemption amount be less than 120% of the stated value plus the dollar amount of accrued dividends of the Series F Preferred Stock being redeemed. Series G Convertible Preferred Stock consisting of 200,000 authorized shares. Dividends - --------- Each share of Series G Convertible preferred stock entitles the holder to receive or accrue dividends at the rate of 7% simple interest per annum, as a percentage of the stated value of the Series G Convertible Preferred Stock. Dividends are payable in cash or common stock quarterly at our option. The payment of dividends shall be made first to the Series G Convertible Preferred stockholders before dividends are made on any common stock or prior preferred stock, except Series D Preferred. Dividends or other distributions made on Series D Convertible Preferred shall be made equally with Series G Convertible Preferred. Voting Rights - ------------- Except as otherwise required by law, the Series G Convertible Preferred Stock shall have no voting rights. So long as shares of Series G Convertible Preferred Stock are outstanding, we shall not * alter or change adversely the powers, preferences or rights given to the Series G Convertible Preferred Stock * alter or amend the certificate of designation * amend its certificate of incorporation, bylaws or other charter documents so as to affect adversely any rights of any holders * increase the authorized number of shares of Series G Convertible Preferred Stock * enter into any agreement with respect to the foregoing, without the affirmative vote of the holders of a majority of the shares of the Series G Convertible Preferred Stock then outstanding 36 Conversion - ---------- The holders of Series G Convertible Preferred stock shall be entitled to convert such stock into our common stock at any time subsequent to issuance. The number of shares of common stock issuable upon conversion of each share of Series G Preferred Stock shall equal the sum of the stated value per share and, at the holder's election, accrued and unpaid dividends on such shares. This sum will then be divided by the conversion price. The conversion price shall be equal to the lesser of $0.85, or 80% of the average of the three lowest closing bid prices for the 22 trading days immediately preceding the conversion of the Series G Preferred Stock. Adjustments to Conversion Price - ------------------------------- The conversion price will be adjusted if we * issue common stock pay a stock dividend or otherwise make a distribution or distributions on shares of our junior securities * subdivide our common stock into a larger number of shares * combine our common stock into a smaller number of shares * issue capital stock by reclassification of shares of common stock Liquidation Preference - ---------------------- Upon any liquidation, dissolution or winding-up of our business, whether voluntary or involuntary, after our payment of debt and liabilities, the holders of Series G Convertible Preferred Stock shall be entitled to receive out of our assets an amount equal to the stated value plus all accrued but unpaid dividends per share, whether declared or not. This payment, will be made before any distribution or payment to the holders of any junior securities, including the holders of common stock and preferred stock, except Series D Convertible Preferred. If the assets shall be insufficient to make this payment, then the assets shall be distributed ratably among the holders of Series G Convertible Preferred Stock. Mandatory Conversion - -------------------- We have the option of calling for the conversion of Series G Preferred Stock and dividends not previously converted into common stock at the conversion price, after three years from issuance of the Series G Preferred Stock. Redemption - ---------- We have the option of redeeming the Series G Preferred Stock after the effective date of the registration statement for the resale of the common stock underlying the Series G Convertible Preferred stock. The redemption price shall be equal to 135%of the stated value, plus accrued dividends, multiplied by the number of shares of Series G Preferred Stock. INTEREST OF NAMED EXPERTS AND COUNSEL BDO Seidman LLP, independent auditors of Los Angeles, CA, have audited our financial statements at December 31, 1998 and 1999. We have incorporated our audited financial statements into this prospectus in reliance on BDO Seidman's report given on their authority as experts in accounting and auditing. 37 Stibel & Toulan LLP, legal counsel of Boston, Massachusetts, will pass upon certain legal matters for us relating to the validity of the securities offered hereby. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Our amended and restated certificate of incorporation and by-laws contain provisions eliminating the personal liability of a director to us and our stockholders for certain breaches of his or her fiduciary duty of care as a director. These provisions, however, do not eliminate or limit the personal liability of a director * for any breach of a director's duty of loyalty to us or our stockholders * for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law * for unlawful dividends or unlawful stock repurchases or redemptions under Delaware statutory provisions making directors personally liable, under a negligence standard * for any transaction from which the director derived an improper personal benefit These provisions offer persons who serve on our board of directors protection against awards of monetary damages resulting from breaches of their duty of care, except as indicated above, including grossly negligent business decisions made in connection with takeover proposals. As a result of these provisions, our ability or that of our stockholders to prosecute an action against a director for a breach of his duty of care has been limited. These provisions, however, do not affect the availability of equitable remedies such as an injunction or rescission based upon a director's breach of his duty of care. The SEC has taken the position that these provisions will have no effect on claims arising under the federal securities laws. WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form SB-2, of which this prospectus is a part, under the Securities Act with respect to the shares of common stock offered. This prospectus does not contain all of the information included in the registration statement. Statements in this prospectus concerning the provisions of any document are not necessarily complete. You should refer to the copies of these documents filed as exhibits to the registration statement or otherwise filed by us with the SEC for a more complete understanding of the matter involved. We are subject to the informational requirements of the Exchange Act and file reports, proxy statements and other information with the SEC. The SEC maintains a website that contains reports, proxy statements and other information regarding us. The address of the SEC website is http://www.sec.gov. Copies of our reports, proxy statements and other information also may be inspected and copied at the public reference facilities maintained by the SEC at: Judiciary Plaza Citicorp Center Seven World Trade Center Room 1024 500 West Madison St., 13th Floor 450 Fifth Street, N.W., Room 1400 New York, NY 10048 Washington, D.C. 20549 Chicago, IL 60661 Copies of these materials can also be obtained by mail at prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. 38 MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATIONS Financial Condition And Results of Operations - For Periods Ended December 31, 1998 and December 31, 1999 Financial Condition for year ended December 31, 1999 For the year ended December 31, 1999, we had an accumulated deficit of US $12,360,537. As of December 31, 1999, we had cash on hand of US $16,854 and reported total shareholders' equity of US $840,057. On July 31, 1998, we purchased certain assets of American Flavors China, Inc., consisting of that company's 52% equity interest in and to a Sino-American joint venture in Hangzhou, People's Republic of China, known as Hangzhou Meilijian Dairy Products Co., Ltd. For financial reporting purposes, Hangzhou Meilijian is considered our subsidiary of the Company as of that date. As of July 31, 1998, Hangzhou Meilijian had total assets of $6,512,950, with total current assets of $1,928,336. Total liabilities amounted to $3,544,961, with total current liabilities of $2,870,890. In addition, the joint venture company had total equity of $2,967,989, with total revenues of $2,831,255.As of December 31, 1999, Hangzhou Meilijian had total assets of $5,483,490, with total current assets of $931,443. Total liabilities amounted to $3,175,406, with total current liabilities of $2,265,023. In addition, the joint venture company had total equity of $2,308,084, with total revenues of $5,664,661. Results of operations Year Ended December 31, 1999 - ---------------------------- Owing to the change in financial reporting to the equity method, we have not reported any of the revenue of our subsidiaries and, accordingly, have not reported any sales revenue, cost of goods sold or selling expenses for the fiscal year ending December 31, 1999. After general and administrative expenses of $2,622,788 and other net expenses of $1,394,546, including interest expenses of $15,539, loss on investments in Green Food Peregrine of $1,034,606 and in Meilijian of $334,401, we had a net loss before income taxes of $4,017,334. This loss, combined with accrued dividends on preferred stock of $958,177, resulted in a basic loss per share of $0.67. Our losses on our investments in its Chinese subsidiaries in 1999 resulted from the high level of expenses associated with the continuing attempts to penetrate the market in Shanghai and the introduction of new products in Hangzhou. In addition, we experienced significant general and administrative expenses in connection with raising capital in 1999 in excess of $937,000 and expenses associated with the filing requirements of a fully reporting company under the Securities Exchange Act of 1934. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 - --------------------------------------------------------------------- General and administrative expenses increased approximately 108% to $2,622,788 in 1999 from $1,260,588 in 1998. This increase reflects three 1999 fund raising exercises, the consummation of licensing agreements with Warner Bros. with guaranteed royalty payments in 1999 of $87,500, and the preparation and filing of SEC reporting documents. 39 Interest expense increased from a net positive income number in 1998 to expenses of $15,539 in 1999. The increase in interest expense largely was a result of the debt associated with the Green Food Peregrine and Hangzhou Meilijian operations and 10.5% interest on an installment note having a face value of $282,637, arising out of the acquisition of our interest in Hangzhou Meilijian in 1998. Losses on investments in our subsidiaries increased approximately 13.4% to $1,379,007 in 1999 from $1,215,793 in 1998. The increase largely was the result of the write off of the entire balance of our investment in Green Food Peregrine in 1999, when that joint venture ceased operations and we decided to terminate the joint venture. Consequently, our net loss increased approximately 63.2% to $4,017,334 in 1999 from $2,461,829 in 1998. We reported a loss per share of $0.41 in 1998 and $0.67 in 1999. The increase in the loss per share was due to the accounting and legal costs associated with the change to the equity method of reporting and the write off of our investment in Green Food Peregrine. As of December 31, 1998, there were 7,717,957 shares of common stock outstanding while as of December 31, 1999 there were 10,278,129 shares of common stock outstanding. Due to the timing of issuance of new shares, however, the weighted average number of shares of common stock outstanding in 1999 was 7,422,965. The loss per share in 1999 increased by approximately 63.4%compared with 1998. Hangzhou Meilijian Year Ended December 31, 1999 - ----------------------------------------------- For the fiscal year ending December 31, 1999, Meilijian had net sales of $5,664,661 and had a gross profit of $768,517. In addition to the $4,896,144 cost of goods sold, Meilijian had selling expenses of $629,564, and general and administrative expenses of $664,921. After net interest expenses of $129,810 and other net expenses of $6,532, Meilijian had a net loss before income tax of $662,310. General and administrative expenses are approximately 12% of revenues for 1999. We anticipate that as Meilijian's revenue will increase through marketing, general and administrative expenses will increase in total but decrease as a percentage of revenue. Meilijian's loss from operations for 1999 are the result of efforts associated with the introduction of new products in 1999. Hangzhou Meilijian Year Ended December 31, 1999 Compared to - ----------------------------------------------------------- Year Ended December 31, 1998 - ---------------------------- Meilijian's revenues increased almost 16.2% to $5,664,661 in 1999 from $4,873,748 in 1998. The increase was due to the continuing marketing efforts to increase in sales volume of baggie milk, and the development of an aseptic milk packaged product for sale in the Hangzhou and other surrounding markets. Cost of goods sold increased approximately 15.4% to $4,896,144 in 1999 from $4,241,471 in 1998. This increase was due mainly to a higher level of revenue that required a corresponding increase in cost of goods sold. However, cost of goods sold accounting for a percentage of revenue decreased to 86% in 1999 from 87% in 1998. Consequently, the gross profit ratio increased to 13.5% in 1999 from 13% in 1998. Selling expenses increased approximately 41.3% to $629,564 in 1999 from 445,662 in 1998. As a percentage of revenues, selling expense increased to 11% in 1999 from 9% in 1998. These increases were due mainly to the continuing efforts to increase sales volume and the introduction of new products in the Meilijian market area. 40 Meilijian's general and administrative expenses increased approximately 59% to $664,921 in 1999 from $415,991 in 1998. This increase reflects the effects of increased sales and the introduction of new products in 1999. As a percentage of the total revenue, the general and administrative expenses increased to 11.7% in 1999 from 8.5% in 1999. Interest expense decreased approximately 25.9% to $129,810 in 1999 from $175,205 in 1998. The decrease in interest expense largely was a result of the debt repayment. Meilijian's net loss increased approximately 59% to $662,310 in 1999 from $415,178 in 1998. Financial Condition And Results of Operations - For Period January 1, 2000 to September 30, 2000 As of September 30, 2000, the Company had an accumulated deficit of $15,291,486. As of September 30, 2000, the Company had cash on hand of $172,012, of which 86,000 is restricted as collateral for a Chinese bank loan to China Premium (Shanghai), and reported total shareholders' equity of $1,405,900. For this same period of time, the Company had revenue of $57,716 and general and administrative expenses of $2,342,003. The continued increase in these expenses from prior periods is a result of intensified activities in establishing a refocused business base in China and the costs associated with the launch of the business operations of Bravo! Foods, Inc., a wholly owned subsidiary of the Company, in the United States. In addition to general and administrative expenses in the United States, advances were made to the Company's wholly owned Chinese subsidiary, China Premium Food (Shanghai) Co., Ltd., to fund expenses associated with the distribution logistics, promotion and production of Looney Tunes(TM) branded milk products and snack crackers in the greater Shanghai, PRC. The Company advanced $82,536.30 to Bravo! to fund expenses associated with general and administrative expenses and the promotion of Looney Tunes(TM) branded milk products sold in the United States under Bravo!'s Looney Tunes(TM) licensing agreement with Warner Bros. After net interest expenses of $13,122 and the loss on the Company's investment in its Hangzhou Meilijian subsidiary of $202,305, the Company had a net loss of $2,738,799. Nine Months Ended September 30, 2000, Compared to - ------------------------------------------------- Nine Months Ended September 30, 1999 - ------------------------------------ The Company's net loss decreased approximately 0.0006% to $2,738,799 in 2000 from $2,740,415 in 1999. The decrease in the net loss was due to the write off of the Company's investment in GFP and revenue of $50,250 from Bravo! and $7,466 from China Premium (Shanghai) in 2000. Accrued dividends increased approximately 30% to $1,192,151 in 2000 from $912,832 in 1999. This increase was the result of the conversion features the Series F and G convertible preferred stock issued in 2000. As of September 30, 2000, there were 12,939,880 shares of common stock outstanding compared with 8,905,229 shares of common stock outstanding as of September 30, 1999. Due to the timing of issuance of new shares, however, the weighted average number of shares of common stock outstanding in 2000 was 11,703,512. Due to the increase in common shares outstanding in 2000, the Company's loss per share in 2000 decreased by approximately 26% to $0.34 per share in 2000 from $0.43 per share in 1999. 41 General and administrative expenses increased by approximately 34% to $2,342,003 in 2000 from $1,736,786 in 1999. This increase reflects the costs associated with the establishment and funding of the day to day operations of new businesses in China and the United States including * China Premium (Shanghai), an import/export company and food marketing and distribution company in Shanghai's Free Trade Zone * the development of software and graphic design associated with a business to business e-commerce food distribution portal * the development of logistics capabilities for the launch of Looney Tunes(TM) branded milk products and snack crackers in Shanghai and surrounding areas * the development of the Bravo! business including the launch of Looney Tunes(TM) branded milk products in the United States In addition, general and administrative expenses increased as a result of legal and accounting expenses associated with the restatement of the Company's financial statements on the equity basis, fund raising exercises activities, and the preparation and filing of SEC reporting documents by the Company. Three Months Ended September 30, 2000 Compared to - ------------------------------------------------- Three Months Ended September 30, 1999 - ------------------------------------- The Company's net loss increased approximately 18% to $1,025,931 in 2000 from $866,313 in 1999. The increased net loss was due to the increased expenses associated with the launch of the Looney Tunes(TM) branded milk programs in China and the United States in 2000. The Company reported a decreased loss per share of approximately 34% from $0.12 in 1999 to $0.08 in 2000. The decrease in the loss per share was due to * the write off of the Company's investment in Green Food Peregrine as of December 31, 1999 * the increase in the number of common shares outstanding * the decrease in accrued dividends payable Accrued dividends decreased approximately 70% to $57,433 in 2000 from $192,625 in 1999. General and administrative expenses increased by approximately 52% to $845,693 in 2000 from $553,747 in 1999. This increase reflects the costs associated with the establishment and funding of the day to day operations of new businesses in China and the United States. In addition, general and administrative expenses increased as a result of legal and accounting expenses associated with the restatement of the Company's financial statements on the equity basis, fund raising exercises activities, and the preparation and filing of SEC reporting documents by the Company. 42 LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1999, we reported that net cash used in operating activities was $1,911,100, net cash used in investing activities was $946,585, and net cash provided by financing activities was $2,569,392 with a negative foreign currency translation adjustment of $86. Net cash used in operating activities increased approximately 100% to $1,911,186 in 1999 from $952,715 of net cash used by operating activities in 1998. The increase in negative cash flow in operating activities reflects the increased costs in 1999 in supporting Green Food Peregrine. Net cash used in investing activities increased approximately 23% to $946,585 in 1999 from $769,868 in 1998. The increase mainly was due to advances to Green Food Peregrine. Net cash provided by financing activities increased 44.7% to $2,569,392 in 1999 from $1,775,710 in 1998. The necessity for increased fund raising activities resulted from increased general and administrative expenses as well as the continuing support of the operations of Green Food Peregrine and the implementation of the Warner Bros. licensing agreements. As of September 30, 1999, the Company reported that net cash used in operating activities was $1,524,293, net cash used in investing activities was $1,212,310, and net cash provided by financial activities was $2,508,699. As of September 30, 2000, net cash used in operating activities was $2,705,361, net cash used in investing activities was $608,497, and net cash provided by financing activities was $3,382,894. Net cash used in operating activities increased approximately 77% to $2,705,361 in 2000 from $1,524,293 of net cash used by operating activities in 1999. The increase in negative cash flow in operating activities reflects the increased costs experienced during this period associated with the establishment and funding of the day to day operations of new businesses in China and the United States and supporting the U.S. management operations of the Company. Net cash used in investing activities decreased approximately 55% to $608,497 in 2000 from $1,121,310 in 1999. The decrease mainly was due to the elimination of advances to Meilijian and GFP. Net cash provided by financing activities increased 35% to $3,382,894 in 2000 from $2,508,699 in 1999. The increased necessity for fund raising activities resulted from the establishment and funding of the day to day operations of new businesses in China and the United States, and supporting the U.S. management operations of the Company. During later part of 2000, we continued to shift our business focus and strategy from the production of milk products to our involvement in the marketing and distribution of a broad range of food products in China and the United States, including premium branded items. These efforts in part center on a Master License which we hold from Warner Bros. for the use of Looney Tunes(TM) characters on milk products in the Shanghai and Hangzhou greater metropolitan areas in China and a similar license issued to Bravo! Foods, Inc. for the United States. In China, these efforts are through China Premium (Shanghai), our wholly owned Chinese registered import/export/distribution subsidiary. In the United States, these efforts are through Bravo!, our wholly owned Delaware subsidiary. 43 China Premium (Shanghai) commenced the importation and distribution Looney Tunes(TM) snack crackers in September/October 2000. China Premium (Shanghai) presently produces Looney Tunes(TM) milk products under supply agreements with two local dairies and distributes these milk and snack products in the greater Shanghai area under two distribution agreements with local distributors. As of early September 2000, our Looney Tunes(TM) milk products are being sold in thirty hyper or super stores and food markets in the Shanghai area, representing approximately three tonnes of milk per day. In the United States, Bravo! Food, Inc., launched its Looney Tunes(TM) flavored milk products under a promotion contract with Quality Chekd Dairies, Inc., a national member dairy cooperative, and two production agreements with local dairies in Tennessee and Colorado and contiguous areas. Bravo! had revenues of $142,000 September 2000 through December 2000, representing Bravo!'s contractual fees under the two production agreements for those months. On October 16, 2000, Bravo! executed a production agreement with a third dairy for production and sales of Looney Tunes(TM) flavored milk products in Pennsylvania and contiguous areas. Bravo! expects this third dairy to be producing and selling Looney Tunes(TM) flavored milk commencing in January 2001. Through the end of this reporting period, we advanced $82,536.30 to Bravo! to cover day to day operating expenses. In October and November 2000, we advanced $50,000 and $200,000, respectively, to Bravo! for the up front payment of guaranteed royalties to Warner Bros., pursuant to Bravo!'s Looney Tunes(TM) license agreement for the United States. During the quarter ending June 30, 2000, we commenced negotiations to be bought out of the Meilijian joint venture by our Chinese partner. These negotiations led to the execution of a letter of intent and, in November of 2000, an agreed upon buy out figure of US $900,000. This figure was approximately the same as our equity share of the state sanctioned asset appraisal conducted by independent Chinese accountants for this transaction. On December 4, 2000, MOFTEC approved the buy out transaction. In December, 1999, we received US $179,000 of the buy out through China Premium (Shanghai) in RMB. This amount will remain in China to help cover that subsidiary's operating expenses. The balance of US $721,000 was paid in the United States in US dollars in January, 2001. This buy out will result in the write off of our investment in and advance to Meilijian and related goodwill, with the reversal of accounting entries for accumulated translation adjustments. In February of 2000, the Company announced an agreement in principle to acquire the majority equity interest in and control of the operations of Mandarin Fine Foods Company of Beijing and Shanghai. During the course of the due diligence for the Mandarin transaction, the Company became aware that its acquisition of Mandarin would significantly limit the scope of its business license under PRC regulations concerning Foreign Investment Enterprises. The Company also became aware, however, of an agricultural development program funded by the national government in the Western China Shaanxi Province, known as the Yangling Model District for Agricultural High-tech and New-tech Industry. Through this program, the government of Shaanxi Province is authorized to issue business licenses which are much broader in scope than normal to new companies in the Yangling Model District, including foreign investment joint ventures. Owing to the greatly enhanced scope of the business license offered in the Yangling District, the Company agreed with Mr. Li Zhiyun, the sole owner of Mandarin Fine Foods, to forego the purchase of Mandarin Fine Foods in favor of establishing a new joint venture company in Yangling. The Company agreed that the parties to this joint venture would be China Premium Food Corporation, as the foreign party, and Yangling Kechuang Agricultural Techniques Development Co.,a new Chinese company established by Mr. Li in the Yangling District, as the Chinese party. As part of this transaction, Mr. Li has agreed to liquidate Mandarin Fine Foods. The details of this transaction and the formation of a Yangling District foreign investment joint venture company have been ongoing. 44 During this period of discussion and negotiations with the Yangling District and Mr. Li, the Company became aware of the potential beneficial impact of anticipated rule changes in China on the Company's China Premium (Shanghai) operation. As a Chinese registered company in the Wai Gao Qiao ("Free Trade Zone") district of Shanghai, China Premium (Shanghai) may be capable of operating under its present business license to the same extent possible under the broad joint venture business license offered by the Yangling District. Further discussions with representatives of the Yangling District and Mr. Li revealed the possibility of working with the Yangling District and Mr. Li under routine arm's length supply contracts, without he necessity of a joint equity arrangement. As a result, the Company is continuing to explore the possible utilization of the existing business license of its wholly owned subsidiary, China Premium (Shanghai), to establish a country wide sales and distribution system for consumer food products and for food service products such as offered by Mandarin Fine Foods Company. In addition to allowing the Company to own 100% of this business, the utilization of its existing China Premium Food (Shanghai) subsidiary would eliminate the necessity of the Company's capital contribution for the Yangling Mandarin joint venture. Going forward, our primary requirements for cash consist of * expenses related to the development of the distribution business infrastructure for the country wide food sales/distribution business * expenses related to the development of the e- commerce business infrastructure for the country wide food sales/distribution business * additional working capital for the day to day operation of China Premium (Shanghai) * product development, marketing and advertising for the marketing and sales of our Looney Tunes(TM) milk products in China * payments of guaranteed royalty payments to Warner Bros. under existing licensing agreements for both China and the United States We estimate that approximately US $350,000 will be needed to fund these activities through the end of 2000. In addition to these anticipated expenses, the Company currently has monthly working capital needs of $140,000. In October 2000, the Company issued 24,999 shares of its Series F and 25,000 shares of its series G convertible preferred stock, and realized gross proceeds of $499,990. In addition, the Company's anticipated revenue contribution to overhead by the end of the third quarter of this year has materialized with the launch of Looney Tunes(TM) flavored milk products in the United States. The Company anticipates that Bravo! will continue to produce revenue to help meet its operational needs. Finally, the Company anticipates that additional funding may be generated through the sale of additional equity under commitments built into the Series D and Series G Convertible Preferred transactions. DEBT STRUCTURE During the process of acquiring from American Flavor China, Inc. the 52% of equity interest in and to Hangzhou Meilijian, the Company issued a promissory note to assume the American Flavor's debt owed to a supplier, International Paper. The face value of that note was $282,637.53 at interest 45 rate of 10.5% per annum without any collateral attached. The note has a monthly installment payment of $7,250 with 23 payments and a balloon payment of $159,862.38 when the note was due on July 15, 2000. The Company has negotiated with International paper for the extension of this note. On July 6, 2000, International Paper agreed to extend the note to July 1, 2001, and the principal amount was adjusted $155,743.17 due to different interest calculation approach. International Paper imposed a charge of $57,000 to renegotiate the note owing the failure of GFP to pay for certain packing material, worth more than $57,000, which had been ordered by GFP and made to order in 1999. The Company accepted this charge and obtained the waiver of any interest on the outstanding balance of $155,743 during the next 12 months. EFFECTS OF INFLATION The Company believes that inflation has not had material effect on its net sales and results of operations. EFFECT OF FLUCTUATION IN FOREIGN EXCHANGE RATES The Company's operating subsidiary, Green Food Peregrine, is located in China. It buys and sells products in China using Chinese renminbi as functional currency. Based on Chinese government regulation, all foreign currencies under the category of current account are allowed to freely exchange with hard currencies. During the past two years of operation, there were no significant changes in exchange rates. However, there is no assurance that there will be no significant change in exchange rates in the near future. NEW ACCOUNTING STANDARDS NOT ADOPTED YET Statement of Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133) requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. Accordingly, the Company does not expect adoption of the new standard to affect its financial statements. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS This prospectus contains forward-looking statements within the meaning of various provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this prospectus that address future activities, events or developments, including such things as future revenues, product development, market acceptance, responses from competitors, capital expenditures, including the amount and nature of expenditures, business strategy and measures to implement strategy, competitive strengths, goals, expansion and 46 growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. These statements are based on certain assumptions and analyses made by us in light of our experience and assessment of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate in the circumstances. Whether actual results will conform to our expectations and predictions, however, is subject to a number of risks and uncertainties that may cause actual results to differ materially. These risks include the risks and uncertainties discussed in this prospectus; general economic, market or business conditions; the opportunities, or lack thereof, that may be presented to and pursued by us; competitive actions by other companies; changes in laws or regulations; and other factors, many of which are beyond our control. Consequently, all of the forward-looking statements made in this prospectus are qualified by these cautionary statements. There can be no assurance that the actual results anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to or effects on us or our business or operations. DESCRIPTION OF PROPERTY Neither we nor our subsidiaries currently own any real property. As of February 1, 1999, we moved its corporate offices from West Palm Beach to 11300 US Highway 1, Suite 202, North, Palm Beach, Florida, pursuant to a lease with HCF Realty, Inc., having a term of five years. Our initial aggregate monthly rent amounts to approximately $4,900, which will increase (assuming an estimated annual increase of 2%) to approximately $6,100 per month by the fifth year. China Premium (Shanghai) leases office space at 333 Jiu Jiang Road, Room 705, 7th Floor, Finance Square, Shanghai 200001, China, at the rate of US $1,500 per month. We lease the residence occupied by Mr. Langley and family located at 102 Greenwich Drive 983 Hua Mu Road Pudong, Shanghai 201204, PRC, at the rental rate of US $4,100 per month. We do not have a policy to acquire property for possible capital gains or income generation. In addition, we do not invest in securities of real estate entities or developed or underdeveloped properties. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Loans/Fees In February, 1997 we issued 25,000 shares of common stock in exchange for 100% of equity interest of Manor Products Corp. Manor was a Delaware company established on January 10, 1996. In early 1996, 80% of equity interest of Manor was bought by the principal of the initial founding entity of the Company. Accordingly, this acquisition was regarded as a related party transaction. In January, 1997, the major limited partner of China Peregrine Enterprises loaned US $200,000 to that limited partnership in order for China Peregrine Enterprises to meet interim registered capital requirements of the Green Food Peregrine Articles of Association and Joint Venture Contract. In March, 1997, three of our shareholders together provided a loan of US $1,315,000 to pay China Peregrine Enterprises' final registered capital requirement to Green Food Peregrine. This last capital contribution was set by the Board of Directors of Green Food Peregrine as a condition precedent to the approval of the Company's acquisition of the interest of China Peregrine Enterprises in and to the 47 Green Food Peregrine joint venture. These two loans were paid off during May and June, 1997, utilizing the proceeds from a Rule 504 regulation D offering. In March, 1997, a holder of the majority of the partnership interests in China Peregrine Enterprises, together with two other investors of ours, assumed a US $1,260,000 outstanding line of credit owed by the limited partnership to a Tennessee-based financial institution. On March 15, 1997, we issued 1,260,000 shares of its Series B preferred stock to these shareholders in consideration for this assumption. The line of credit was paid in full in October, 1997. In the course of setting up the Hangzhou Meilijian joint venture, Meilijian contributed fixed assets with a value in excess of its required capital contribution amount. Based on an agreement signed by the Chinese and American investors, the excess portion was treated as a fixed asset loan from Meilijian at an interest rate of 8% per annum. The balance of this loan at December 31, 1998 was $560,080. On January 1, 1994, Meilijian provided us with the use of its trademark, which was valued at RMB500,000 -approximately US $60,245. We recorded this trademark value as a part of deferred assets and a shareholder loan. We recorded amortization of RMB50,000 -approximately US $6,025- per year for trademark and paid cash of RMB50,000 to Meilijian per year against the shareholder loan. The balance of this loan at December 31, 1998 was $36,238. Accumulated interest on these loans amounted to $81,265. Relationships Mr. Paul Downes has investment power with respect to the affairs of Tamarind Management, Ltd. Accordingly, ours securities held by Mr. Downes and Tamarind have been combined in this document for reporting purposes. The Downes/Tamarind ownership of issued and underlying shares of common stock, Series B Preferred Stock and Options represents 8.38% of all issued and outstanding common stock and shares of common stock underlying the preferred stock plus unexercised options and warrants. We purchased the assets of China Peregrine Enterprises, Limited in March of 1997, in exchange for 1,040,000 shares of our common stock. At the time of this asset purchase, Mr. Dale Reese was the major equity holder in the China Peregrine Enterprises limited partnership and Mr. Charles Beech controlled the activities of China Peregrine Enterprises by virtue of his control of China Peregrine International, Inc., the General Partner of China Peregrine Enterprises. At the time of the asset purchase, Messrs. Reese and Beech were two of our three directors. As noted above, through the assumption of a loan in excess of one million dollars owed by China Peregrine Enterprises to a Tennessee bank, and by virtue of his position as one of our founders, and through stock purchases, Mr. Reese presently holds 9.7% of our equity. Mr. Beech, directly and through Peregrine Enterprises, Inc., presently holds less than 1% of our equity. 48 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Common stock market price Of the 13,095,441 shares of our common stock issued and outstanding as of January 31, 2001, approximately 5,529,477 shares are able to be traded on the over-the-counter trading on the OTC Electronic Bulletin Board, which trading commenced October 24, 1997. Of this amount, 4,749,477 shares have been held for in excess of two years and 780,000 have been held for one year. The following quarterly quotations for our common stock transactions on the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.
QUARTER HIGH BID PRICE LOW BID PRICE 1997 Q4 (10/1 - 12/31) $6.87 $3.00 1998 Q1 (1/3 - 3/31) $4.10 $2.10 Q2 (4/1 - 6/30) $2.60 $0.60 Q3 (7/1 - 9/30) $2.50 $0.33 Q4 (10/1 - 12/31) $2.25 $1.00 1999 Q1 (1/3 - 3/31) $2.87 $0.87 Q2 (4/1 - 6/23) $2.87 $1.31 Q3 (7/1 - 9/30) $1.92 $1.12 Q4 (10/1 - 12/31) $1.25 $0.81 2000 Q1 (1/3 - 3/31) $1.10 $0.62 Q2 (4/1 - 6/23) $1.12 $0.70 Q3 (7/1 - 9/30) $1.0156 $0.5938 Q4 (10/1 - 12/31) $0.7812 $0.2656
Non-market equity subject to options, warrants and conversion Stock Warrants and Options - -------------------------- We have outstanding the following warrants and options: * 292,000 warrants exercisable purchase an aggregate of 292,00 shares of common stock at an exercise price of $1.00 per share, having an expiration date of June 30, 2003; 49 * Series D Warrants exercisable to purchase an aggregate of 125,000 shares of common stock at an exercise of $2.96 per share, having an expiration dates in March and April 2002. * Series D Warrants exercisable to purchase an aggregate of 1,300,000 shares of common stock at an exercise of $0.625 per share, having an expiration date of January 31, 2003. * Series E Warrants exercisable to purchase an aggregate of 165,000 shares of common stock at an exercise of $3.00 per share, having an expiration dates in 2001; * Series E Warrants exercisable to purchase an aggregate of 33,000 shares of common stock comprising part of the Placement Agent Warrants at an exercise price of $2.75 per share, having an expiration dates in 2001; * Series E Warrants exercisable to purchase an aggregate of 33,000 shares of common stock comprising part of the Placement Agent Warrants at an exercise price of $5.00 per share, having an expiration dates in 2001; * Series F Warrants exercisable to purchase an aggregate of 3,114,777 shares of common stock at an exercise of $1.00 per share, having an expiration date of April 5, 2003. * Series F Warrants exercisable to purchase an aggregate of 1,600,000 shares of common stock at an exercise of $0.84 per share, having an expiration date of April 5, 2003. * Series G Warrants exercisable to purchase an aggregate of 459,107 shares of common stock at an exercise of $0.9625 per share, having an expiration date of June 18, 2003. * Options to purchase 3,100,533 shares of common stock pursuant to 1997 and 1999 stock option plans at a purchase price of $1.00 per share, having expiration dates in 2002 (as to 3,045,533 shares) and 2001(as to 55,000 shares), respectively. * Options to purchase 50,000 shares of common stock pursuant to an employment agreement at a purchase price of $0.69 per share, having an expiration date of May 31, 2005. Convertible preferred We have 487,439 shares of convertible preferred issued and outstanding. Common stock subject to sale under rule 144 Of the 13,095,441 shares of our common stock presently issued and outstanding, approximately 2,764,036 shares have been held by non- affiliates for in excess of one year; an additional 2,765,411 shares have been held by affiliates for in excess of one year. These shares may be sold pursuant to Rule 144, subject to the volume and other limitations set forth under Rule 144. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares of the Company for at least one year is entitled to sell, within any three-month period and in accordance with an approved manner of sale, an amount of shares that does not exceed the greater of (i) the average weekly trading volume in our common stock during the four calendar weeks preceding such sale, or (ii) 1% of the shares then outstanding. A person who is not deemed to be an "affiliate" and who has held restricted shares for at least two years would be entitled to sell such shares without regard to the resale limitations of Rule 144. 50 Equity holders at December 31, 2000 Common stock 13,095,880 1,400 holders (approximate) Series B preferred stock 107,440 shares 1 holder Series D preferred stock 105,000 shares 3 holders Series F preferred stock 174,999 shares 3 holders Series G preferred stock 100,000 shares 4 holders
Dividends We have not paid dividends on its common stock and do not anticipate paying dividends. We intend to retain future earnings, if any, to finance working capital, to expand its operations, and to pursue its acquisition strategy. The holders of common stock are entitled to receive, pro rata, such dividends and other distributions as and when declared by our board of directors out of the assets and funds legally available therefor. The availability of funds is dependent upon dividends or distribution of profits from our subsidiaries, and may be subject to regulatory control and approval by the appropriate government authorities on either a regional or national level in the People's Republic of China. We have accrued dividends for our convertible preferred stock for 1999 in the amount of $958,117 and accrues and paid $1,191,791 for the period ended September 30, 2000. EXECUTIVE COMPENSATION Summary compensation table The following table sets forth the compensation paid by us during the last three fiscal years to our Chief Executive Officer, and the four other most highly compensated executive officers whose total 2000 salary and bonus exceeded $100,000:
-Annual Compensation- -Long-Term Compensation- Name & Position Year Salary Bonus Other Restricted Stock Awards and options Stanley Hirschman 2000 30,000 (partial yr.) 400,000 (1) Chairman 2001 15,000 (partial yr) Roy G. Warren 1998 $120,000 410,914 (2) President & 1999 $120,000 Chief Executive Officer 2000 $180,000 (retroactive to 1/1/00) John McCormack 2001 $180,000 100,000 shares (3) 500,000 (4) President & Chief Operating Officer Steven Langley 1999 $ 75,000 $30,000 $70,000 (5) 200,000 (6) General Manager 2000 $ 75,000 $30,000 $70,000 (5) (6) Chairman (China) Michael Edwards 2000 $ 55,000 (partial yr.) $ 65,000(7) 200,000 (7) Sales VP 2001 $110,000 51 Anthony Guiliano 2000 $ 60,000 (partial yr.) $30,000 (8) President & 2001 $120,000 Chief Operating Officer Bravo! Foods, Inc. Charles Beech 1997 510,914 Chairman 1998 Chief Executive Officer 1997-99 $120,000(9) Paul Downes (9) 1997 1,383,705(10) Chairman 1998 Incentive bonus options for 400,000 shares of common stock issued in 100,000 share tranches when our stock trades at $2.00, $3.00, $4.00 and $5.00, respectively. Exercise price is the market price at issue, with a term of three years. These options were authorized by a directors' resolution on April 20, 1997. At that time, a market did not exist for our unrestricted shares, which had a par value of $0.001. One time signing bonus in common stock issued pursuant to an S-8 registration statement. Incentive bonus options for 500,000 shares of common stock issued in 100,000 share tranches when our stock trades at $1.00, $2.00, $3.00, $4.00 and $5.00, respectively. Exercise price is the market price at issue, with a term of five years. Includes $48,000 annual allowance for housing in Shanghai, PRC for Mr. Langley and his family and $22,000 educational expense for family members. Pursuant to October 1, 1999 agreement for five year options (from vesting) at market as of September 1, 1999, subject to the following vesting schedule: 50,000 at 9-1-99; 50,000 at 9-1-00; 50,000 at 9-1- 01; 50,000 at 9-1-02. $65,000 bonus paid in quarterly installments for one year with review thereafter. All options have an exercise price at market, when issued. Options for 50,000 issued as signing bonus on November 27, 2000; 50,000 to be issued on 5-31-01; 50,000 on 5-31-02;and 50,000 on 5-31-03. Options have a five year term from issuance. Incentive options for 127,500 shares of common stock of Bravo!. If exercised now, the common stock underlying these options represents 15% of the issued and outstanding common stock of Bravo!. Mr. Guiliano receives from $5,000 to $30,000 for each dairy signed to participate in Bravo!'s Looney Tunes(TM) branded milk production program, depending upon the size of the dairy. Mr. Guiliano's compensation is an expense of Bravo!. Salary deemed paid to Mr. Beech for expense accounting purposes only. These options were granted to Tamarind Management, Ltd., an affiliate of Mr. Downes.
52 Option grant table 1999 and 2000
Underlying Percentage Per Share Expiration Name & Position Common of Total Exercise $ Date - ---------------------------------------------------------------------------- 1999 - ---- Stephen Langley 200,000 88.88% market at 5 years from Chief Operating 12-1-99($1.10) vesting Officer (China) Nancy Yuan 25,000 11.12% market at 9-12-04 Chief Financial 12-1-99 ($1.10) Officer (China) 2000 - ---- Michael Edwards 50,000 100% market at 5 years from Sales VP 11-27-00($0.50) vesting
Aggregated option exercises in fiscal 1998, 1999 and 2000 None of the named executive officers exercised any stock options during fiscal 1998,1999 or 2000. The following table provides information on the value of such officers' unexercised options at December 31, 2000. Aggregated 1999 and 2000 Fiscal Year End Option Value Table
Securities Underlying Value of "In The Money" Name & Position Unexercised Options Unexercised Options (1) - --------------- --------------------- ----------------------- Roy G. Warren 410,914 $-0- Stephen Langley 50,000 (150,000 unexercisable) $-0- Michael Edwards 50,000 (150,000 unexercisable) $-0- Nancy Yuan 25,000 $-0- Charles Beech 510,914 $-0- Paul Downes (2) 1,383,705 $-0- On December 31, 1999 and 2000, our unrestricted common stock was quoted on the NASD Over The Counter Electronic Bulletin Board at a closing price of $0.81 and $0.2656, respectively; the reported dollar values represent the "in-the money" value of the options listed as of each year end. These options were granted to Tamarind Management, Ltd., an affiliate of Mr. Downes.
Compensation of Directors Directors were compensated for their travel expenses to and from board of directors' meetings in 1998, 1999 and 2000. There were four in person meetings and eleven telephonic meetings of the board in 1998, two in person meetings and eleven telephonic meetings of the board in 1999 and three in person meetings and five telephonic meetings of the board in 2000. 53 Employment contracts * Stanley Hirschman, our Chairman of the Board We have a month to month contract with Mr. Hirschman with monthly compensation set at $7,500 for the six month period commencing September 1, 2000. During his employment, Mr. Hirschman also will receive three year incentive options for an additional 400,000 shares in tranches of 100,000 as the public trading price for our stock attains certain pre-determined levels. The exercise price for these options will track the market price for our common stock when granted. * John McCormack, our President and Chief Operating Officer We have a two year contract with Mr. McCormack commencing December 1, 2000, at an annual base salary of $180,000. Mr. McCormack will receive 100,000 shares of our common stock as a signing bonus. During his employment, he will receive five year incentive options for an additional 500,000 shares in tranches of 100,000 as the public trading price for our stock attains certain pre-determined levels. The exercise price for these options will track the market price for our common stock when granted. * Michael Edwards, our Vice President for Sales We have a three year contract with Mr. Edwards commencing June 1, 2000, at an annual base salary of $110,000 plus a $65,000 one year bonus, payable quarterly. Mr. Edwards received five year options for 50,000 shares of our common stock at an exercise price of $0.69 per share as a signing bonus. He will receive five year options for an additional 150,000 shares in three annual tranches of 50,000, commencing May 1, 2001. These additional options will have an exercise prices which track the market price for our common stock when granted. * Nancy Yuan, Chief Financial Officer for our Chinese operations through mid 2000 and presently Comptroller for our overall US operations Ms. Yuan has a five year contract dated December 1, 1999 and effective September 13, 1999, at a base annual salary of $40,000, with an annual bonus of $5,000 in the first year. Ms. Yuan's employment agreement calls for her receipt of one time five year stock options for 25,000 shares at an exercise price of $1.12 per share. * Stephen Langley, Chief Operating Officer (General Manager) of China Premium (Shanghai), our wholly owned Chinese subsidiary Mr. Langley has a five year contract dated December 1, 1999 and effective September 1, 1999, at a base annual salary of $75,000, with a quarterly bonus of $7,500 in the first year. In subsequent years, Mr. Langley's bonus is performance based. In addition, Mr. Langley receives a $48,000 annual housing allowance and a $22,000 education allowance for his family. Mr. Langley's employment agreement calls for his receipt of five year stock options for 200,000 shares at an exercise price of $1.12 per share. These options are in four equal tranches of 50,000 with vesting over a three year period. 54 * Anthony Guiliano, President and Chief Operating Officer of our Bravo! Foods subsidiary Mr. Guiliano has a five year contract with our Bravo! subsidiary, dated November 2000 and effective July 1, 2000. Mr. Guiliano receives a base salary of $120,000 plus an annual bonus of $30,000, payable quarterly, and incentive options for 127,500 shares of the common stock of Bravo!. If exercised now, the common stock underlying these options represents 15% of the issued and outstanding common stock of Bravo!. Mr. Guiliano receives from $5,000 to $30,000 for each dairy signed to participate in Bravo!'s Looney Tunes(TM) branded milk production program, depending upon the size of the dairy. Mr. Guiliano's compensation is an expense of Bravo!. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE We have not had any changes in or disagreements with our independent accountants. 55 CHINA PEREGRINE FOOD CORPORATION ____________________________ FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999 _____________________________ F-1 China Peregrine Food Corporation Index to Financial Statements Report of Independent Certified Public Accountants F-3 Financial Statements Balance Sheets F-4 Statements of Operations and Comprehensive Loss F-6 Statement of Shareholders' Equity F-7 Statements of Cash Flows F-10 Summary of Accounting Policies F-13 Notes to Financial Statements F-17 F-2 Report of Independent Certified Public Accountants To the Board of Directors China Peregrine Food Corporation We have audited the accompanying balance sheets of China Peregrine Food Corporation (a Delaware corporation) as of December 31, 1998 and 1999, and the related statements of operations and comprehensive loss, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China Peregrine Food Corporation as of December 31, 1998 and 1999, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1999 in conformity with generally accepted accounting principles in the United States. As discussed in the summary of accounting policies, the financial statements for the year ended December 31, 1998 have been restated to reflect the accounting for the Company's investment in its foreign subsidiaries using the equity method of accounting. Los Angeles, California February 25, 2000 Except for Note 9 as to which the date is April 7, 2000 F-3 CHINA PEREGRINE FOOD CORPORATION BALANCE SHEETS
December 31, ---------------------------- 1998 1999 ---------------------------- (Restated) Assets Current assets: Cash and cash equivalents $ 305,233 $ 16,854 Subscription receivable 235,000 - Prepaid expenses 37,532 18,196 ---------------------------- Total current assets 557,765 35,050 Furniture and equipment, net 89,198 131,264 Investment in and advance to GFP (Note 1) 164,017 - Investment in and advance to Meilijian (Note 2) 1,582,578 1,246,422 Goodwill 293,096 229,148 License rights (Note 3) - 214,286 Deposits 5,000 10,000 ---------------------------- Total assets $ 2,711,654 $ 1,866,170 ============================ F-4 Liabilities and Shareholders' Equity Current liabilities: Current portion of note payable (Note 3) $ 58,104 $ 277,741 Accrued liabilities 245,151 250,833 ---------------------------- Total current liabilities 303,255 528,574 Dividends payable 200,667 370,039 Note payable, less current portion (Note 3) 192,741 127,500 ---------------------------- Total liabilities 696,663 1,026,113 ---------------------------- Commitments and contingencies (Note 6) Shareholders' Equity (Notes 7 and 8 ): Series A convertible preferred stock, par value $0.001 per share, 500,000 shares authorized, 500,000 shares issued and outstanding 500 500 Series B convertible, 9% cumulative, and redeemable preferred stock, stated value $1.00 per share, 1,260,000 shares authorized, 1,260,000 shares issued and outstanding, redeemable at $1,260,000 1,260,000 1,260,000 Series C convertible, 8% cumulative and redeemable preferred stock, stated value $3.00 per share, 83,334 and 14,904 shares issued and outstanding 250,000 44,713 Series D convertible, 6% cumulative and redeemable preferred stock, stated value $10.00 per share, 80,250 shares issued and outstanding at December 31, 1999 - 762,500 Series E convertible, 6% cumulative and redeemable preferred stock, stated value $2.50 per share, 330,000 shares issued and converted into common stock, 0 shares outstanding at December 31, 1999 - - Preferred stock - Series C subscribed 135,000 - Common stock, par value $0.001 per share, 20,000,000 shares authorized, 7,717,957 and 10,278,129 shares issued and outstanding 7,718 10,278 Common stock subscribed 100,000 - Additional paid-in capital 7,781,062 11,256,952 Accumulated deficit (7,385,026) (12,360,537) Accumulated other comprehensive loss - translation adjustment (134,263) (134,349) ---------------------------- Total shareholders' equity 2,014,991 840,057 ---------------------------- Total liabilities and shareholders' equity $ 2,711,654 $ 1,866,170 ============================
See accompanying summary of accounting policies and notes to financial statements. F-5 CHINA PEREGRINE FOOD CORPORATION STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years ended December 31, --------------------------- 1998 1999 --------------------------- (Restated) Revenue $ - $ - Cost of sales - - --------------------------- Gross margin - - General and administrative expense 1,260,588 2,622,788 --------------------------- Loss from operations (1,260,588) (2,622,788) Other (income) expense: Interest (income) expense, net (14,552) 15,539 Loss on investment in GFP 972,062 1,034,606 Loss on investment in Meilijian 149,198 344,401 Loss attributed to acquiring 2.4% equity interest in GFP 94,533 - --------------------------- Operating loss (2,461,829) (4,017,334) Income taxes (Note 5) - - --------------------------- Net loss (2,461,829) (4,017,334) Dividends accrued for Series B preferred stock 113,400 113,400 Dividends accrued for Series C preferred stock 85,551 13,775 Dividends accrued for Series D preferred stock - 714,863 Dividends accrued for Series E preferred stock - 116,139 --------------------------- Net loss applicable to common shares $(2,660,780) $(4,975,511) =========================== Loss per share $ (0.41) $ (0.67) =========================== Weighted average number of common shares outstanding 6,430,337 7,422,965 =========================== Comprehensive loss and its components consist of the following: Net loss $(2,660,780) $(4,975,511) Foreign currency translation adjustment 28,414 (86) --------------------------- Comprehensive loss $(2,632,366) $(4,975,597) ===========================
See accompanying summary of accounting policies and notes to financial statements F-6 CHINA PEREGRINE FOOD CORPORATION STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
Accumulated Preferred Stock Common Stock Other --------------------- ----------------- Additional Accumulated Stock Comprehensive Shares Amount Shares Amount Capital Deficit Subscribed Loss Total --------------------------------------------------------------------------------------------------------- Balance, January 1, 1998 (Restated) 1,760,000 $1,260,500 5,289,000 $ 5,289 $ 4,429,110 $ (4,724,246) $ - $(162,677) $ 807,976 Issuance of stock in exchange for stock promotion service 50,000 50 49,950 50,000 Issuance of stock to acquire 2.4% interest in GFP 120,000 120 119,880 120,000 Issuance of stock to in exchange for furniture purchases 5,272 5 11,857 11,862 Rule 506 Regulation D issuance 557,000 557 1,391,943 1,392,500 Issuance of stock to acquire 52% interest in Meilijian 1,531,685 1,532 1,530,153 1,531,685 Issuance of stock for warrants exercised 165,000 165 164,835 100,000 265,000 Issuance of Series C preferred to Utah Resource International, Inc. 83,334 250,000 250,000 Deemed dividends for Series C preferred stock 83,334 (83,334) - Stock subscribed 135,000 135,000 Series B preferred stock dividends (113,400) (113,400) Series C preferred stock dividends (2,217) (2,217) Net loss (2,461,829) (2,461,829) Translation adjustments 28,414 28,414 -------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 1,843,334 1,510,500 7,717,957 7,718 7,781,062 (7,385,026) 235,000 (134,263) 2,014,991 Conversion from Series C to Common (2,393) (7,179) 7,957 8 7,171 - - - - Conversion from Series C to Common (1,592) (4,780) 6,002 6 4,774 - - - - Conversion from Series C to Common (4,320) (12,960) 20,000 20 12,940 - - - - Conversion from Series C to Common (4,320) (12,960) 20,000 20 12,940 - - - - Section 4(2) private offering 50,000 135,000 100,000 100 99,900 - (235,000) - - Conversion from Series C to Common (50,000) (135,000) 150,000 150 134,850 - - - - Conversion from Series C to Common (15,313) (45,939) 40,000 40 45,899 - - - - Section 4(2) private offering - - 25,000 25 24,975 - - - 25,000 Section 4(2) private offering - - 290,000 290 289,710 - - - 290,000 Issuance of Preferred Stock Series D, Rule 506 50,000 470,000 - - - - - - 470,000 Issuance of Preferred Stock Series D for finder fees 3,500 35,000 - - (35,000) - - - - Issuance of stock for warrants exercised - - 30,000 30 29,970 - - - 30,000 Deemed dividends recognized for Series D - - - - 123,462 (123,462) - - - F-7 Cancellation of common stock S 4(2) offering - - (105,000) (105) (104,895) - - - (105,000) Issuance of Preferred Stock Series D, Rule 506 25,000 240,000 - - - - - - 240,000 Issuance of Series D for issuance cost 1,750 17,500 - - (17,500) - - - - Issuance of stock for warrants exercised - - 53,334 53 53,281 - - - 53,334 Section 4(2) private offering - - 145,000 145 144,855 - - - 145,000 Deemed dividends recognized for Series D, 1st Tranche - - - - 411,538 (411,538) - - - Compensation cost for issuance of stock options - - - - 48,563 - - - 48,563 Section 4(2) private offering - - 117,200 117 117,083 - - - 117,200 Issuance of stock for consulting services - - 1,999 2 1,998 - - - 2,000 Deemed dividends recognized for Series D 2nd Tranche - - - - 106,485 (106,485) - - - Issuance of stock for consulting services - - 4,084 4 5,996 - - - 6,000 Conversion from Series C to Common (7,673) (23,019) 20,000 20 22,999 - - - - Issuance of Preferred stock Series E, Rule 506 100,000 215,746 - - - - - - 215,746 Deemed dividends recognized for Series E, 1st Tranche - - - - 62,552 (62,552) - - - Deemed dividends recognized for Series D, 2nd Tranche - - - - 36,017 (36,017) - - - Conversion from Series E to Common (60,000) (129,448) 104,896 105 129,343 - - - - Issuance of stock for consulting services - - 1,082 1 1,999 - - - 2,000 Conversion from Series E to Common (40,000) (86,298) 69,444 69 86,229 - - - - Section 4(2) private offering - - 65,000 65 64,935 - - - 65,000 Issuance of Preferred stock Series E, Rule 506 30,000 64,724 - - - - - - 64,724 Deemed dividends recognized for Series E, 2nd Tranche - - - - 26,250 (26,250) - - - Issuance of stock for consulting services - - 1,274 2 1,998 - - - 2,000 Conversion from Series E to Common (10,000) (21,575) 20,000 20 21,555 - - - - Issuance of Preferred stock Series E, Rule 506 60,000 129,448 - - - - - - 129,448 Deemed dividends recognized for Series E, 3rd Tranche - - - - 22,500 (22,500) - - - Issuance of Preferred stock Series E, Rule 506 40,000 86,298 - - - - - - 86,298 Issuance of Preferred stock Series E, Rule 506 100,000 215,746 - - - - - - 215,746 Issuance of stock for consulting services - - 1,163 1 1,999 - - - 2,000 Conversion from Series C to Common (6,961) (20,883) 30,000 30 20,853 - - - - Conversion from Series E to Common (180,000) (388,340) 360,000 360 387,980 - - - - Conversion from Series E to Common (40,000) (86,294) 80,000 80 86,214 - - - - Issuance of stock for exercise of S-8 options - - 250,000 250 124,750 - - - 125,000 Issuance of stock for exercise of S-8 options - - 250,000 250 124,750 - - - 125,000 Issuance of stock for exercise of S-8 options - - 266,000 266 187,234 - - - 187,500 F-8 Conversion from Series C to Common 25,858 (77,574) 134,000 134 77,440 - - - - Issuance of stock for consulting services - - 1,737 2 1,998 - - - 2,000 Accrued dividends for Series B - - - - - (113,400) - - (113,400) Accrued dividends for Series C - - - - - (13,775) - - (13,775) Accrued dividends for Series D - - - - - (37,361) - - (37,361) Accrued dividends for Series E - - - - - (4,837) - - (4,837) Compensation related to issuance of stock options and warrants - - - - 467,300 - - - 467,300 Net loss - - - - - (4,017,334) - - (4,017,334) Translation adjustment - - - - - - - (86) (86) -------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 1,855,154 $2,067,713 10,278,129 $10,278 $11,256,952 $(12,360,537) $ - $(134,349) $ 840,057 ========================================================================================================
See accompanying summary of accounting policies and notes to financial statements. F-9 CHINA PEREGRINE FOOD CORPORATION STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents
Years ended December 31, ---------------------------- 1998 1999 ---------------------------- (Restated) Cash flows from operating activities: Net loss $(2,461,829) $(4,017,334) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 46,707 175,261 Issuance of common stock for issuance cost - 6,000 Compensation for stock option - 515,863 Stock issuance in exchange for services 50,000 10,000 Investment loss in GFP 1,038,397 1,034,606 Investment loss in Meilijian 148,984 344,487 Increase (decrease) in cash from changes in: Prepaid expenses 65,452 19,336 Accounts payable (1,768) (5,000) Accrued liabilities 132,928 5,681 ---------------------------- Net cash used in operating activities (981,129) (1,911,100) ---------------------------- Cash flows from investing activities Purchase of equipment and machinery (5,109) (67,666) Advances to GFP (527,779) (870,589) Advance to Meilijian - (8,330) Acquisition of investment in Meilijian (236,980) - ---------------------------- Net cash used in investing activities: (769,868) (946,585) ---------------------------- Cash flows from financing activities: Repayment of note payable (31,790) (145,604) Proceeds of Series C preferred stock 250,000 - Proceeds of Series D preferred stock - 710,000 Proceeds of Series E preferred stock - 711,962 Proceeds from issuance of common stock 1,392,500 537,200 Proceeds from stock subscription - 235,000 Proceeds from warrants and options exercised 165,000 520,834 ---------------------------- Net cash provided by financing activities 1,775,710 2,569,392 ---------------------------- Net increase (decrease) in cash and cash equivalents 24,713 (288,293) Effect of changes in exchange rate on cash 28,414 (86) Cash and cash equivalents, beginning of year 252,106 305,233 ---------------------------- Cash and cash equivalents, end of year $ 305,233 $ 16,854 ============================ Cash paid during the year: Interest $ 11,707 $ 21,646 ============================
F-10 CHINA PEREGRINE FOOD CORPORATION STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents Supplemental Disclosure of Non-Cash Activities: In January 1998, the Company issued 50,000 shares of common stock at $1.00 per share in exchange for stock promotion services provided by a capital service company. On February 2, 1998, the Company issued 5,272 shares of common stock at $2.25 per share to an individual in exchange for his services in connection with the furnishing of the Company's corporate office. On February 19, 1998 the Company issued 120,000 shares of common stock at $1.00 per share to Amer-China Partners, Limited (ACPL) pursuant to a signed agreement dated October 1, 1997 to acquire all of ACPL's interest and rights (2.4%) in and to the Green Food Peregrine Children's Food Co. Ltd. On May 2, 1998 as part of a Rule 506 Regulation D offering, the Company issued 2,000 shares of common stock at $2.50 per share in exchange for accounting services provided by two existing shareholders. On August 8, 1998 the Company issued 1,531,685 shares of common stock at $1.00 per share as consideration for 52% of American Flavor China's all interest in and rights to Hangzhou Meilijian Dairy Products Co. Ltd. On December 29, 1998, the Company sold 50,000 shares of Series C preferred stock to an institutional investor at $3.00 per share with 450,000 warrants attached at an exercise price of $1.00 per shares expiring at April 30, 1999. Accordingly, the Company recorded a stock subscription of $135,000, net of expense of $15,000 as of December 31, 1998. The Company received the proceeds of $135,000 on January 4, 1999. In October 1998, the Board of Directors of the Company decided to reduce the exercise price of warrants issued during the Rule 504, Regulation D offering in 1997 from $5.00 to $1.00. Subsequently, certain holders of 265,000 warrants exercised their warrants at $1.00 per share. The Company issued 165,000 shares of common stock in December and recorded $100,000 of stock subscribed as of December 31, 1998, which has been fully collected in February 1999. An institutional holder of Preferred Stock Series C converted 27,938 shares into 93,959 shares of common stock from January 4, 1999 through to February 23, 1999. An institutional holder of Preferred Stock Series C converted a total of 50,000 shares of Preferred Stock Series C into 150,000 shares of common stock on February 18, 1999 and February 19, 1999, respectively, (25,000 shares per each conversion) During March 1999 the Company issued 3,500 shares of Preferred Stock Series D at $10 per share to pay the relevant finder's fee for the first tranche of 50,000 shares of Preferred Stock Series D. During April 1999, the Company issued 1,750 shares of Preferred Stock Series D at $10 per share to pay the relevant finder's fee for the second tranche of 25,000 shares of Preferred Stock Series D. F-11 During June 1999, the Company issued 1,999 shares of common stock at $1 per share in exchange for $2,000 of consulting fees and 4,084 shares of common stock at approximately $1.47 of market price in exchange for $6,000 of consulting fees with the same consulting service provider. During June 1999, the Company signed stock option agreements with five non- employees, who had provided bookkeeping, research and organization services to the Company, for a total of 55,000 restrictive shares of common stock. These option agreements contain an exercise price of $1 per share and expire in five years. Accordingly, the Company recognized non-employee compensation cost of $48,563. During July 1999, an institutional holder of Preferred Stock Series C converted 7,673 shares into 20,000 shares of common stock. During July 1999, four holders of Preferred Stock Series E converted 60,000 shares into 104,896 shares of common stock. During August 1999, the Company issued 1,082 shares of common stock at a market price of $1.85 per share in exchange for $2,000 of consulting fees and 1,274 shares of common stock at a market price of $1.57 per share in exchange for a further $2,000 of consulting fees with the same service provider. Four accredited and sophisticated investors converted a total of 50,000 shares of Preferred Stock Series E into 89,444 shares of common stock on August 3, 1999 (40,000 shares), and August 23, 1999 (10,000 shares), respectively. During October 1999, an institutional holder of Preferred Stock Series C converted 6,961 shares into 30,000 shares of common stock. During October 1999, four holders of Preferred Stock Series E converted 220,000 shares into 440,000 shares of common stock. During November 1999, an institutional holder of Preferred Stock Series C converted 25,858 shares into 134,000 shares of common stock. See accompanying summary of accounting policies and notes to financial statements. F-12 CHINA PEREGRINE FOOD CORPORATION SUMMARY OF ACCOUNTING POLICIES Basis of Presentation and Restatement China Peregrine Food Corporation (formerly Shakespeare Holding, Inc.) (the Company) was incorporated under the laws of the State of Delaware on April 26, 1996. Shakespeare Holdings, Inc. was a shell company without any substantial assets and operating activities until it merged with China Peregrine Enterprises, Ltd. in March, 1997 and the Company changed to its current name. In February, 1997, the Company issued 25,000 shares of common stock to acquire a 100% equity interest in Manor Products Corp. (Manor), a Delaware company, established on January 26, 1996. Manor was a shell company with 331 shareholders. On March 5, 1997, the Company issued 1,040,000 shares of its common stock in exchange for a 100% equity interest in China Peregrine Enterprise, Limited (CPEL). CPEL was a Texas limited partnership, which was created for the sole purpose of controlling the operation of a joint venture in Shanghai, China known as Green Food Peregrine Children's Food Co. Ltd. Green Food Peregrine Children's Food Co. Ltd. (GFP) is a foreign investment equity joint venture with registered capital of US$5 million and established under the law of People's Republic of China on July 3, 1993. The Company accounted for 67.6%, China National Green Food Corporation accounted for 30%, and Amer-China, an Illinois limited partnership, accounted for 2.4% of the GFP's equity interest as of December 31, 1997. In February 1998, the Company acquired the 2.4% of equity interest owned by Amer-China in GFP in exchange for 120,000 shares of the Company's common stock at $1.00 per share. On May 2, 1998, the Company approved and ratified an agreement with the China National Green Food Corporation to satisfy the need for additional capital for GFP by the contribution of $1,500,000 by the Company over the next 18 months. This contribution will constitute an increase in the registered capital in GFP attributed to the Company and a commensurate increase in the equity holding of the Company in GFP from 70% (after the approval of the Company's acquisition of ACPL's equity interest) to 76.92%. On June 18, 1998, the Company entered into a definitive agreement with American Flavor China, Inc. a U.S. based entity to acquire its 52% equity interest in Hangzhou Meilijian Dairy Products, Co. Ltd. (HMDP). The acquisition transaction was effective on August 1, 1998. The terms of this acquisition are as follows: 1) to assume $285,637 of debt of American Flavor China, Inc., 2) to pay cash of $210,000, and 3) to issue 1,531,685 shares of the Company's common stock at $1 per share. As a result of this acquisition transaction, the Company recognized goodwill of $319,741, which will be amortized over a period of five years on a straight-line basis. The Company's financial statements for the year ended December 31, 1998 have been restated. Prior financial statements were prepared on a consolidation basis whereby the Company consolidated GFP and Meilijian. Subsequent to issuing the 1998 financial statements the Company determined that the provisions of SFAS No. 94 and EITF No. 96-16 dictated that the Company did not have control of these entities. Accordingly, the Company changed the consolidation approach to the equity method to account for its investment in and advance to GFP and Meilijian. The restatement did not have an impact on the previously reported net loss for 1998 and shareholders' equity at December 31, 1998. The financial statements for the year ended December 31, 1999 were prepared based on the equity method. On January 3, 2000, the Company commenced to terminate its interest in GFP. Accordingly, the Company wrote off its investment in and advance to GFP as of December 31, 1999. F-13 As shown in the accompanying financial statements, the Company has suffered operating losses since inception and has an accumulated deficit of $7,385,026 and negative working capital at December 31, 1999. Management plans to improve gross profit margins in its Chinese joint venture and obtain additional financing. While there is no assurance that funding will be available or that the Company will be able to improve its margins, the Company is continuing to actively seek equity and/or debt financing. No assurances can be given that the Company will be successful in carrying out its plans. See Subsequent Events for fund raising details at Note 9. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Furniture and Fixtures Furniture and fixtures are stated at cost. Depreciation is computed primarily utilizing the straight-line method over a period of five years. Maintenance, repairs and minor renewals are charged directly to expenses as incurred. Additions and betterment to property and equipment are capitalized. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included in the statement of income. Goodwill Goodwill represents the excess of acquisition cost over the net assets acquired in business combinations in 1998. Goodwill is amortized on a straight line basis over five years. Periodically, the Company reviews the recoverability of goodwill as required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The measurement of possible impairment is based primarily on the undiscounted future operating cash flows without interest charges of the acquired entity over the remaining amortization period. Based upon its most recent analysis, the Company believes that no material impairment exists at December 31, 1998. The assessed recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. The amortization expense of $26,645 and $63,948 was incurred for the years ended December 31, 1998 and 1999, respectively. Use of Estimates The preparation of financial statements in conformity with U.S. 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Among the more significant estimates included in these financial statements are the estimated allowance for doubtful accounts receivable and the deferred income tax asset allowance. Actual results could differ from those estimates. F-14 Fair Value of Financial Instruments The carrying amount of cash, accrued liabilities and notes payable are reasonable estimates of their fair value because of the short maturity of these items. The carrying amounts of the Company's notes payable approximate fair value because the interest rates on these instruments are similar to the debt with the same maturity. Income Taxes The Company accounts for income taxes using the liability method, which requires an entity to recognize deferred tax liabilities and assets. Deferred income taxes are recognized based on the differences between the tax bases of assets and liabilities and their reported amounts in the financial statements which will result in taxable or deductible amounts in future years. Further, the effects of enacted tax laws or rate changes are included as part of deferred tax expenses or benefits in the period that covers the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized. Accounting for the Impairment of Long Lived Assets and of the long-lived Assets to Be Disposed of Statement of the Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed Of" (SFAS 121) establishes new guidelines regarding when impairment losses on long-lived assets, which include plant and equipment, and certain identifiable intangible assets, should be recognized and how impairment losses should be measured. The Company has adopted this accounting standard and its effects on the financial position and the results of operations were immaterial. Earnings (Loss) Per Share Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). The statement replaces the calculation of primary and fully diluted earnings (loss) per share with basic and diluted earnings (loss) per share. Basic earnings (loss) per share includes no dilution and is computed by dividing income (loss) available to common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per share reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted earnings (loss) per share. For the years ended December 31, 1998 and 1999, total stock options and stock warrants of 4,945,867 and 4,263,533 were not included in the computation of diluted earnings per share because their effect was antidilutive. Stock-based Compensation The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" (SFAS No. 123). The Company adopts the intrinsic value method of accounting for employee stock options and disclose the pro forma impact on net income and earnings per share as if the fair value based method had been applied. For equity instruments, including stock options issued to non-employee, including directors, the fair value of the equity instruments or the fair value of the consideration received, whichever is more readily determinable, is used to determine the value of services or goods received and the corresponding charge to operations. F-15 Comprehensive Income (Loss) During the year ended January 1, 1997 the Company adopted Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income," ("SFAS 130") issued by the FASB is effective for financial statements with fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting and presentation of comprehensive income (loss) and its components in a full set of general-purpose financial statements. The Company has chosen to report comprehensive income (loss) in the statements of operations. Comprehensive income (loss) is comprised of net income and all changes to stockholders' equity except those due to investments by owners and distributions to owners. Adoption of SFAS 130 did not have a material impact on the Company's financial position or results of operations. New Accounting Standards Not Yet Adopted Statement of Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133) requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS No. 133 was originally to be effective for fiscal years beginning after June 15, 1999. SFAS No. 137 has deferred the effective date of SFAS 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the Company has not entered into derivatives contracts either to hedge existing risks or for speculative purposes. Accordingly, the Company does not expect adoption of the new standard to affect its financial statements. Reclassifications Certain reclassifications have been made to the prior year consolidated financial statements to conform with the 1998 presentation. F-16 CHINA PEREGRINE FOOD CORPORATION NOTES TO FINANCIAL STATEMENTS Note 1. Investment in and Advance to GFP Investment in and advance to GFP consists of:
December 31, -------------------------- 1998 1999 -------------------------- Investment in GFP $ 3,500,000 $ 3,500,000 Advance to GFP 527,779 1,398,368 Equity interest in GFP's accumulated deficit (3,863,762) (4,898,368) -------------------------- Investment in and advance to GFP $ 164,017 $ - ==========================
From the inception of GFP, the Company recognized the corresponding GFP's comprehensive loss on its own book. The Company advanced to GFP approximately $527,779 in 1998 and approximately $870,529 in 1999, respectively. The Company picked up 70% of total loss in GFP in 1998, which was $972,062. The Company also wrote off the goodwill of $94,533, which resulted from the acquisition of 2.4% of equity interest in GFP in 1998. In later 1999, GFP substantially stopped its operation and the Company decided to terminate this joint venture. Accordingly, the Company wrote off the entire balance of investment in and advance to GFP as of December 31, 1999. Management of the Company believes that there are no further liabilities to be incurred by the Company as a result of the termination. Note 2. Investment in and Advance to Meilijian Investment in and advance to Meilijian consists of:
December 31, -------------------------- 1998 1999 -------------------------- Investment in Meilijian $ 2,731,831 $ 2,731,831 Advance to Meilijian 188,207 196,537 Equity interest in Meilijian's accumulated deficit and comprehensive loss (1,337,460) (1,681,946) -------------------------- Investment in and advance to Meilijian $ 1,582,578 $ 1,246,422 ==========================
The Company acquired the relevant assets, on August 1, 1998, through the acquisition transaction with America Flavor China, Inc. as follows:
Amount ------ Investment in Meilijian $2,652,000 Appropriated earnings 79,831 Accumulated deficit (807,853) Translation adjustment (380,624) Advance to Meilijian 188,207
The Company exchanged the relevant consideration with America Flavor China , Inc. See the details in Basis of Presentation. The Company also paid $26,980 for due diligence service, which consisted of a part of total consideration given for this acquisition transaction. In the period of five-month ended December 31, 1998, the Company recognized a loss in investment in Meilijian of $149,198, which were the 52% of loss for the five months in 1998. Accordingly, for the year ended December 31, 1999, the Company picked up a loss in investment in Meilijian of $344,401. F-17 Note 3. Note Payable During the process of acquiring from American Flavor China, Inc. the 52% of equity interest in and to Meilijian, the Company issued a promissory note to assume the American Flavor's debt owed to a supplier. The face value of that unsecured note was $282,637 at an interest rate of 10.5% per annum. The note has a monthly installment payment of $7,250 with 23 payments and a balloon payment of $159,862 on July 15, 2000. The note has a late charge article that the Company will be charged 3% of overdue principal and interest if the note holder does not receive the payment within 15 days of the monthly payment due date. As of December 31, 1999, the remaining balance is $192,741. On January 1, 1999, the Company entered into a license agreement (the Agreement) with a third party for the right to print cartoon characters, as defined in the Agreement, on its products. The Company agreed to pay 3% royalty fee of net invoiced price of each licensed article and a guaranteed consideration of $300,000 of which $45,000 was paid at inception of the Agreement, and the balance will be paid by 10 installments of $21,250 each quarter starting on September 30, 1999 and a balloon payment of $42,500 on or before March 31, 2002. The Company recorded license right of $300,000 and will amortize it over a period of three years. The Company recorded the $300,000 as note payable and the remaining balance as of December 31, 1999 is as follows:
Amount ------ Total Long-Term Note Payable $212,500 Less Current Portion 85,000 -------- Long-Term Note Payable $127,500 ========
Note 4. Related Party Transactions The Company advanced $527,779 in 1998 and $870,529 in 1999 to GFP, respectively, in accordance with the decision made in 1998 to increase $1,500,000 in the registered capital in GFP. However, the increase in registered capital was not approved by Chinese government agency as of December 31, 1999. The Company advanced $8,330 to Meilijian in 1999. Note 5. Income Taxes The Company is subject to Federal income tax. As the Company experienced operating losses for the years of 1998 and 1999, no income tax provision was provided for 1998 and 1999, respectively. The Company has gross deferred tax assets of approximately $702,000 and $1,439,000 at December 31, 1998 and 1999, respectively, relating principally to tax effects of net operating loss carryforwards. In assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that the assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable loss and projections for future taxable income over the periods in which the deferred tax items are recognizable for tax reporting purposes, it is more likely than not the Company will not realize the benefits of these differences at December 31, 1998 and 1999. As such, management has recorded a valuation allowance for the full amount of deferred tax assets at December 31, 1998 and 1999. F-18 At December 31, 1999, the Company has available net operating losses of approximately $4,233,000 for federal income tax purpose, to offset future taxable income, if any, and expire at various dates through the year 2014 for federal income tax. However, the utilization of net operating losses may be subject to certain limitations as prescribed by Section 382 of the Internal Revenue Code. Note 6. Commitments and Contingencies Commitments The Company leases office space at its corporate office in Florida under operating leases expiring in February, 2004. Future minimum rental payments required under operating leases as of December 31, 1999 are as follows:
Years ending December 31, Amount - ------------------------- ------ 2000 $ 43,042 2001 45,194 2002 47,453 2003 49,826 -------- $185,515 ========
Rental expense for the years ended December 31, 1998 and 1999 was approximately $66,724 and $42,000, respectively. In January 1999, Hangzhon United Dairy Company contributed $289,073 worth of plant and equipment to Meilijian which was recorded in Meilijian's book as paid in capital. The Company has agreed to contribute approximately additional $300,000 capital in cash. As of February 25, 2000 the Company has not paid the $300,000. Note 7. Shareholders' Equity 1998 On January 15, 1998, the Company issued 50,000 shares of common stock at $1.00 per share in exchange for stock promotion services provided by a capital service company. On February 2, 1998, the Company issued 5,272 shares of common stock at $2.25 per share to an individual in exchange for his services in connection with the furnishing of the Company's corporate office. On May 2, 1998, the Company issued 557,000 units (each unit composed of one share of common stock and one warrant to purchase one share of common stock) at a price of $2.50 per unit, pursuant to a private offering in accordance with the exemption provided in Rule 506, Regulation D. The net proceeds of this offering were $1,387,500. Among the 557,000 shares issued, 2,000 shares valued at $5,000 were issued in exchange for accounting service. The holders of such warrants are entitled to purchase, from time to time, up to 557,000 shares of common stock, par value $0.001 per share, at an exercise price of $1.00 per share, at any time after June 30, 1998 and through and including June 30, 2003. F-19 On February 19, 1998, the Company issued 120,000 shares of common stock at a price of $1.00 per share to Amer-China Partners, Limited (ACPL) pursuant to a signed agreement dated October 1, 1997 to acquire ACPL's entire interest and right (2.4%) in and to the Green Food Peregrine Children's Food Co. Ltd. On July 31, 1998, the Company issued 1,531,685 shares of common stock to American Flavor China, Inc. to acquire its 52% of equity interest in and to Hangzhou Meilijian Dairy Products Co. Ltd. at $1.00 per share. In October, 1998, the Board of Directors of the Company decided to reduce the exercise price of warrants issued during the Rule 504, Regulation D offering in 1997 from $5.00 to $1.00. Subsequently, certain holders of 265,000 warrants exercised their warrants at $1.00 per share. The Company issued 165,000 shares of common stock in December and recorded $100,000 of stock subscribed as of December 31, 1998, which was fully collected in February 1999. In November 19, 1998 the Company conducted a Rule 504 Regulation D offering to sell Series C preferred stock to two institutional investors in order for the Company to raise funds to increase its equity capital position in GFP in 1999. One institutional investor purchased on November 19, 1998 83,334 shares of Series C preferred stock at $3.00 per share with 83,334 warrants attached at an exercise price of $1.00 per share. The other institutional investor purchased on December 29, 1998 another 50,000 shares of Series C preferred stock at $3.00 per share with 450,000 warrants attached at an exercise price of $1.00 per share and the relevant proceeds were received on January 4, 1999. The total net proceeds of the Rule 504 offering was $385,000, net of offering expense of approximately $15,000. Each share of Series C preferred stock has the following features: 1) stated value of $3 per share, 2) dividend accrued at 8% per annum and payable in cash of common stock at the Company's option and upon conversion, at the option of the holder, or redemption, 3) no voting right, 4) convertible into common stock, and 5) redeemable at a price up to 110% of the stated value at the Company's option. The conversion feature is specified in the offering memorandum as follows: the number of shares of common stock issuable upon conversion of each share of Series C preferred stock shall equal (i) the sum of (A) the stated value per share and (B) at the holder's election accrued and unpaid dividends on such share, divided by (ii) the conversion price. The conversion price for each share of Series C convertible preferred stock in effect on any conversion date shall be the lesser of (a) 75% of the average per share market price of 10 trading days immediately before the date of the applicable holder conversion notice or (b) $3.00 per share, provided that, during the period from November 1, 1998 through February 29, 1999, the conversion price shall not be less than $1.00 for each share of underlying common stock (the price floor), which price floor shall be applicable to the aggregate number of issued and outstanding Series C preferred stock held by any one holder, as follows: 100% during November 1998; 75% during December 1998; 50% during January 1999; 25% during February 1999; and no applicable price floor thereafter. On November 19, 1998, the Company recognized a deemed dividend $83,334 because of the built-in beneficial conversion feature which allows each share of preferred stock to be converted into each share of common stock at 75% of market price at issuing date. As a result of implementing the accrued dividend policy for the Series C preferred stock, the Company recognized $2,217 of dividends payable to the 83,334 shares of Series C preferred stock. F-20 Three institutional investors purchased 16,250 shares, 16,250 shares, and 17,500 shares of Series D preferred stock at $10.00 per unit. Each share of Series D preferred stock entitles the holder to receive or accrue dividends at the rate of 6% simple interest per annum, which is payable in cash or common stock quarterly at the Company's option and to convert into common stock. The payment of dividends shall be made first to the Series D Convertible preferred stockholders before dividends or other distributions are made on any common stock, Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock. The Series D Preferred Stock has no voting rights and is redeemable, at the Company's option, at a price equal to the greater of (a) 120% of the stated value plus accrued dividends or (b) the closing bid price of common stock on the date the notice of redemption is given by the Company. The number of shares of common stock issuable upon conversion of each share of Series D Preferred Stock shall equal (i) the sum of (A) the Stated Value per share and (B) at the holder's election accrued and unpaid dividends on such share, divided by (ii) the conversion price. The conversion price shall be equal to the lessor of: (i) 100% of the average of the closing bid price of the Company's common stock for the trading day immediately preceding the date of issuance of the shares of Series D Preferred Stock to the holders, or (ii) 80% of the average of the three lowest closing bid prices for the 22 trading days immediately preceding the conversion of the respective shares of Series D Preferred Stock. The aggregate gross proceeds from selling these 50,000 units was $500,000, which the Company received on March 10, 1999, net of expense of $30,000. In addition, the three institutional investors have committed to invest additional $500,000, which will occur upon the completion of certain 1933 Act registration events as spelled out in the Subscription Agreement. The finder fees for this fund raising exercise were paid in the form of 3,500 shares of Series D Convertible preferred stock and 50,000 warrants to purchase the Company's common stock at an exercise price of $2.96 expiring at March 9, 2002. 1999 An institutional holder of Preferred Stock Series C converted 27,938 shares into 93,959 shares of common stock from January 4, 1999 through to February 23, 1999. In January 1999 the Company collected net proceeds of $135,000, net of issuance expenses of $15,000 and issued 50,000 shares of Preferred Stock Series C accordingly. An institutional holder of Preferred Stock Series C converted a total of 50,000 shares of Preferred Stock Series C into 150,000 shares of common stock on February 18, 1999 and February 19, 1999, respectively, (25,000 shares per each conversion). In March 1999 the Company collected proceeds of $30,000 which represented 30,000 warrants exercised at a price of $1.00 per share and issued 30,000 shares of common stock accordingly. These warrants were issued in November 1998, as part of the Company's Rule 504 offering of its Series C Convertible Preferred Stock. F-21 From January 1 to March 31, 1999 the Company conducted a private sale of its common stock and received total proceeds of $415,000 through issuing 415,000 share of common stock. Among $415,000 received, $105,000 were paid back to investors per their request for cancellation in April, 1999. Accordingly, 105,000 shares of common stock were cancelled. In March 1999, the Company conducted a Rule 506, Regulation D offering to issue 100,000 shares of its Series D Convertible Preferred Stock, with possible total gross proceeds of $1,000,000. The Company also issued 3,500 shares of the Series D Preferred Stock at a price of $10.00 per share to pay a finder's fee to a financial institution. On March 9, 1999, the Company issued 50,000 shares of the Series D Preferred Stock. The net proceeds of these 50,000 shares of Preferred Stock Series D was $470,000, net of $15,000 placement fee and $15,000 of legal expense. In line with the conversion feature embedded in Series D Preferred Stock, the Company recognized a total of $535,000 of deemed dividends among which $123,462 was recognized in the first grant and $411,538 was recognized in the second quarter of 1999. In April 1999, the Company issued 25,000 shares of Preferred Stock Series D at $10 per share. The net proceeds of this issuance were $240,000, net of $7,500 of placement fee and $2,500 legal expense. The Company also issued 1,750 shares of Series D Preferred Stock in exchange for a finder's fee at $10 per share. In line with the conversion feature embedded in Series D Preferred Stock, the Company recognized $106,485 of deemed dividends for the second tranche of 26,750 shares of Series D in the second quarter. During April, the Company issued 53,334 shares of common stock at $1 per share as the result of exercising 53,334 warrants related to the previous 83,334 shares of Series C Preferred Stock. During May and June, the Company conducted a private sale of its common stock and received total proceeds of $262,200 and issued 262,200 shares of common stock. During June 1999, the Company issued 1,999 shares of its common stock at a market price of approximately $1 per share in exchange of $2,000 consulting fee and 4,084 shares of common stock at a market price of approximate $1.47 per share in exchange for $6,000 of consulting fee with the same consulting service provider. During June 1999, the Company signed stock option agreements with five non- employee people, who had provided bookkeeping, research and organization services to the Company, for a total of 55,000 restrictive shares of common stock. These option agreements contain an exercise price of $1 per share and expire in five years. Accordingly, the Company recognized non-employee compensation cost of $48,563. During July 1999, an institutional holder of Preferred Stock Series C converted 7,672 shares into 20,000 shares of common stock. During July, August and September 1999, the Company conducted a private sale of its convertible Preferred Stock Series E and issued 330,000 shares in five tranches to investors at $2.50 per share. The net proceeds of this issuance were $711,962 net of $113,038 of finder's fee, legal and printing expenses. In line with the conversion feature embedded in Series E Preferred Stock, the Company recognized $62,552 of deemed dividends for the first tranche, $26,250 and $22,500 of deemed dividends for the F-22 second and third tranche respectively. The deemed dividends were not applicable for the fourth and fifth tranche respectively because the floor price of $1.25 was higher than the market price on the date of issuance for each tranche. The Series E Preferred Stock has the following features: The holders of Series E Convertible Preferred stock shall be entitled to convert such stock into the Company's common stock at any time subsequent to the issuance of such stock, subject to a one year "lockup" agreement entered into by the holders of such stock. The number of shares of common stock issuable upon conversion of each share of Series E Preferred Stock shall equal (i) the sum of (A) the Stated Value per share and (B) at the holder's election accrued and unpaid dividends on such share, divided by (ii) the conversion price. The conversion price shall be equal to the greater of: (i) $1.25 per share of common stock or (ii) 80% of the average of the closing bid prices for the 5 trading days immediately preceding the conversion of the respective shares of Series E Preferred Stock, but in no event shall the conversion price be greater than $2.50 per share of common stock. During July 1999, four accredited and sophisticated holders of Preferred Stock Series E converted 60,000 shares into 104,896 shares of common stock. During August 1999, the Company issued 1,082 shares of common stock at a market price of $1.85 per share in exchange for $2,000 of consulting fees and 1,274 shares of common stock at a market price of approximately $1.57 in exchange for a further $2,000 of consulting fees with the same service provider. Four accredited and sophisticated investors converted a total of 50,000 shares of Preferred Stock Series E into 89,444 shares of common stock on August 3, 1999 (40,000 shares), and August 23, 1999 (10,000 shares), respectively. During August the Company conducted a private sale of its common stock and received total proceeds of $65,000 and issued 65,000 shares of common stock. During September 1999, the Company issued 1,163 shares of common stock, at a market price of $1.72 per share, in exchange for $2,000 of consulting fee to a service provider. During October 1999, sixteen investors holding Convertible Preferred Stock Series E, converted a total of 220,000 shares of Preferred Stock Series E into 440,000 shares of common stock. An institutional holder of Preferred Stock Series C converted a total of 6,961 shares of Preferred Stock Series C into 30,000 shares of common stock on October 20, 1999. Sixteen shareholders of Preferred Stock Series E converted a total 220,000 shares of Preferred Stock Series E into 440,000 shares of common stock on October 29, 1999 (180,000 shares ) and on November 24, 1999 (40,000 shares). During October 1999, the Company signed stock option agreements with three non-employees who are to provide advisory and consulting services to the Company, for a total of 1,016,000 restrictive shares of common stock. These option agreements contain an exercise price of $0.50 per share for 516,000 options and an exercise price of $0.75 per share for 500,000 options. Accordingly, the Company has recognized a non-employee compensation cost of $467,300. 250,000 options were exercised at $0.50 per option on November 11, 1999, a further 250,000 were exercised on November 18, 1999 at $0.50 per option and 266,000 were exercised on November 23, 1999 at $0.75 per option of which 16,000 shares were in exchange for $12,000 of legal fee. F-23 On November 26, 1999 an institutional holder of Preferred Stock Series C converted a total of 25,858 shares of Preferred Stock Series C into 134,000 shares of common stock. During November 1999, the Company issued 1,713 shares of common stock, at a market price of $1.15 per share, in exchange for $2,000 of consulting fee to a service provider. Note 8. Stock Warrants and Options In 1997, the Company issued warrants for 975,000 shares of common stock, at an exercise price of $5.00 per share, as part of the units sold in the Rule 504, Regulation D limited public offering. These warrants may be exercised at any time after May 31, 1998, and from time to time thereafter through and including March 31, 1999. The Company also changed the exercise price for the 975,000 warrants issued in 1997 from $5.00 to $1.00. 165,000 warrants were exercised at $1.00 per share in December 1998. The remaining 810,000 warrants expired on March 31, 1999. During 1998 557,000 warrants for shares of common stock relating to a Rule 506 Regulation D offering were issued at an exercise price of $1.00 per share. These warrants had not been exercised as of December 31, 1999 and expire on June 30, 2003. During 1998, 553,334 warrants relating to series C Preferred Stock were issued. 83,334 warrants for shares of common stock were exercised on March 12, 1999 (30,000) and May 19, 1999 (53,334) respectively at an exercise price $1.00 per share. The remaining 450,000 warrants expired on April 30, 1999. During 1999 125,000 warrants relating to series D Preferred Stock were issued at an exercise price of $2.96 per share. These warrants expire during 2002, and had not been exercised at December 31, 1999. During 1999 231,000 warrants relating to series E Preferred Stock were issued. 33,000 of these warrants were issued at an exercise price of $2.75 per share, 165,000 were issued at an exercise price of $3.00 per share and 33,000 were issued at an exercise price of $5.00 per share. These options have expiration dates ranging from July 2001 through September 2004. None of these options had been exercised as of December 31, 1999. During June 1999, the Company signed stock option agreements with five non- employees, who had provided bookkeeping, research and organization services to the Company, for a total of 55,000 restrictive shares of common stock pursuant to Section 4(2) of the 1933 Act. These option agreements contain an exercise price of $1 per share and expire in five years. None of these options had been exercised by December 31, 1999. Using the Black Scholes option pricing model the Company determined that the fair value of each option granted was approximately $0.88. Accordingly, pursuant to SFAS No. 123 the Company recognized non-employee compensation cost of $48,563. The assumption used in the Black Scholes option pricing model in 1999 were as follows:
Year ended December 31, 1999 ----------------- Discount rate - bond yield rate 6.00% Volatility 42.65% Expected life 2 years Expected dividend yield -
F-24 During October 1999, the Company signed stock option agreements with three non-employees who are to provide advisory and consulting services to the Company, for a total of 1,016,000 restrictive shares of common stock pursuant to Section 4(2) of the 1933 Act. These option agreements contain an exercise price of $0.50 per share for 516,000 options and an exercise price of $0.75 per share for 500,000 options. These option agreements expire on October 17, 2000. In November 1999 766,000 options were exercised. A further 100,000 options were exercised in January 2000. Using the Black Scholes option pricing model the Company determined that the fair value of each option granted was approximately $0.46. Accordingly, pursuant to SFAS 123 the Company recognized a non-employee compensation cost of $467,300. The assumptions used in the Black Scholes option pricing model in 1999 were as follows:
Year ended December 31, 1999 ----------------- Discount rate - bond yield rate 5.45% Volatility 59% Expected life 1 year Expected dividend yield -
These warrants and stock option agreements are summarized as follows:
Warrants/ Grant Options Exercise Vesting Expiration Date Granted Price Period Date ---------------------------------------------------------------- Warrants issued in Rule 504 Regulation D offering 5/31/97 975,000 $1.00 12 months 3/31/99 Warrants exercised 12/15/98 (165,000) 1.00 None Warrants expired 3/31/99 (810,000) 1.00 Warrants issued in Rule 506, Regulation D offering 6/02/98 557,000 1.00 None 6/30/03 Warrants issued with Series C Preferred Stock 11/19/98 83,334 1.00 None 5/31/99 Warrants exercised 3/12/99 (30,000) 1.00 None Warrants exercised 5/19/99 (53,334) 1.00 Warrants issued with Series C Preferred Stock 12/29/98 450,000 1.00 None 4/30/99 Warrants expired 4/30/99 (450,000) 1.00 Warrants issued with Series D Preferred Stock 3/09/99 100,000 2.96 None 3/08/02 Warrants issued with Series D Preferred Stock 4/23/99 25,000 2.96 None 4/22/02 Warrants issued with Series E Preferred Stock 7/23/99 50,000 3.00 None 7/22/01 Warrants issued with Series E Preferred Stock 7/23/99 10,000 2.75 None 7/22/04 Warrants issued with Series E Preferred Stock 7/23/99 10,000 5.00 None 7/22/02 Warrants issued with Series E Preferred Stock 8/16/99 15,000 3.00 None 8/15/01 Warrants issued with Series E Preferred Stock 8/16/99 3,000 2.75 None 8/15/04 Warrants issued with Series E Preferred Stock 8/16/99 3,000 5.00 None 8/15/02 Warrants issued with Series E Preferred Stock 9/01/99 30,000 3.00 None 8/31/01 Warrants issued with Series E Preferred Stock 9/01/99 6,000 2.75 None 8/31/04 Warrants issued with Series E Preferred Stock 9/01/99 6,000 5.00 None 8/31/02 Warrants issued with Series E Preferred Stock 9/14/99 20,000 3.00 None 9/13/01 Warrants issued with Series E Preferred Stock 9/14/99 4,000 2.75 None 9/13/04 Warrants issued with Series E Preferred Stock 9/14/99 4,000 5.00 None 9/13/02 Warrants issued with Series E Preferred Stock 9/27/99 50,000 3.00 None 9/26/01 Warrants issued with Series E Preferred Stock 9/27/99 10,000 2.75 None 9/26/04 Warrants issued with Series E Preferred Stock 9/27/99 10,000 5.00 None 9/26/02 --------- Total outstanding warrants 913,000 ========= F-25 Agreement One 4/29/97 1,005,533 $1.00 None 4/28/02 Agreement Two 4/30/97 2,000,000 1.00 None 4/29/02 Agreement Three 10/1/97 25,000 1.00 None 9/30/02 Agreement Four 10/1/97 15,000 1.00 None 9/30/02 Agreement Five 6/15/99 20,000 1.00 None 6/14/01 Agreement Six 6/15/99 20,000 1.00 None 6/14/01 Agreement Seven 6/15/99 5,000 1.00 None 6/14/01 Agreement Eight 6/15/99 5,000 1.00 None 6/14/01 Agreement Nine 6/15/99 5,000 1.00 None 6/14/01 Stock options pursuant to S-8 registration 10/06/99 500,000 0.50 None 10/17/00 Stock options pursuant to S-8 registration 10/06/99 516,000 0.75 None 10/17/00 Options exercised 11/16/99 (250,000) 0.50 Options exercised 11/18/99 (250,000) 0.50 Options exercised 11/23/99 (266,000) 0.75 --------- Total options outstanding at December 31, 1999 3,350,533 =========
A summary of the status of the Company's stock options and warrants as of December 31, 1998 and 1999 with changes during the years then ended are presented below:
Weighted Average Exercise Shares Price ----------------------- Total warrants and options outstanding and exercisable at January 1, 1998 4,020,533 $ 1.00 Warrants/options granted (165,000) $ 1.00 Warrants/options exercised 1,090,334 $ 1.00 ---------------------- Total warrants and options outstanding and exercisable at December 31, 1998 4,945,867 $ 1.00 Warrants/options granted 1,427,000 $ 1.27 Warrants/options exercised (849,334) $(0.63) Warrants/options expired (1,260,000) $(1.00) ---------------------- Total warrants and options outstanding and exercisable at December 31, 1999 4,263,533 $ 1.16 ====================== Weighted average fair value of options and warrants granted during 1999 4,263,533 $ 1.16 ======================
F-26 The following table summarizes information about stock options and warrants outstanding at December 31, 1999:
Warrants/Options Outstanding Options Exercisable ---------------------------------------- ------------------------ Weighted Average Weighted Weighted Remaining Average Average Number Contractual Exercise Number Exercise Exercise Price Outstanding Life Price Exercisable Price - ---------------------------------------------------------------------------------------- $0.75 250,000 0.80 yrs. $0.75 250,000 $0.75 $1.00 3,100,533 2.32 yrs. $1.00 3,100,533 $1.00 $1.00 557,000 3.50 yrs. $1.00 557,000 $1.00 $2.75 33,000 4.66 yrs. $2.75 33,000 $2.75 $2.96 125,000 2.21 yrs. $2.96 125,000 $2.96 $3.00 165,000 1.66 yrs. $3.00 165,000 $3.00 $5.00 33,000 2.66 yrs. $5.00 33,000 $5.00 --------- --------- 4,263,533 2.38 yrs. $1.16 4,263,533 $1.16 ========= =========
Note 9. Subsequent Events On February 1, 2000, the Company amended its Rule 506 offering with respect to the Series D Preferred Stock originally offered on March 9, 1999 and April 23, 1999, respectively. Pursuant to this amended offering, the Company issued additional 50,000 shares of the Series D Preferred and warrants for 1,300,000 shares of common stock to the existing holders of the Company's Series D Preferred Stock. This amended offering resulted in net proceeds of $490,000, net of $10,000 of legal and issuance expenses. The Series D Preferred has a Stated Value of $10.00 per share and the same conversion feature disclosed before. The warrants for 1,300,000 shares of common stock have an exercise price of $0.625 per share and an expiration date of January 31, 2003. In connection with this sale, the Company issued 175,000 shares of its common stock to such holders to compensate them for the delay of this offering pursuant to the offering registration statements. These shares are valued at $0.75 per share in terms of the market value on February 1, 2000 for the Company's common stock and will give rise to a total expense of $131,000 which will be recorded in 2000. On February 7, 2000, the Company signed agreements with two non-employees in exchange for the graphic design and legal services provided by these two professionals to the Company, to issue a total of 131,314 shares of common stock pursuant to a 1933 Act Form S-8 registration statement which will be filed by the Company. The shares to be issued for these agreements are valued at $0.75 per share, which was the market value of the Company's common stock on February 7, 2000, the execution date of the agreements. The Company anticipates the filing of a Form S-8 with respect to these shares prior to May 1, 2000. F-27 On April 7, 2000, the Company closed a Rule 506, Regulation D exempt offering for 150,000 shares of Series F Convertible Preferred Stock, having a per share Stated Value of $10.00, and Warrants which entitle the holders of the Series F Preferred to purchase an aggregate of 3,000,000 shares of common stock. This offering resulted in net proceeds of $1,480,000, net of $20,000 of legal and issuance expenses. Each Preferred share is convertible to the common stock of the Company at a conversion price of $0.50 per common share, based upon the Stated Value divided by conversion price times the number of shares to be converted. The Series F Preferred have no voting rights or redemption features and no dividends rights beyond those attributable to the Company's common stock. Due to the beneficial conversion feature contained in the Series F Convertible Preferred Stock, the Company will record a deemed dividend of approximately $400,000 in 2000. The Warrants for 3,000,000 shares of common stock have an exercise price of $1.00 per share and are exercisable immediately for a period of three years. The Company can call 50% of Warrants if its common stock trades at 200% of the closing price of $0.75 per share on April 7, 2000 for 10 consecutive trading days and 100% of the Warrants if its common stock trades at 300% of the closing price of $0.75 per share on April 7, 2000 for 10 consecutive trading days. In addition, the Company issued a Warrant to a consultant in connection with this transaction, which entitles the holder to purchase an aggregate of 1,600,000 shares of common stock at an exercise price of $0.84 per share. The Warrant is exercisable immediately for a period of three years and has the same "call" provisions as the investor Warrants described above. This entire transaction provides for total potential proceeds of $5,844,000, based upon the issuance of a maximum of 7,600,000 shares of common stock underlying the Series F Preferred and the Warrants, at an average price per share of $0.77. The holders of the Preferred and the Warrants have certain registration rights for the resale of the Company's common stock underlying the Series F Convertible Preferred and the warrants. F-28 CHINA PREMIUM FOOD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, September 30, 1999 2000 ------------------------------ (Audited) (Unaudited) Assets Current assets: Cash $ 16,854 $ 86,012 Restricted cash - 86,000 Accounts receivable (Note 2) - 8,696 Note receivable (Note 3) - 209,654 Other receivable - 37,591 Advance to vendors - 81,201 Inventory - 81,379 Prepaid expenses 18,196 95,190 Deposits 10,000 10,000 ----------------------------- Total current assets 45,050 695,723 Property, plant and equipment, net 131,264 165,363 Investment in and advances to Meilijian, net 1,246,422 1,044,118 Goodwill 229,148 186,187 Licensing agreement, net 214,286 637,500 ----------------------------- Total assets $ 1,866,170 $ 2,723,891 ============================= Liabilities and Shareholders' Equity Current liabilities: Bank loan in Shanghai $ - $ 76,089 Note payable - International Paper (Note 4) 277,741 202,743 Note payable - Warner Brothers (Note 5) 127,500 620,000 Accounts payable and accrued liabilities 250,833 199,601 Dividends payable 370,039 219,558 ----------------------------- Total current liabilities 1,026,113 1,317,991 Commitments and contingencies Shareholders' Equity (Notes 6 and 7) Series A convertible preferred stock; par value $0.001 per share, 500,000 authorized, 500,000 shares issued and outstanding 500 - Series B convertible, 9% cumulative, and redeemable preferred stock; stated value $1.00 per share, 1,260,000 shares authorized, 1,260,000 and 242,559 shares issued and outstanding 1,260,000 242,559 Series C convertible,8% cumulative and redeemable preferred stock, stated value $3.00 per share , 47,723 and 0 shares issued and outstanding 44,713 - Series D convertible, 6% cumulative and redeemable preferred stock, stated value $10.00 per share, 80,250 and 109,000 shares issued and outstanding 762,500 1,048,158 Series F convertible, 6% cumulative and redeemable preferred stock, stated value $10.00 per share, 0 and 150,000 shares issued and outstanding - 1,393,653 Series G convertible, 7% cumulative and redeemable preferred stock, stated value $10.00 per share, 0 and 75,000 shares issued and outstanding - 662,453 Common stock; par value $0.001 per share, 20,000,000 shares authorized, 10,278,129 and 12,939,880 shares issued and outstanding 10,278 12,940 Additional paid-in capital 11,256,952 14,471,851 Accumulated deficit (12,360,537) (16,291,486) Translation adjustments (134,349) (134,228) ----------------------------- Total shareholders' equity 840,057 1,405,900 ----------------------------- Total liabilities and shareholders' equity $ 1,866,170 $ 2,723,891 =============================
See accompanying to consolidated financial statements. F-1 CHINA PREMIUM FOOD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 1999 2000 1999 2000 ----------------------------------------------------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Sales $ - $ 57,716 $ - $ 57,716 Cost of goods sold - 10,208 - 10,208 ----------------------------------------------------------- Gross profit - 47,508 - 47,508 Selling expense - 61,890 - 151,890 General and administrative expense 553,747 845,311 1,736,786 2,342,003 ----------------------------------------------------------- Loss from operations (553,747) (895,693) (1,736,786) (2,446,385) Other expense: Interest expense, net (7,343) (6,775) (12,567) (13,122) Loss on investment in GFP (217,898) - (825,502) - Loss on investment in Meilijian (87,325) (82,476) (165,560) (202,304) Other expense (income), net - (76,987) - (76,988) ----------------------------------------------------------- Loss before income taxes (866,313) (1,025,931) (2,740,415) (2,738,799) Income taxes - - - - ----------------------------------------------------------- Net loss (866,313) (1,025,931) (2,740,415) (2,738,799) ----------------------------------------------------------- Dividends accrued for Series B preferred stock (28,350) (5,458) (85,050) (39,266) Dividends accrued for Series C preferred stock (2,931) - (11,934) (833) Dividends accrued for Series D preferred stock (48,188) (16,350) (702,692) (548,455) Dividends accrued for Series E preferred stock 113,156) - (113,156) - Dividends accrued for Series F preferred stock - (22,500) - (444,255) Dividends accrued for Series G preferred stock - (13,125) - (159,292) ----------------------------------------------------------- Net loss applicable to common shareholders $(1,058,938) $(1,083,364) $(3,653,247) $(3,930,590) =========================================================== Loss per share $ (0.12) $ (0.08) $ (0.43) $ (0.34) =========================================================== Weighted average number of common shares outstanding 8,798,735 12,929,935 8,405,775 11,703,512 =========================================================== Comprehensive loss and its components: Net loss $ (866,313) $(1,025,931) $(2,740,415) $(2,738,799) Foreign currency translation adjustment (121) 22 (5,756) 121 ----------------------------------------------------------- Comprehensive loss $ (866,434) $(1,025,909) $(2,746,171) $(2,738,678) ===========================================================
See accompanying notes to consolidated financial statements. F-2 CHINA PREMIUM FOOD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
September 30, ---------------------------- 1999 2000 ---------------------------- (Unaudited) (Unaudited) Cash flows from operating activities Net loss $(2,740,415) $(2,738,799) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 129,896 199,145 Issuance of stock in exchange for services 12,000 118,486 Stock based compensation expense 48,563 52,500 Investment loss in GFP 825,502 - Investment loss in Meilijian 165,560 202,304 Increase (decrease) from changes in: Restricted cash - (86,000) Accounts receivable - (8,696) Note receivable - (209,654) Other receivable - (37,591) Advance to vendors - (81,201) Inventory - (81,379) Prepaids and other assets (6,596) (76,994) Deposits (5,000) - Accounts payable and accrued liabilities 46,197 42,518 ---------------------------- Net cash used in operating activities (1,524,293) (2,705,361) ---------------------------- Cash flows from investing activities Purchase of equipment and machinery (41,392) (58,497) Advance to GFP (862,588) - Advance to Meilijian (8,330) - Purchase of licensing right from WB (300,000) (550,000) ---------------------------- Net cash used in investing activities (1,212,310) (608,497) ---------------------------- Cash flows from financing activities Repayment of note payable (121,298) (82,498) Borrowing from note payable 300,000 500,000 Borrowing from bank loans - 76,089 Proceeds of Series D Preferred stock 762,500 490,000 Proceeds of Series E Preferred stock 711,963 - Proceeds of Series F Preferred stock - 1,480,000 Proceeds of Series G Preferred stock - 675,000 Proceeds from warrants exercised 83,334 - Proceeds of issuing common stock 537,200 244,303 Proceeds from stock subscribed 235,000 - ---------------------------- Net cash provided by financing activities 2,508,699 3,382,894 ---------------------------- Effect of exchange rate changes on cash - 122 ---------------------------- Net increase (decrease) in cash and cash equivalents (227,904) 69,158 Cash and cash equivalents, beginning of period 305,233 16,854 ---------------------------- Cash and cash equivalents, end of period $ 77,329 $ 86,012 ============================ Cash paid during the period: Interest $ 18,129 $ 9,380 Income taxes - - ============================ F-3 Supplemental disclosure of non-cash activities Non-cash items Conversion from Preferred Stock A to Common Stock - 500 Conversion from Preferred Stock B to Common Stock - 1,017,441 Conversion from Preferred Stock C to Common Stock 241,837 44,713 Conversion from Preferred Stock D to Common Stock - 204,342 Conversion from Preferred Stock E to Common Stock 237,321 - Stock subscribed 135,000 - Deemed dividend 788,804 - Deemed dividends Preferred Stock D - 500,000 Deemed dividends Preferred Stock F - 400,045 Deemed dividends Preferred Stock G - 144,854 Conversion of accrued consulting service fee to Common Stock - 93,750 Elimination of accrued dividends upon conversion - 297,274 Accrued dividend 124,028 146,793 ============================
See accompanying notes to consolidated financial statements. F-4 CHINA PREMIUM FOOD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Organization and Business China Premium Food Corporation (the Company) was incorporated under the laws of the State of Delaware on April 26, 1996. The Company and its subsidiaries, Hangzhou Meilijian (Meilijian), China Premium Food (Shanghai) Co. Ltd. and Bravo! Foods, Inc. are engaged in the co-production, marketing and distribution of branded dairy and snack food products in the People's Republic of China and the United States. The Company owns equity interests in two joint ventures in China, 70% in Green Food Peregrine Children's Food Co. Ltd. (GFP) and 52% in Hangzhou Meilijian Dairy Products, Co. Ltd. (Meilijian). On January 3, 2000, the Company commenced procedures to terminate GFP in accordance with the GFP Joint Venture contract and Articles of Association. Accordingly, the Company wrote off its investment in and advance to GFP as of December 31, 1999. During the nine months ended September 30, 2000, Meilijian generated revenue of approximately $4,700,000, gross profit of approximately $1,040,000, loss from the continuous operation of approximately $232,000, and net loss of approximately $325,000. In December 1999, the Company obtained Chinese government approval for the registration of China Premium Food (Shanghai) Co. Ltd., a wholly owned subsidiary, in the Wai Gao Qiao "free trade zone" in Shanghai, China. This subsidiary was formed to import, export and distribute food products and market and distribute branded dairy products and snack foods on a wholesale level in China. In December 1999, the Company formed Bravo! Foods in Delaware, a wholly owned subsidiary, to market and distribute branded dairy products in the United States. Both of these subsidiaries market and distribute branded milk products through supply contracts or production agreements with regional dairy processors. The interim financial statements include the financial information regarding these two entities. The Company's financial statements for the quarter ended June 30, 1999 have been restated based on equity method. Prior financial statements were prepared on a consolidation basis whereby the Company consolidated GFP and Meilijian. Subsequent to issuing the 1998 financial statements, the Company adopted SFAS 94 and EITF No. 96-16 and changed the consolidation approach to equity method to present its investment in GFP and Meilijian. The restatement did not have an impact on the previously reported net loss for the quarter ended June 30, 1999. Note 1 - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant inter-company accounts and transactions have been eliminated in consolidation. The consolidated financial statements are presented in U.S. dollars. Accordingly, the accompanying financial statements do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three-month period and nine-month period ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the year ended December 31, 1999. F-5 Note 2 - Restricted Cash and Bank Loans in Shanghai In September 2000, the Company wired $86,000 to a Chinese commercial bank in Shanghai as collateral to borrow RMB loans from the bank. With the $86,000 of time deposit as collateral, the bank agrees to loan the CPFC Shanghai the maximum RMB amount not to exceed 90% of the value of certificate of deposit. The bank loans bear interest at 6.435% per annum and mature on September 11, 2001 for RMB110,000 (equivalent of US$13,253) and on October 20, 2001 for RMB520,000 (equivalent of US$62,650). The proceeds of RMB loans from the bank can be used only for purchasing inventory. Note 3 - Note Receivable During the process to acquire a majority equity interest in Mandarin Fine Foods Co. Ltd. (Mandarin), the Company loaned $251,857 to Mr. Zhiyun Li, the owner of Mandarin Fine Foods, on May 26, 2000. The note bears interest at 8% per annum and matured on June 30, 2000, with a conversion feature that it allows the Company to convert the note to 3.148% of equity interest in Mandarin. On August 30, 2000, Mr. Li made a payment of $48,946 and on November 1, 2000, Mr. Li made another payment of $50,000. The Company believes that the outstanding note receivable of 209,654 (including accrued interest approximately $6,700) as of September 30, 2000 is fully recoverable. Note 4 - Extension of Note Payable to International Paper The note of $158,621 as of June 30 2000 payable to International Paper was due on July 15, 2000. The Company negotiated with International paper for the extension of this note. On July 6, 2000, International Paper agreed to extend the note to July 1, 2001 and the principal amount was adjusted to $155,743 due to different interest calculation approach. International Paper imposed a charge of $57,000 to renegotiate the note owing the failure of GFP to pay certain packing material, worth for more than $57,000, which had been ordered by GFP and made to order in 1999. The Company accepted this charge and obtained the waiver of any interest on the outstanding balance of $155,743 during the next 12 months. Accordingly, the charge of $57,000 was recorded as deemed interest and will be amortized in the next 12 months. The amortization in the third quarter ended September 30, 2000 was $14,250. Note 5 - Licensing Agreement with Warner Brothers Consumer Products Co. On July 26, 2000, Bravo! Entered into a licensing agreement with Warner Brothers Consumer Products Co. and obtained rights to utilize Warner Brothers' Looney Tunes(tm) character images and names in the U.S. This licensing agreement gives the Company exclusive rights to such images and names in the U.S. for use in connection with specified categories of products sold by Bravo!. Bravo! generated revenue of approximately $50,000 in the third quarter ended September 30,2000. The Company recorded the gross amount of $500,000 as licensing agreement and an obligation to licensing agreement of $500,000 simultaneously. An amount of $250,000 was payable upon the signing of this agreement and the balance should be paid by $100,000 on or before June 1, 2001, $100,000 on or before December 1, 2001, and $50,000 on or before June 1, 2002. The licensing agreement is effective from January 1, 2000 through December 21, 2002. However, the Company signed the agreement on July 26, 2000 resulting in an effective period of 30 months. Accordingly, the Company will amortize the licensing agreement over a period of 30 months. The amortization in the third quarter ended September 30, 2000 was $50,000. F-6 Note 6 - Transactions in Shareholders' Equity On August 3, 2000, the Company issued 18,199 shares of its common stock at $0.8242 per share to Stephen Langley, the Company's Chief Operating Officer - - China, for two quarterly bonus periods, pursuant to the terms of a written employment contract, based upon a per share price determined by an average of the monthly stock trading price calculated monthly, but paid on a quarterly basis. On August 15, 2000, the Company issued 6,439 shares of its common stock at $0.9318 per share to The Omega Company for consulting services rendered on dairy industry issues for a three month period, pursuant to the terms of a written consulting contract. Mr. Arthur Blanding, owner of The Omega Company, is a director of the Company. The Company did not received cash for these shares. Note 7 - Subsequent Events On October 2, 2000, the Company issued the aggregate of 25,000 shares of its Amended Series G Convertible Preferred Stock and warrants for 114,777 shares of its common stock. This preferred stock and warrants were issued to two investors, pursuant to the Company's partial exercise of a first put option for additional financing by holders of the Company's previously issued Series G Convertible Preferred Stock. The Amended Series G Convertible Preferred Stock and the warrants were priced at $10.00 per unit and resulted in proceeds of $226,487.50, net of $23,512.50 of legal and issuance expenses. The Amended Series G Convertible Preferred Stock issued has a stated value of $10.00 per share and a conversion feature equal to the stated value per share divided by the conversion price. The conversion price shall be, at the election of the Holder, $.60, or 75% of the average of the three (3) lowest closing bid prices for the twenty-two (22) days immediately preceding the conversion of the respective shares of Amended Series G Preferred Stock. Warrants for an aggregate of 114,777 shares of common stock were issued to the investors with an exercise price of $0.9625 per share and an expiration date of October 2, 2003. On October 13, 17 and 18, 2000, the Company issued the aggregate of 24,999 shares of its Amended Series F Convertible Preferred Stock and warrants for 114,777 shares of its common stock to three investors who are holders of the Company's previously issued Series F Convertible Preferred Stock. The Amended Series F Convertible Preferred Stock and the warrants were priced at $10.00 per unit and resulted in proceeds of $224,965.50, net of $25,024.50 of legal and issuance expenses. The Amended investors Series F Convertible Preferred Stock has a stated value of $10.00 per share and a conversion feature equal to the stated value per share divided by the conversion price. The conversion price shall be, at the election of the Holder, $.60, or 75% of the average of the three (3) lowest closing bid prices for the twenty-two (22) days immediately preceding the conversion of the respective shares of Series F Preferred Stock. Warrants for an aggregate of 114,777 shares of common stock were issued to the investors with an exercise price of $0.9625 per share and expiration dates of October 13, 17 and 18, 2003, respectively. F-7 RESALE OF 12,250,000 SHARES OF COMMON STOCK PROSPECTUS No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. ,2001 back page Part II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Other Expenses of Issuance and Distribution The Company will bear no expenses in connection with any sale or other distribution by the selling stockholders of the shares being registered other than the expenses of preparation and distribution of this registration statement and the prospectus included in this registration statement. Such expenses are set forth in the following table. All of the amounts shown are estimates except the Securities and Exchange Commission registration fee. Amount To Be Paid SEC registration fee $ 3,336 Legal fees and expenses $30,000 Accounting fees and expenses $20,000 EDGAR Services $ 6,000 ------- Total $59,336
Item 25. Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933. Our certificate of incorporation and bylaws provide for indemnification of our directors, officers, employees and other agents to the maximum extent permitted by Delaware Law. Insofar as indemnification by us for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions referenced above or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. Part II Page 1 Item 26. Recent Sales of Unregistered Securities Fiscal year 1997 Prior to February 1997, we were known as Shakespeare Holding, Inc. and owned by Tamarind Management, Ltd., which held 472,000 shares of Shakespeare's common stock as the original founder. Shakespeare did no business and was not an operating entity. In February 1997, however, we underwent a reorganization by increasing the members of our founding group to include two of the major participants in the China Peregrine Enterprises, Limited (CPEL), the corporate general partner of the CPEL limited partnership, and a financial consultant. As a result, the total founders increased from one entity to three individuals and two entities. In February 1997, we issued 788,000 shares of common stock and 500,000 shares of preferred stock at par value of $0.001 per share to the newly joined founders, pursuant to the exemption from Section 5 registration provided by Section 4(2) of the Securities Act of 1933. On February 28, 1997, we issued 25,000 shares of common stock in exchange for 100% of equity interest in Manor Products Corp., pursuant to the safe harbor provisions of Regulation D, Rule 504. Manor was a Delaware company established on January 10, 1996 without any operating activities or substantial assets. In early 1996, Mr. Paul Downes, a principal of Tamarind Management, Ltd, bought 80% of the equity of Manor. Manor had 331 shareholders and 20,000,000 shares of common stock authorized. As of February 9, 1997, Manor had 4,090,448 shares outstanding. Pursuant to a merger agreement, each one thousand shares of Manor were exchanged for one share of our common stock, with fractional share rounded up to the nearest full share. The remaining shares of the 25,000 shares of common stock issued by us at that time were issued to Mr. Downes. On March 5, 1997, we issued 1,040,000 shares of common stock in exchange for the assets of China Peregrine Enterprises, Limited, pursuant to Section 4(2) of the Act. China Peregrine Enterprises is a Texas limited partnership, set up to manage its interest in China operation conducted by a Chinese joint venture known as Green Food Peregrine Children's Food Co. Ltd. By this transaction, we assumed all of the rights and obligations of China Peregrine Enterprises in and to this Chinese joint venture. With the completion of the transaction, we became an operating entity. As a condition to our purchase of China Peregrine Enterprises' assets, we required that all obligations China Peregrine Enterprises not incurred under the joint venture contract to be removed from China Peregrine Enterprises' books. Accordingly, three of our shareholders agreed to assume such non joint venture debt, which consisted of a line of credit obligation existing at the First Tennessee Bank. On March 15, 1997, we issued 1,260,000 shares of Series B preferred stock, pursuant to Section 4(2) of the Act, at stated value of $1.00 per share to three shareholders in consideration of their assumption of the obligation to pay off approximately $1,260,000 of an outstanding line of credit owed by China Peregrine Enterprises to the Tennessee-based financial institution. The outstanding line of credit was incurred by China Peregrine Enterprises during 1995 and 1996 and paid off in 1997. Two of the three shareholders to whom the Series B shares were issued were part of the reorganized founders group, and the third was a limited partner in China Peregrine Enterprises. In the Spring of 1997, the payment of the last installment to satisfy the capital contribution requirements of the Green Food Peregrine joint venture contract and articles of association for that Part II Page 2 joint venture company became due. Payment of this last installment was necessary to secure our continued involvement in the joint venture. By late March 1997, certain of our shareholders loaned sufficient funds to pay the capital contribution installment then due. On May 1,1997, we closed a Rule 504, Regulation D, limited public offering of 975,000 units, each unit consisting of one share of common stock and a warrant for one share of common stock, at $1.00 per unit to raise money to repay these loans, the proceeds of which had been utilized to pay the required capital contribution. The net proceeds of this offering amounted to $975,000. All of the proceeds of this limited public offering were earmarked for and utilized to repay the shareholders loans. This 504 offering was combined with the issuance of 25,000 shares us in the above discussed merger transaction with Manor Corp. for reporting and integration purposes. The share of common stock underlying the warrants were not part of this 504 offering, having an exercise date deferred for one year. This offering closed May 1, 1997. Subsequent to Rule 504, Regulation D offering, we conducted a separate private placement to issue 1,520,000 shares of its common stock at $1.00 per share, commencing May 2, 1997, to raise funds for general working capital. The total proceeds from this Section 4(2) private placement, which closed May 31, 1997, amounted to $1,520,000. All subscribers were required to execute subscription agreements and a questionnaire, which qualified them as accredited investors. These purchasers were existing shareholders, having participated in the 504 offering, or were associates of such 504 investors. During 1997, we incurred consulting, legal and accounting expenses relating to these fund raising activities, and other directors' fees and travel expenses. We issued a total of 469,000 shares of common stock at $1.00 per share for these expenses, pursuant to Section 4(2). Each recipient of these shares had worked closely with our management and had access to detailed corporate information.
Description Date Shares Identity - ----------- ---- ------ -------- Assumption of CPEL's accrued legal fees 03/15/97 200,000 Peregrine Enterprises, Inc. Issuance of stock for legal fees 03/30/97 15,000 Roy D. Toulan, Jr. relating to fund raising Issuance of stock for stock promotion service 04/15/97 100,000 Continental Capital Corp. Issuance of stock for promotion services 05/01/97 35,000 Robert Mazzei (10,000); Settondown Capital Int'l (10,000); John Bannon (10,000); Carol Bowes (5,000) Issuance of stock for financial 06/01/97 10,000 Manchester Asset Management, Ltd. consultation services Issuance of stock for consulting service 07/01/97 24,000 Susan Lurvey (12,000); Dennison Chapman (12,000) Part II Page 3 Issuance of stock for 10/01/97 15,000 Seymour Borislow (10,000) accounting service Jeffrey Factor (5,000) Issuance of stock for 10/15/97 25,000 David Dreyer consulting service Issuance of stock 11/01/97 25,000 Philip Pearce for a directors' fee Issuance of stock for 11/17/97 20,000 Tamarind Management Ltd.(15,000) travel expense Dale Reese (5,000)
During 1997, we granted a total of four stock options to certain shareholders and non-employee directors for restricted shares pursuant to Section 4(2) of the Act. These four stock option agreements are summarized as follows:
Granting Options Exercise Vesting Expiration Date Granted Price Period Date Agreement One 4/29/97 1,005,533 $1.00 None 4/28/2002 Agreement Two 4/30/97 2,000,000 $1.00 None 4/29/2002 Agreement Three 10/1/97 25,000 $1.00 None 9/30/2002 Agreement Four 10/1/97 15,000 $1.00 None 9/30/2002 - --------------------------------------------------------------------- Total options granted in 1997 3,045,533 -none exercised ---------
Fiscal year 1998 On January 15, 1998, we issued 50,000 shares of common stock at $1.00 per share to Settondown International, Ltd. in exchange for services by that capital service company, pursuant to Section 4(2) of the Act. Settondown has consulted with us and our reorganization founders from early 1997. Settondown's business involves consultation and finder services for corporate financing on a private and limited basis. On February 2, 1998, we issued 5,272 shares of common stock at $2.25 per share to Kenneth G. Hanson in exchange for his services in connection with the furnishing of our Company's corporate offices, pursuant to Section 4(2) of the Act. Mr. Hanson was an existing shareholder and gained detailed knowledge of our business and operations through his access to top level management at our corporate offices. On February 19, 1998, we issued 120,000 shares of common stock at a price of $1.00 per share to Amer-China Partners, Limited pursuant to a signed agreement dated October 1, 1997, to Part II Page 4 acquire Amer-China's entire interest and right (2.4%) in and to the Green Food Peregrine Children's Food Co. Ltd., pursuant to Section 4(2) of the Act. On May 2, 1998, we issued 557,000 units (each unit composed of one share of common stock and one warrant to purchase one share of common stock) at a price of $2.50 per unit, pursuant to a private offering in accordance with the exemption provided in Regulation D, Rule 506. The net proceeds of this offering were $1,531,685. Among the 557,000 shares issued, 2,000 shares were issued in exchange for accounting services. The holders of such warrants are entitled to purchase, from time to time, up to 557,000 shares of common stock, per value $0.001 per share, at an exercise price of $1.00 per share, at any time after June 30, 1998 and through and including June 30, 2003. The 557,000 shares were sold to 33 purchasers who were, with one exception, all qualified as accredited investors. The non accredited investor was the personal business assistant to Mr. Robert Cummings, who was a shareholder, one of our directors and a member of our board's executive committee. Information provided to this investor included our March 1997 offering memorandum plus our then most recent financial information. On June 19, 1998, we entered into a definitive agreement with American Flavors China, Inc., a U.S.-based entity, to acquire its 52% equity interest in Hangzhou Meilijian Dairy Products Co. Ltd. The terms of the acquisition agreement, in part, resulted in our issuance of 1,513,685 shares of common stock to American Flavors China, Inc., pursuant to Section 4(2) of the Act. The negotiations for this purchase covered a time period at approximately one year. During that time, Noam and Florence Sender, the principals of American Flavors China, were given appropriate corporate information concerning our business and operations. Between December 17, 1998 and February 18, 1999, we issued 265,000 shares of common stock to 15 holders of warrants, issued May 1, 1997, as a result of the exercise of those warrants. All investors receiving these shares were our shareholders and were accredited investors. The proceeds from this exercise aggregated $265,000. On May 2, 1998, we approved and ratified an agreement with China National Green Food for the increase of our equity interest in Green Food Peregrine from 70% to 76.92%. This change in the ownership ratio was to take place upon the payment of an additional US $1,500,000 in registered capital by us over an eighteen month period. Since Chinese government regulations require approval of this change of the investment ratio by the Ministry of Foreign Trade and Economic Cooperation, we agreed to an interim loan of US $500,000 to Green Food Peregrine, with the conversion of that loan to registered capital upon obtaining the required governmental approval. To fund this equity increase, on October 21, 1998, we initiated a limited public offering of our Series C Convertible Preferred Stock, pursuant to Rule 504 of Regulation D. On November 19, 1998, we issued 83,334 shares of Series C convertible preferred stock, plus a like number of warrants, at a price of $3.00 per share, including the warrants, to Utah Resources International, Inc., a sophisticated investor, resulting in proceeds of $250,000. On December 29, 1998, an additional 50,000 shares of Series C convertible preferred stock, plus nine warrants per share, at a price of $3.00 per share, including warrants, were issued to Explorer Fund Management, Inc., a sophisticated investor, resulting in proceeds of $150,000. The Series C certificate of designation was not amended; only the terms of the transaction concerning the number of warrants issued with each unit was changed to accommodate Part II Page 5 the second investor this offering. The aggregate proceeds received from this initial and amended Rule 504 limited public offering, which closed January 4, 1999, amounted to $400,000. We offered these convertible securities to these sophisticated investors in reliance upon their written representations that their purchase of these securities was for investment purposes only and not with a view to or for distributing or reselling such securities. In addition, the availability of the Rule 504 exemption for this transaction was expressly premised upon the accuracy of the purchasers' representations in that regard. Fiscal year 1999 On January 5, 1999 and January 7, 1999, respectively, we issued 13,959 shares of our common stock to Utah Resources International, Inc., pursuant to its conversion of our Series C convertible preferred stock. The common stock underlying this convertible preferred was issued pursuant to Rule 504 of Regulation D, as part of the November 1998 offering. On February 5, 1999 we issued 40,000 shares of our common stock to Utah Resources, pursuant to its conversion of our Series C convertible preferred stock. The common stock underlying this convertible preferred was issued pursuant to Rule 504 of Regulation D, as part of the November 1998 504 offering. During the period February 2, 1999 through February 18, 1999, we issued 100,000 shares of our common stock to four accredited and sophisticated investors, resulting from the exercise of common stock warrants issued to these investors in 1997 as part of a Section 4(2)/ Rule 506 offering. On February 22, 1999, we issued 150,000 shares of our common stock to Explorer Fund Management, Inc., pursuant to its conversion of 50,000 shares of our Series C convertible preferred stock. The common stock underlying this convertible preferred was issued pursuant to Rule 504 of Regulation D, as part of the December 1998 amended 504 offering. On March 3, 1999, we issued 40,000 shares of our common stock to Utah Resources, pursuant to its conversion of our Series C convertible preferred stock. The common stock underlying this convertible preferred was issued pursuant to Rule 504 of Regulation D, as part of the November 1998 offering. On March 9, 1999, we issued 53,500 shares of our Series D convertible preferred stock to three accredited and sophisticated corporate investors and one sophisticated/accredited finder. These shares of Series D convertible preferred stock were the first tranche of this offering made in reliance upon the exemption from registration provided in Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933. The issue consisted of the Series D convertible preferred stock at $10.00 per share, with warrants to: Austinvest Anstalt Balzers, 16,250 Series D/16,250 warrants for $162,500; Esquire Trade & Finance Inc.,16,250 Series D/16,250 warrants for $162,500; Amro International, S.A., 17,500 Series D/17,500 warrants for $175,000. On March 12, 1999, we issued 30,000 shares of common stock and collected proceeds of $30,000 from Explorer Fund's exercising 30,000 warrants issued in December 1998, as part of our Rule 504 offering of Series C convertible preferred stock. The common stock underlying these Part II Page 6 warrants was issued pursuant to Rule 504 of Regulation D, as part of the December 1998 amended 504 offering. From March 4, 1999 through April 21, 1999, we issued 315,000 shares of our common stock to twelve accredited and sophisticated investors, whom we knew or who were existing shareholders. These shares were issued pursuant to an exemption to registration provided by Section 4(2) of the 1933 Act and pursuant to and based upon the qualification of each investor, including representations as to the investment purpose of each such purchase. In April 0f 1999, we cancelled 105,000 of these shares in accordance with the request of certain of these investors. On April 23, 1999, we issued 25,000 shares of our Series D convertible preferred stock to three accredited and sophisticated corporate investors and one sophisticated/accredited finder. The gross proceeds from this and the first tranche of this offer aggregated $750,000. These shares of Series D convertible preferred stock were issued as the second tranche of this offering made in reliance upon the exemption from registration provided in Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933. The issue consisted of the Series D convertible preferred stock at $10.00 per share, with Warrants to: Austinvest Anstalt Balzers, 8,125 Series D/8,125 warrants for $81,250; Esquire Trade & Finance Inc., 8,125 Series D/8,125 warrants for $81,250; Amro International, S.A., 8,750 Series D/8,750 warrants for $87,500. On May 19, 1999, we issued 53,334 shares of common stock at $1 per share as the result of Utah Resources' exercising 53,334 warrants related to the previous issuance of Series C convertible preferred stock. The common stock underlying these warrants was issued pursuant to Rule 504 of Regulation D, as part of the November 1998 offering. On May 28, 1999, we issued 145,000 shares of common stock to seven accredited and sophisticated investors. These shares were issued pursuant to Section 4(2) of the Securities Act of 1933 and pursuant to and based upon the qualification of each investor, including representations as to the investment purpose of each such purchase. On May 28, 1999, we issued 4048 shares of our common stock to The Omega Company, pursuant to a written consulting contract. The principal of The Omega Company is Mr. Arthur Blanding, who has been a member of our Board of Directors since November of 1999. These shares were issued pursuant to an exemption to registration provided by Section 4(2) of the 1933 Act. We did not receive cash for these shares. On June 15, 1999, we issued a total of five stock options agreements with certain non-shareholders and non-employees, who had provided bookkeeping, research and organizational services, for 55,000 restricted shares of common stock pursuant to Section 4(2) of the Act. These options contain an exercise price of $1.00 per share and expire in five (5) years. On June 25, 1999, we issued 117,200 shares of common stock to four accredited and sophisticated investors. These shares were issued pursuant to Section 4(2) of the Securities Act of 1933 and pursuant to and based upon the qualification of each investor, including representations as to the investment purpose of each such purchase. Part II Page 7 On June 25, 1999, we issued 1999 shares of our common stock to The Omega Company, pursuant to a written consulting contract. These shares were issued pursuant to an exemption to registration provided by Section 4(2) of the 1933 Act. We did not receive cash for these shares On July 30, 1999, we issued 20,000 shares of common stock as a result of Utah Resources' conversion of our Series C convertible Preferred stock. The common stock underlying this convertible preferred was issued pursuant to Rule 504 of Regulation D, as part of the November 1998 offering. During July, August and September 1999, we conducted a private sale of Series E Convertible Preferred Stock and issued 330,000 shares in five tranches to twenty-four accredited and sophisticated investors at $2.50 per share, as follows: July 23, 1999 - 100,000 Series E shares and warrants for 50,000 common to seven investors Aug. 16, 1999 - 30,000 Series E shares and warrants for 15,000 common to three investors Sept. 1, 1999 - 60,000 Series E shares and warrants for 30,000 common to three investors Sept. 14, 1999 - 40,000 Series E shares and warrants for 52,000 common to three investors Sept. 27, 1999 - 100,000 Series E shares and warrants for 50,000 common to eight investors All twenty four Series E investors are clients of the same small registered broker dealer. No general solicitation or advertising was utilized in this offering. These investor warrants and finder warrants are exercisable as follows:
Underlying Exercise Closing Date Common Price Expiration - ----------------- ---------- -------- ---------- July 23, 1999 Investors 50,000 $3.00/share 7-22-01 Finder 10,000 $2.75/share 7-22-04 Finder 10,000 $5.00/share 7-22-02 August 16, 1999 Investors 15,000 $3.00/share 8-15-01 Finder 3,000 $2.75/share 8-15-04 Finder 3,000 $5.00/share 8-15-02 September 1,1999 Investors 30,000 $3.00/share 8-31-01 Finder 6,000 $2.75/share 8-31-04 Finder 6,000 $5.00/share 8-31-02 September 14,1999 Investors 20,000 $3.00/share 9-13-01 Finder 4,000 $2.75/share 9-13-04 Finder 4,000 $5.00/share 9-13-02 September 27, 1999 Investors 50,000 $3.00/share 9-26-01 Part II Page 8 Finder 10,000 $2.75/share 9-26-04 Finder 10,000 $5.00/share 9-26-02
No Series E Warrants have been exercised. The issuance of the Series E convertible preferred stock and warrants was pursuant to an exemption from registration provided by Rule 506 of Regulation D and Section 4(2) of the Act. The proceeds of the sale of the Series E Preferred Stock were utilized for working capital. The net proceeds of this issuance were $711,963 net of $113,037 of finder's fee, legal and printing expenses. On August 10, 1999, holders converted Series E convertible preferred stock into 174,340 shares of common stock. The issuance of the common stock underlying the Series E Preferred Stock was pursuant to an exemption from registration provided by Rule 506 of Regulation D. On August 16, 1999, we issued 2356 shares of our common stock to The Omega Company, pursuant to a written consulting contract. These shares were issued pursuant to an exemption to registration provided by Section 4(2) of the 1933 Act. We did not receive cash for these shares On August 16, 1999, we issued 65,000 shares of common stock to three accredited and sophisticated investors, which generated $65,000 in gross proceeds. These shares were issued pursuant to Section 4(2) of the Securities Act of 1933 and pursuant to and based upon the qualification of each investor, including representations as to the investment purpose of each such purchase. On August 23, 1999, one holder converted Series E convertible preferred stock into 10,000 shares of common stock. The issuance of the common stock underlying the Series E Preferred Stock was pursuant to an exemption from registration provided by Rule 506 of Regulation D On October 14, 1999, we issued 1163 shares of our common stock to The Omega Company, pursuant to a written consulting contract. These shares were issued pursuant to an exemption to registration provided by Section 4(2) of the 1933 Act. We did not receive cash for these shares On October 20, 1999, we issued 30,000 shares of common stock as a result of Utah Resources' conversion of our Series C convertible Preferred stock. The common stock underlying this convertible preferred was issued pursuant to Rule 504 of Regulation D, as part of the November 1998 offering. On November 10, 1999, thirteen accredited and sophisticated holders converted Series E convertible preferred stock into 360,000 shares of common stock. The issuance of the common stock underlying the Series E Preferred Stock was pursuant to an exemption from registration provided by Rule 506 of Regulation D On November 26, 1999, three accredited and sophisticated holders converted Series E convertible preferred stock into 80,000 shares of common stock. The issuance of the common stock underlying the Series E Preferred Stock was pursuant to an exemption from registration provided by Rule 506 of Regulation D On November 26, 1999, we issued 134,000 shares of common stock as a result of Utah Resources' conversion of our Series C convertible Preferred stock. The common stock underlying this Part II Page 9 convertible preferred was issued pursuant to Rule 504 of Regulation D, as part of the November 1998 offering. On December 2, 1999, we issued 1737 shares of our common stock to The Omega Company, pursuant to a written consulting contract. These shares were issued pursuant to an exemption to registration provided by Section 4(2) of the 1933 Act. We did not receive cash for these shares. Fiscal Year 2000 On February 1, 2000, we amended our Rule 506 offering with respect to the Series D Preferred Stock originally offered on March 9, 1999 and April 23, 1999, respectively. Pursuant to this amended offering, we issued an additional 50,000 shares of the Series D Preferred Stock and amended the total number of warrants to be issued by the issuance of additional warrants for 1,300,000 shares of common stock to the existing sophisticated and accredited holders of our Series D Preferred Stock. The Series D Preferred and accompanying warrants were priced at $10.00 per unit and resulted in proceeds of $490,000 in cash, net of $10,000 of legal and issuance expenses. In connection with this sale, we issued 125,000 shares of our common stock pursuant to Section 4(2) to these holders to compensate them for the delay in registering the resale of the common stock underlying the Series D Preferred and the warrants, and 50,000 shares of common stock to a finder. These shares of common stock are issued at $0.75 per share, the market value on February 1, 2000 for our common stock. On February 2, 2000, four holders converted Series D convertible preferred stock into 175,000 shares of common stock. The issuance of the common stock underlying the Series D preferred stock was pursuant to an exemption from registration provided by Rule 506 of Regulation D On April 6, 2000, we issued 6,374 shares of our common stock to The Omega Company, pursuant to a written consulting contract. The principal of The Omega Company is Mr. Arthur Blanding, who has been a member of our board of directors since November of 1999. These shares were issued pursuant to an exemption to registration provided by Section 4(2) of the 1933 Act. We did not receive cash for these shares. On April 6, 2000, we issued 150,000 of our Series F convertible preferred stock and warrants to three sophisticated and accredited investors and one finder. In addition, we agreed to issue 75,000 shares of common stock upon the exercise of the warrants by the respective holders. The Series F convertible preferred stock and the warrants were priced at $10.00 per unit and resulted in proceeds of $1,480,000, net of $20,000 of legal and issuance expenses. The Series F convertible preferred stock has a stated value of $10.00 per share and a conversion feature equal to $0.50 per share. Warrants for 3,000,000 shares of common stock were issued to the investors with an exercise price of $1.00 per share and an expiration date of April 5, 2003. Warrants for 1,600,000 shares of common stock were issued to a finder with an exercise price of $0.84 per share and have an expiration date of April 5, 2000. The Series F convertible preferred stock, the warrants and the common stock underlying the preferred and the warrants have been and will be issued pursuant to an exemption to registration provided by Regulation D, Rule 506 and Section 4(2) of the 1933 Act. The proceeds of this offering are for working capital. Part II Page 10 On April 25, 2000, we issued 66,785 shares of our common stock to Utah Resources, pursuant to its conversion of our remaining Series C convertible preferred stock issued to Utah Resources in November of 1998. The Series C convertible preferred Stock and the common stock underling the preferred were issued to Utah Resources pursuant to an exemption to registration provided by Regulation D, Rule 504 and Section 4(2) of the 1933 Act.. Utah Resources, Inc. is an accredited and sophisticated investor. On May 11, 2000, we issued 10,260 shares of our common stock to The Omega Company pursuant to the terms of a written consulting contract. We did not receive cash for these shares. On May 22, 2000, we issued 184,638 shares of our common stock to two holders of Series D convertible preferred stock pursuant to their conversion of 10,000 shares of the preferred. The Series D convertible preferred and the common stock underlying the preferred were issued to these sophisticated and accredited investors pursuant to an exemption from registration provided by Regulation D, Rule 506 and Section 4(2) of the 1933 Act. We did not receive cash for these shares. On May 23, 2000, we issued 1,517,441 shares of our common stock to one holder, pursuant to the conversion of 500,000 shares of Series A convertible preferred stock and 1,017,441 shares of Series B convertible preferred stock. The Series A and Series B convertible preferred stock converted was issued by us in early 1997 to one of our original founders, pursuant to an exemption to registration provided by Section 4(2) of the Act. The conversion of the Series A convertible preferred stock represents all of the Series A convertible preferred stock issued by us. We did not receive cash for these shares. On June 8, 2000, we issued 219,566 shares of our common stock to two holders of Series D convertible preferred stock pursuant to the conversion of 10,000 shares of the preferred. The Series D convertible preferred and the common stock underlying the preferred were issued to these sophisticated and accredited investors pursuant to an exemption from registration provided by Regulation D, Rule 506 and Section 4(2) of the 1933 Act. We did not receive cash for these shares. On June 19, 2000, we issued 75,000 shares of ours Series G convertible preferred stock and warrants for 344,330 shares at $0.9625 per share to three sophisticated and accredited investors and two finders. The Series G convertible preferred stock, the warrants and the common stock underlying both the preferred and the warrants were issued pursuant to an exemption to registration provided by Regulation D, Rule 506 and Section 4(2) of the 1933 Act. The Series G convertible preferred stock and the warrants were priced at $10.00 per unit and resulted in proceeds of $675,000 in cash, net of $60,000 in finder's fees and $15,000 of legal and issuance expenses. The Series G convertible preferred stock has a stated value of $10.00 per share and a conversion feature equal to the lesser of $0.85 per share or 80% of the average of the three lowest closing bid prices of the 22 days immediately preceding the conversion of the preferred. The warrants for 334,330 shares of common stock have an exercise price of $0.9625 per share and an expiration date of June 18, 2003. The proceeds of this offering are for working capital. On July 14, 2000, we issued 225,735 shares of our common stock to thirteen former holders of our Series E convertible preferred stock. This common stock was issued pursuant to the exercise of certain participation rights in favor of these holders at a price determined by the market value of the Part II Page 11 common stock on the day of exercise. We received $169,302.50 in cash from the issuance of this common stock. This stock was issued pursuant to an exemption to registration provided for the original convertible preferred transaction, and all shares underlying that transaction, pursuant to Regulation D, Rule 506 and Section 4(2) of the 1933 Act. This stock was issued to accredited and sophisticated investors, who were provided with updated financial and corporate information through our public filings. On August 3, 2000, we issued 18,199 shares of our common stock to Stephen Langley, pursuant to his employment contract with us. Mr. Langley is our Chief Operating Officer in China and serves as the General Manager of our wholly owned Chinese subsidiary. These shares were issued pursuant to an exemption to registration provided by Section 4(2) of the 1933 Act. On August 15, 2000, we issued 6,439 shares of our common stock to The Omega Company, pursuant to a written consulting contract. These shares were issued pursuant to an exemption to registration provided by Section 4(2) of the 1933 Act. We did not receive cash for these shares. On November 15, 2000, we issued 6,439 shares of our common stock to The Omega Company, pursuant to a written consulting contract. These shares were issued pursuant to an exemption to registration provided by Section 4(2) of the 1933 Act. We did not receive cash for these shares. On December 1, 2000, we issued 15,000 shares of common stock to Corporate Image Bureau, in exchange for services by that corporate public relations company, pursuant to Section 4(2) of the Act. In connection with the services rendered, Corporate Image was provided with detailed historic and current information concerning our business and financial affairs. On December 13, 2000, we issued 135,119 shares of our common stock to one holder, pursuant to the conversion of 135,119 shares of Series B convertible preferred stock. The Series B convertible preferred stock converted was issued by us in early 1997 to this holder for his assumption of a certain loan repayment owed by China Premium Enterprises, Limited, an entity from which we purchased substantially all of its assets, pursuant to an exemption to registration provided by Section 4(2) of the Act. Item 27. EXHIBITS
SEC Exhibit Reference No. No. Title of Document - ------- --------- ----------------- 1a 2 Asset Purchase Agreement China Peregrine Enterprises, Limited (1) 1b 2 Interim Agreement to Operate China Peregrine Project (1) 2a 3(i) Articles of Incorporation (1) Part II Page 12 2b 3(i) Amended Articles (name change) (1) 3 3(ii) Restated Bylaws China Peregrine Food Corporation (1) 4a 4 Rights of Equity Holders Common see Articles of Incorporation (1) 4b 4 Preferred, Series A and B Designation (1) 4c 4 Preferred, Series C Designation (1) 4d 4 Preferred, Series D Designation (2) 4e 4 Preferred, Series D Amended (4) 4f 4 Preferred, Series E Designation (3) 4g 4 Preferred, Series F Designation (4) 4h 4 Preferred, Series G Designation (5) 5.1 Legal opinion of Stibel & Toulan LLP * 5 10 Material Contracts Green Food Joint Venture Contract (1) 6 10 Material Contracts Hangzhou Meilijian Joint Venture Contract (1) 7a 10 Material Contracts Asset Purchase Agreement (1) American Flavors China, Inc 7b 10 First Amendment (1-28-98) (1) 7b 10 Second Amendment (6-19-98) (1) 7f 10 Agreement to Form Yangling Mandarin (6) 7g 10 Milk Supply Agreement Hangzhou Meilijian (6) 7h 10 Milk Supply Agreement Huai Nan Dairy (6) 7i 10 Bravo! - Quality Chekd Promotion Agreement (6) 7j 10 Bravo! - Dairy Production Agreement (6) 7k 10 Warner Bros./China Premium License Agreement * 7l 10 Warner Bros./China Premium License Agreement (modified) * Part II Page 13 7m 10 Warner Bros./Bravo! Foods License Agreement * 7o 10 Employment Contracts * 7p 10 Omega Consulting Contract * 7q 10 Lane Cracker Contract * 7r 10 Lease: US corporate offices, N.Palm Beach, FL * 7s 10 Lease: Langley residence Pudong, Shanghai, PRC * 8 21 Subsidiaries Articles of Association Green Food Peregrine (1) 9 21 Subsidiaries Articles of Association Hangzhou Meilijian (1) 9a 21 Subsidiaries Certificate of Incorporation Bravo! Foods, Inc. (6) 9b 21 Subsidiaries Articles of Association (6) China Premium Food Corporation (Shanghai) Co., Inc. 23.1 Consent of BDO Seidman, LLP * 23.2 Consent of Stibel & Toulan LLP (included in Exhibit 5.1) * 11 99 Hangzhou Meilijian Audited Financial (4) Statements, Years Ending December 31,1998 and 1999
[FN] * Filed herewith. Filed with Form 10SB/A First Amendment Filed with Form 10QSB for 3-31-99 Filed with Form 10QSB for 6-30-99 Filed with Form 10K-SB for 12-31-99 Filed with Form 10QSB for 6-30-00 Filed with Form SB-2/A Second Amendment Item 28. UNDERTAKINGS The Company hereby undertakes that it will: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the Part II Page 14 foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) Include any additional or change material information on the plan of distribution. (2) For determining liability under the Securities Act, treat each post- effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (4) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this amended registration statement to be signed on its behalf by the undersigned, in the city of North Palm Beach, Florida, February 20, 2001. (Registrant) CHINA PREMIUM FOOD CORPORATION By: /s/ Roy G. Warren - -------------------------------------------- Roy G. Warren, Chief Executive Officer In accordance with the requirements of the Securities Act of 1933, this amended registration statement was signed by the following persons in the capacities and on the dates stated. Signature Title Date - --------- ----- ---- /S/ Roy G. Warren Chief Executive Officer February 20, 2001 /S/ Susan Lurvey Secretary, Treasurer February 20, 2001 Part II Page 15 /S/ Michael Davis Chief Financial Officer February 20, 2001 Part II Page 16 EX-5 2 chinex5.txt EXHIBIT 5.1 EXHIBIT 5.1 (Stibel & Toulan LLP Letterhead) February 15, 2001 China Peregrine Food Corporation 11300 US Highway 1, Suite 202 North Palm Beach, Florida 33408 Re: Registration Statement on Form SB-2 / Amendment 3 Ladies and Gentlemen: We are counsel for China Peregrine Food Corporation, a Delaware corporation ("China Peregrine"), in connection with the preparation of a Registration Statement on Form SB-2 of which this opinion is a part, to be filed with the Securities and Exchange Commission (the "Commission"), for the sale by certain selling shareholders (the "Selling Shareholders") of 12,250,000 shares of China Peregrine's common stock (the "Common Stock"). In connection with rendering our opinion as set forth below, we have reviewed and examined originals or copies of such corporate records and other documents and have satisfied ourselves as to such other matters as we have deemed necessary to enable us to express our opinion hereinafter set forth. Based upon the foregoing, it is our opinion that: The shares of Common Stock being registered for the account of the Selling Shareholders have been validly issued, and are fully paid and non- assessable. We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the reference to this firm under the caption "Interest of Named Expert and Counsel" in the Prospectus included in the Registration Statement. Sincerely yours, /s/ STIBEL & TOULAN LLP EX-10 3 chinex7k.txt EXHIBIT 7K EXHIBIT 7k LICENSE AGREEMENT Warner Bros. Division of Time Warner Entertainment Company, L.P., c/o Warner Bros. Consumer Products, a Time Warner Entertainment Company ("Licensor") whose address is 4000 Warner Boulevard, Burbank, CA 91522, U.S.A. and China Peregrine Food Corporation ("Licensee") whose address is 777 S. Flagler Drive, Ste. 1113, Phillips Point-West Tower, West Palm Beach, FL 33401, U.S.A., agree as follows: As of the Effective Date (as defined below), and subject to the Standard Terms and Conditions attached hereto, all of which are incorporated herein by reference and made a part hereof, Licensor grants to Licensee a non-exclusive license to utilize the Licensed Material solely upon or in connection with the manufacture, distribution, and sale of Licensed Articles throughout the Territory, as defined and specified as follows: Licensed Material: The representations, names, logos, movements, personalities, artwork, photographs and other material in connection with the following "LOONEY TUNES" characters: BUGS BUNNY, TWEETY, SYLVESTER DAFFY DUCK, TASMANIAN DEVIL, WILE E. COYOTE, ROAD RUNNER, LOLA BUNNY and MARVIN THE MARTIAN only. Licensee acknowledges that the rights granted herein are limited only to the cartoon characters set forth above and that any and all rights in, to or associated with the theatrical motion picture entitled "Space Jam", as well as with any sequels thereto or subsequently produced television series, are specifically excluded herefrom. Licensed Articles: Beverages branded using the Licensed Material as set forth in Exhibit A attached hereto. Territory: Municipalities of Shanghai and Hangzhou in the People's Republic of China as detailed in Exhibit B attached hereto. Distribution Channels: Shanghai: Supermarkets, hypermarkets, convenience stores and school meal programs; and Hangzhou: Supermarkets, hypermarkets, convenience stores, school meal programs and through the reserve system. Terms: January 1, 1999 to June 30, 2002, of which January 1, 1999 to June 30, 2000 shall be Contract Year 1, July 1, 2000 to June 30, 2001 shall be Contract Year 2, and July 1, 2001 to June 30, 2002 shall be Contract Year 3. Effective Date: The date of full execution of this Agreement. Royalty Rate: Three percent (3%) of the net invoiced price of each Licensed Article. Guaranteed Consideration: Three Hundred Thousand (300,000) U.S. dollars, of which US$45,000 shall be payable upon Licensee signing this Agreement and the balance paid by ten (10) instalments of US$21,250 per instalment payable on or before each of the following dates: (i) September 30, 1999; (ii) December 31, 1999; (iii) March 31, 2000; (iv) June 30, 2000; (v) September 30, 2000; (vi) December 31, 2000; (vii) March 31, 2001; (viii) June 30, 2001; (ix) September 30, 2001; (x) December 31, 2001, as well as one final instalment of US$42,500 payable on or before March 31, 2002. All payments made pursuant to this Agreement shall be effected by wire transfer from Licensee to Licensor's account at Bank of America, 1850 Gateway Blvd. #5693, Concord, California 94520, U.S.A. Account number: 1257-000503, account name: WARNER BROS. Reference: WBCP Hong Kong, China Peregrine Food Corporation, #93085-WBLT. Marketing Date: July 1, 1999. Initial marketing plan to be mutually agreed on or before March 31, 1999. First Statement Date: August 15, 1999. Promotional Commitment: Licensee shall devote an amount equal to three percent (3%) of the wholesale sales revenues derived from the Licensed Articles for retail and consumer promotion and advertising expenditure for sales promotion purposes. Proof of Fulfilment of Promotional Commitment: Every six (6) months from the Marketing Date. Trademark/Copyright Notice: LOONEY TUNES, characters, names and all related indicia are trademarks of Warner Bros. (C) 199- (or as otherwise required by Licensor from time to time). Samples: Six (6) sets for each SKU to be sent at no cost to Licensor. Insurance: Licensee shall cause each of Green Food Peregrine Children's Food Co., Ltd. and Hangzhou Meilijian Dairy Products Co., Ltd. to maintain product liability insurance in an amount not less than RMB2,000,000 per occurrence. Name and address of intended manufacturers: Shanghai: Dairy production facilities owned and operated by Green Food Peregrine Children's Food Co., Ltd. Hangzhou: Dairy production facilities owned and operated by Hangzhou Meilijian Dairy Products Co., Ltd. Special Terms: (1) In conjunction to this License Agreement, each of Green Food Peregrine Children's Food Co., Ltd. and Hangzhou Meilijian Dairy Products Co., Ltd. will also enter into a co-license agreement with Licensor and Licensee. (2) Payments of Guaranteed Consideration shall be secured by a letter of credit in form and substance satisfactory to Licensor in the amount of US$170,000 established with a bank approved by Licensor upon Licensee signing this Agreement. The amount secured by the letter of credit may be reduced, provided that the amount secured shall at any time not be less than the lesser of: (i) $170,000, and (ii) the difference between $300,000 and the total Royalties (including Guaranteed Consideration) paid to date. Letter of credit shall not expire prior to June 30, 2002. (3) Licensee acknowledges that the rights granted to Licensee hereunder are on a non-exclusive basis. However, Licensor agrees that it will not grant to any third party the right to distribute and sell in the Territory during the Term fresh milk, aseptic UHT treated milk, fresh yogurt drinks or reconstituted fruit flavoured juices/beverages incorporating the Licensed Material without prior consultation with Licensee. Licensor agrees to discuss any such proposal with Licensee, and to consider in good faith Licensee's views in respect thereof. By signing below, Licensee affirms that it is in agreement with the foregoing and that it has read and understands and agrees to be bound by the Standard Terms and Conditions set forth and attached hereto. Licensee further agrees that this Agreement shall also serve as an invoice to Licensee with respect to the amounts payable as set forth above and Licensee agrees to pay such amounts to Licensor as specified above. This Agreement shall be of no force and effect unless and until signed by each signatory hereto as specified below: AGREED AND ACCEPTED: AGREED AND ACCEPTED: LICENSEE: LICENSOR: China Peregrine Food Corporation Warner Bros. Consumer Products, on behalf of itself and as Agent for Warner Bros. Division of Time Warner Entertainment Company, L.P. - ----------------------------------- ------------------------------------ By: By: Gary Simon ------------------------------- -------------------------------- Title: Title: Vice President -Legal Affairs ---------------------------- ----------------------------- Date: Date. ----------------------------- ------------------------------ Original-Loca1/Green-Regional Contract File/Yellow-Central Contract File/Pink-Finance/Gold-Licensee 2 EXHIBIT A Licensed Articles for distribution in Shanghai: - ----------------------------------------------- 1. Fresh white milk packaged in gable top cartons (sizes 240, 500 and 950 ml). 2. Fresh flavoured milk packaged in gable top cartons (sizes 240, 500 and 950 ml). Flavours: chocolate, vanilla, orange, pineapple and strawberry. 3. Fresh flavoured yogurt drinks packaged in gable top cartons (sizes 500 and 950 ml). Flavours: vanilla, strawberry and orange; other flavours as approved by Licensor. 4. Aseptic (boxed) UHT treated white milk and flavoured milk in size 225 ml. Flavours: chocolate, vanilla, orange, pineapple and strawberry. 5. Reconstituted fruit flavoured juices/beverages packaged in gable top cartons (sizes 240, 500 and 950 ml) or aseptic packaging in 225 ml size. Fruit flavours: orange, apple, peach, pineapple, strawberry, grape, orange/banana blend and apple/grape blend. Licensed Articles for distribution in Hangzhou: - ----------------------------------------------- 1. Fresh white milk packaged in gable top cartons (sizes 250, 500 and 1000 ml) and baggies in size 200 ml. Baggies for distribution only through reserve system in Hangzhou. 2. Fresh flavoured milk packaged in gable top cartons (sizes 250, 500 and 1000 ml) and baggies in size 200 ml. Flavours: chocolate, vanilla, orange, pineapple and strawberry. 3. Fresh flavoured yogurt drinks packaged in gable top cartons (sizes 500 and 950 ml) and in glass bottles in size 350 ml. Flavours: vanilla, strawberry and orange; other flavours as approved by Licensor. 4. Aseptic (boxed) UHT treated white milk and flavoured milk in size 225 ml. Flavours: chocolate, vanilla, orange, pineapple and strawberry 5. Reconstituted fruit flavoured juices/beverages packaged in gable top cartons (sizes 250, 500 and 1000 ml) or aseptic packaging in 225 ml size. Fruit flavours: orange, apple, peach, pineapple, strawberry, grape, orange/banana blend and apple/grape blend. A-1 EXHIBIT B 1. Map detailing geographic scope of Shanghai Municipality covered under this Agreement. 2. The geographic scope of the Hangzhou Municipality covered under this Agreement shall be the area that is within a 50km radius of West Lake. B-1 EXHIBIT C TRADEMARK REGISTRATIONS 1. Licensee acknowledges that Licensor has informed Licensee of the existence of trademark applications and/or registrations made by third parties in China which are identical or similar to certain of Licensor's trademarks associated with the Licensed Material in China. Licensee acknowledges that such existing third party trademark applications and/or registrations may raise problems or liability for trademark infringement in connection with Licensee's use of Licensor's trademarks associated with the Licensed Material in China (the "China Trademarks") as contemplated in this Agreement. Such identical or similar trademark applications and/or registrations include: (i) Trademark: Bugs Bunny name in Mandarin (Tu Ba Ge) Application No. 98064045 Preliminary Approval No. 1324203 Applicant: Zibo Xingbang Chemical Co., Ltd. Class 29 (ii) Trademark: Bugs Bunny name in Mandarin (Tu Ba Ge) Registration No. 1139039 Registrant: Zibo Municipality Linzi Guangfeng Food & Beverage Factory Class 32 (iii) Trademark: Looney Tunes name in Mandarin (Le Yi Tong) Registration No. 335882 Registrant: Guangxi Lipuxian Licheng Food Co. Ltd. Class 32 (iv) Trademark: Looney Tunes name in Mandarin (Le Yi Tong) Registration No. 766236 Registrant: Huizhoushi Lehui Shiye Co. Ltd. Class 32 (v) Trademark: Tasmanian Devil name in Mandarin (Da Zui Guai) Registration No. 739985 Registrant: Nanqishi Gongtong Food Co. Ltd. Class 29 (vi) Trademark: Tasmanian Devil name in Mandarin (Da Zui Guai) Registration No. 741218 Registrant: Nanqishi Gongtong Food Co. Ltd. Class 32 C-1 2. Licensee acknowledges that Licensor makes no representation or warranty with respect to Licensor's ownership or state of registration of the China Trademarks, or the potential problems or liability with respect to Licensee's use of the China Trademarks. Licensee further acknowledges that it is not relying on information provided by Licensor in respect thereof, and that Licensee is responsible for conducting its own investigations and making its own assessment of the risks associated with Licensee's use of the China Trademarks. 3. Except as provided for in Subsection 5(b) of this Agreement, Licensee hereby remises, releases and forever discharges Licensor and its affiliates of and from all actions, causes of actions, claims and demands whatsoever which Licensee shall or may have at any time for or by reason of or in any way in connection with claims of trademark infringement arising from Licensee's use of the China Trademarks or Licensee's inability to use any or all of the China Trademarks. Without limiting the generality of Subsection 13(a) of this Agreement, during the Term, and continuing after expiration or termination of this Agreement, Licensee shall indemnify Licensor against all claims, liabilities (including settlements entered into in good faith) and expenses (including reasonable attorney's fees) arising out of claims of Licensee's infringement of any rights of any third party by Licensee's use of the China Trademarks. The parties indemnified hereunder shall include Licensor, its parent, affiliates, subsidiaries and their respective officers, directors, shareholders, employees and agents. 4. From time to time during the Term of this Agreement, and during any extended Term, Licensee shall have the right to request Licensor to supply Licensee with the results of any trademark search performed by Licensor with respect to the China Trademarks and any updates of such searches. The results of such searches shall be provided to Licensee, subject to a confidentiality agreement, which shall be executed by Licensee, if so requested by Licensor. Licensee shall use said search results only for the purposes set forth in paragraph 2 of this Exhibit C, with respect to Licensee's assessment of the risks associated with Licensee's use of the China Trademarks. The parties acknowledge and agree that, in connection with the aforesaid assessment process, Licensee may disclose the search results to counsel of its choice for an opinion concerning the risks of Licensee's use of the China Trademarks, and that such counsel shall be bound by the terms of any confidentially agreement executed by the parties as provided in this paragraph. 5. Licensee shall be entitled to refuse to use any element of the Licensed Material if it has a bona fide reason to believe that its use of such material may expose Licensee to liability for the violation of any applicable law, regulation or the rights of a third party. Licensee shall, upon Licensor's request, provide Licensor with a detailed explanation of its reasons for such refusal. C-2 STANDARD TERMS AND CONDITIONS 1. RIGHTS GRANTED TO LICENSEE -------------------------- (a) During the Term and any extension thereof, Licensor grants to Licensee the non-exclusive right in the Territory to use and reproduce the Licensed Material only on and in connection with the manufacture, advertising, distribution and sale of the Licensed Articles. Licensee specifically understands and agrees that no rights are granted herein in respect of the Warner Bros. "shield" name or logo, the Warner Bros. Consumer Products name or logo, or the Warner Bros. Studio Store name or logo. (b) The rights granted to Licensee hereunder are solely rights to manufacture the Licensed Articles and distribute them in the Territory only through the Distribution Channels. Licensee shall have no right to establish or operate retail stores, store-in-stores, retail outlets or any form of service establishment utilizing any indicia of the Licensed Material, including all or any part of any trademark, copyright or other property forming part of the Licensed Material. (c) Licensor further grants to Licensee the non-exclusive right to reproduce, with Licensor's prior written approval, the Licensed Material only within the Territory on containers, packaging, display material and in advertising for the Licensed Articles, subject to the provisions of this Agreement. It is specifically understood that no television, radio and/or theatrical commercials may be utilized under this Agreement without Licensor's prior written approval. (d) Licensee shall be free to sell Licensed Articles to Licensor or to any subsidiary of Licensor's, subject to the payment to Licensor of Royalties on such sales. Licensee agrees that sales of Licensed Articles to Licensor shall be at cost, or at a reduced price or at the best price available to the trade. (e) Licensee and its customers shall be free to sell the Licensed Articles at such prices as Licensee or its customers shall determine. However, Licensee agrees that any proposed sales of Licensed Articles at a liquidation price cannot occur without Licensee first offering Licensor the opportunity to purchase said Licensed Articles. 2. CONSIDERATION ------------- (a) Licensee agrees to pay each installment of the Guaranteed Consideration as set forth above to Licensor, which shall be on account of Royalties to accrue during the Term only and only with respect to sales in the Territory. However, if any part of the Guaranteed Consideration as specified hereinabove applies to any period less than the Term, such part shall be on account of Royalties to accrue during such lesser period only. No part of Guaranteed Consideration shall be repayable to Licensee in any circumstances. (b) Royalties accruing from any sales of Licensed Articles during the Sell-Off Period described in Paragraph 17(c), during an extension of the Term or after the expiration or termination of the Agreement as provided in Paragraph 16, shall not be offset against the Guaranteed Consideration unless otherwise agreed in writing. (c) Royalty Payments: (i) Licensee shall pay to Licensor a sum equal to the Royalty Rate as set forth above of all Net Invoiced Billings (as defined below) by Licensee of the Licensed Articles covered by this Agreement. Royalties shall be payable concurrently with the statements required in Paragraph 10 hereof, except to the extent offset by Guaranteed Consideration theretofore remitted. The credit shall be taken in the Monthly Accounting Period in which the refund is given or credit memo issued. Unused credits may be carried forward from one Contract Year to another. In no event shall Licensee be entitled to a refund of Royalties. 1 (ii) The term "Net Invoiced Billings" shall mean all monies billed or billable by Licensee from the exercise of its rights to distribute and sell Licensed Articles in the Territory before any allowances or discounts, which have been deducted from the normal selling price, inclusive of interest, monetary correction, and any other payment charges whatsoever, less the following items only: (A) any sales, excise or value added taxes payable in the Territory, which are separately stated, and which are required to be collected from customers as part of Net Invoiced Billings, and which are payable to taxing authorities, and (B) actual defective returns. (iii) It is specifically understood and agreed that no deduction may be made for any actual returns (except for defective returns), or any reserves therefor, any bad debts, or any reserves therefor, any manufacturing costs, importing costs, selling costs, advertising costs, any real estate taxes, business license taxes, net income taxes, franchise taxes, consumption taxes or any other taxes not billed as part of Net Invoiced Billings. It is also understood and agreed that all sums billed in respect of Licensed Articles lost and/or unaccounted for shall also be included in Net Invoiced Billings. The sums which Licensor is paid as Royalties on any sales to Affiliated Customers of Licensee (as defined below), shall be no less than the sums paid as Royalties on sales to unaffiliated customers. For purposes of this agreement, Affiliated Customers of Licensee shall mean any entity which owns or controls, is owned or controlled by, is under common ownership or control with, or is otherwise related in whole or in part by way of ownership or control with, Licensee, including but not limited to parent companies, subsidiary companies, sister companies, partnerships, and joint ventures of Licensee. The word "control" (including "controlled by" and "controls"), as used in the preceding sentence shall be deemed to mean possession, directly or indirectly, of the power to command the course of management, policy making and business activity of the entity or of Licensee, as the case may be, regardless of equity, debt, or voting securities position. (iv) No Royalties are payable on the mere manufacture of Licensed Articles to the extent all manufactured Licensed Articles are accounted for as required by Paragraph 10 below. 3. APPROVALS --------- (a) (i) Licensee shall submit to Licensor for its prior review and written approval all preliminary and proposed final artwork and three-dimensional models which are to appear on or in the Licensed Articles and Licensee's proposed use of such materials in preparing a pre-production sample. Licensee shall submit such material as early as possible, and in any case at least twenty (20) business days prior to commercial production of any Licensed Article. Thereafter, Licensee shall submit to Licensor for its written approval a pre-production sample of each Licensed Article. (ii) All containers, packaging, display material, hangtags, promotional material, catalogs and advertising for Licensed Articles which utilize or incorporate the Licensed Material must be submitted to Licensor and receive its written approval before use. Licensor's approval thereof should be procured when same is still in rough or storyboard format. Licensor shall endeavor to respond to requests for approval without undue delay. Approval shall lie in Licensor's sole discretion, and the use of containers, packaging, display material, promotional material, catalogs or advertising not approved by Licensor in writing is strictly prohibited. Whenever Licensee shall prepare catalog sheets or other printed matter containing illustrations of Licensed Articles, it will furnish to Licensor five (5) copies of same. (iii) Before shipping a Licensed Article to any customer, Licensee shall furnish to Licensor, for its approval of all aspects of the Licensed Article in question, from the first production run of each supplier or manufacturer of each of the Licensed Articles, the number of samples, with packaging, which is set forth hereinabove. Such samples shall conform to the approved artwork, three-dimensional models and pre-production sample previously approved by Licensor hereunder. 2 (iv) Approval or disapproval of the artwork utilizing or incorporating Licensed Material as it appears on the Licensed Articles, as well as of the quality of the Licensed Articles, shall lie in Licensor's sole discretion. If any Licensed Article or item not approved hereunder by Licensor in writing is being sold, distributed, published or otherwise used, Licensor may at its sole election require, together with other remedies available to it including but not limited to immediate termination of this Agreement by written notice, such Licensed Article or item to be immediately withdrawn from the market, or from distribution, publication or other dissemination by Licensee, and Licensee agrees to so withdraw such Licensed Article or item within the period so stated by Licensor. Licensed Articles and items so withdrawn shall be immediately destroyed and such destruction shall be attested to in a certificate signed by an independent third party, firm, or agency approved by Licensor and delivered forthwith to Licensor. (v) Any modification of a Licensed Article, including but not limited to change of materials, color, design or size of the representation of Licensed Material, must be submitted in advance for Licensor's prior written approval as if it were a new Licensed Article. Approval of a Licensed Article which uses particular artwork does not constitute approval of such artwork for use with a different Licensed Article. The fact that artwork has been taken from a publication or article previously approved by Licensor does not mean that its use will be approved in connection with a Licensed Article licensed hereunder. Licensor shall endeavor to respond to requests for approval within a reasonable time, but Licensee shall seek such approvals as early as possible in case of delays. Licensor's failure to respond shall be deemed disapproval. (b) (i) If Licensee submits for approval artwork from an article or book manufactured or published by another licensee of Licensor or of any subsidiary of Licensor, Licensee must advise Licensor in writing of the source of such artwork. It is specifically understood that Licensee may not, in certain cases, be permitted to utilize any previously published artwork or artwork not specifically provided by Licensor, it being understood by Licensee that any and all uses of artwork featuring the Licensed Material shall be entirely subject to Licensor's approval as provided herein. (ii) If Licensee fails to advise Licensor as required in (i) above, any approval which Licensor may give for use by Licensee of such artwork may be withdrawn at any time by giving Licensee written notice thereof, and upon receipt of such written notice Licensee shall be prohibited by Licensor from selling any Licensed Articles using such artwork. (iii) If Licensor has supplied Licensee with forms for use in applying for approval of artwork, models, pre-production and production samples of Licensed Articles, Licensee shall use such forms when submitting anything for Licensor's approval as provided for hereunder. (c) Licensee shall make available to Licensor as directed by Licensor at no charge six (6) additional samples of representative Licensed Articles on an annual basis or more frequently as Licensor may from time to time reasonably request for the purpose of comparison with earlier samples. (d) Licensee shall permit Licensor, upon reasonable request, to inspect Licensee's manufacturing operations (and those of its suppliers) for the Licensed Articles. (e) It is specifically understood that Licensor may in its sole discretion inter alia disapprove a Licensed Article or a production run of a Licensed Article because the quality is unacceptable to Licensor. Accordingly, Licensor recommends that Licensee submit production samples to it for approval before committing to any original production run or any purchase of a shipment from a new supplier. (f) No modification of an approved production sample shall be made without Licensor's prior written approval. Licensed Articles being sold must conform in all respects to the approved production sample. It is understood that if in Licensor's reasonable judgement the quality of a Licensed Article originally approved has deteriorated in later production runs, or if the Licensed Article has otherwise been altered, Licensor may, in addition to other remedies available to it, require 3 by written notice such Licensed Article to be immediately withdrawn from the market, and Licensee agrees to withdraw such Licensed Article within the period so stated by Licensor. Licensed Articles so withdrawn shall be immediately destroyed, and such destruction shall be attested to in a certificate signed by an independent third party, firm or agency approved by Licensor and delivered forthwith to Licensor. (g) The rights granted hereunder do not permit the sale of "seconds" or "irregulars." All Licensed Articles not meeting the standard of approved samples shall be destroyed, pursuant to Subparagraph (f) above, unless otherwise directed by Licensor. 4. SPECIFIC UNDERTAKINGS OF LICENSEE --------------------------------- During the Term and any renewal period and thereafter, Licensee warrants, represents, and agrees that: (a) It shall not sell Licensed Articles for use as premiums (including those in purchase-with-purchase promotions), promotions, giveaways, fund raisers or entries in sweepstakes or to customers for resale only by direct mail or other resale through direct marketing methods without the prior written approval of Licensor. Nor shall Licensee conduct any premium-based sales promotion without the express prior written consent of Licensor. (b) It shall obtain all necessary approvals and bear all expenses from any third party(s) in connection with any print and/or broadcast advertising that Licensor authorizes. Licensee shall submit all proposed advertising materials and concepts to Licensor as set forth in Paragraph 3 and Licensor's approval of copy or storyboards for such advertising will not constitute a representation or belief by Licensor that such copy or storyboards as contained therein are sufficient to meet any code, standard, or other obligation imposed by any third party(s). No media commercials incorporating any character voices may be utilized under this Agreement without Licensor's specific prior written approval. (c) It shall cause Licensee's name, trade name (or a trademark of Licensee's which it has advised Licensor in writing that it is using) and the country of manufacture of the Licensed Articles to appear on the permanently affixed labeling on each Licensed Article and, if the Licensed Article is sold to the public in packaging or a container, printed on such packaging or container along with Licensee's address so that the public can identify the supplier of the Licensed Article. On soft goods "permanently affixed" shall mean sewn on. (d) It shall advise Licensor in writing of all trade names or trademarks it is using on or in connection with Licensed Articles being sold under this Agreement if such names or marks differ from its corporate name as indicated herein. (e) It shall insure that each Licensed Article distributed hereunder shall be of high quality and shall comply with all applicable laws, regulations and established industry standards of the country of origin and the country of destination and conform to the sample thereof approved by Licensor. (f) It shall not associate other characters or other properties with the Licensed Material, either on the Licensed Articles or in their packaging, or on advertising, promotional or display materials without Licensor's prior written permission. (g) It shall manufacture (or have manufactured for it) and offer for sale all of the Licensed Articles and exercise the rights granted herein. Licensee agrees that not later than by the Marketing Date applicable to a particular Licensed Article, shipments to customers of Licensed Articles in quantities sufficient to meet reasonably and anticipated demand will have taken place and that Licensed Articles shall be available for purchase and prompt delivery to customers. Any Licensed Article as to which such sales have not taken place or which are not then available for purchase and prompt delivery may be recaptured from the scope of this Agreement without obligation to Licensee, other than to provide it with written notice thereof. Licensee further agrees to use its best endeavors to promote sales of the Licensed Articles. 4 (h) It shall carry out the Promotional Commitment, which shall be defined as the sum set forth on the cover page of this Agreement, which Licensee shall budget and expend on advertising of the Licensed Articles in the Territory. Accordingly, every six months from the Marketing Date, Licensee shall submit to Licensor a statement which shall include total Net Invoiced Billings and total sums expended on advertising the Licensed Articles, together with the resulting percentage. In the event Licensee fails to expend in full the sum specified herein within the required time period, upon submission of the statement required in Paragraph 10(a)(i), Licensee shall pay to Licensor an amount equal to such shortfall. (i) Its parent or any subsidiary or affiliate of it shall not register or attempt to register, in any country, copyrights, or to register as a trademark, service mark, design patent or industrial design any of the Licensed Material or derivations or adaptations thereof, or any word, symbol or design which is so similar thereto as to suggest association with or sponsorship by Licensor or any subsidiary of Licensor's. In the event of a breach of the foregoing, Licensee agrees, at its expense and at Licensor's request, to immediately terminate the unauthorized registration activity and to promptly execute and deliver or cause to be delivered to Licensor such assignments and other documents as it may require to transfer to it all rights to the registrations, patents or applications involved. (j) It shall not use either the Licensed Material, any registered material of Licensor or any other material, the copyright or trademark to which is owned or controlled by Licensor, in any way other than as herein authorized (or as authorized in such other written contract signed by both Licensee and Licensor as may be in effect). In addition to any other remedy Licensor may have, Licensee agrees that the total revenues to Licensee from any use of such material in any manner not expressly authorized herein, including on products other than the Licensed Articles (unless authorized by Licensor in writing), shall be payable to Licensor. (k) It shall give Licensor prompt written notice of any unlicensed use by third parties of Licensed Material or material which infringes any rights in the Licensed Material due to its similarity thereto, and Licensee shall not bring or cause to be brought any criminal prosecution, lawsuit or administrative action for infringement, interference with or violation of any rights to Licensed Material or violation of any rights granted herein. Licensee shall cooperate and, if Licensor deems appropriate, be named by Licensor as a sole plaintiff or co-plaintiff in any action against an infringer of Licensor's or Licensee's rights hereunder, provided it gives Licensee prior written notice of such action and bears the expense thereof. Any and all settlements, penalties, damages, and recoveries arising from or in connection with such action shall be the sole property of Licensor. (l) It shall not use any Licensed Material on any business sign, business cards, stationery or forms (except as licensed herein) or use any Licensed Material as the name of its business or any division thereof. (m) It shall not attack the title of Licensor or the owner(s) in and to the Licensed Material or any copyright and trademark pertaining thereto, nor shall it attack the validity of the license granted hereunder. (n) It will not sub-license to any third party any of the rights granted pursuant to this Agreement; furthermore, any sub- manufacturing arrangements shall be carried out strictly in accordance with Paragraph 11 of this Agreement. (o) It shall not export any of the Licensed Articles outside of the Territory, nor shall it sell any Licensed Articles to any third party that Licensee knows, or may reasonably be expected to know, intends to, is likely to or is suspected to export such items. In all of its contracts and purchase orders with sub-contractors, retailers and other third parties governing the manufacture, distribution and sale of any of the Licensed Articles, Licensee shall include the foregoing prohibitions on export. Licensee agrees that any appearance of any of the Licensed Articles in a wholesale or retail sales venue anywhere outside of the Territory shall be grounds for the Licensor to immediately terminate this Agreement. 5 5. RIGHTS RESERVED BY LICENSOR --------------------------- (a) Licensor reserves all rights not expressly conveyed to Licensee hereunder. Notwithstanding anything to the contrary in the foregoing paragraph or elsewhere set forth in this Agreement, Licensee hereby acknowledges that the rights granted hereunder are subject to the rights of Licensor, and the owner of the Licensed Material, to use or license without limitation throughout the world any third party(s) of its choice for the manufacture, distribution, advertising and sale of products similar or identical to those set forth above for sale through any catalog(s) produced or distributed by or on Licensor's behalf, or for sale or distribution in any motion picture theaters, or for sale or distribution in any retail stores (or portion thereof) operated by Licensor or on Licensor's behalf. (b) Licensor reserves the right to withdraw any Licensed Material or Licensed Articles, the use or sale of which under this Agreement would infringe or reasonably be claimed to infringe the rights of a third party(s). In such case Licensor's obligations to Licensee shall be limited to the purchase, at cost without overhead, of Licensed Articles and other materials utilizing such withdrawn Licensed Material which cannot be sold or used. 6. ARTWORK ------- Should Licensee wish to use Licensor's services in developing artwork for the creation of Licensed Articles, display packaging or promotional material (including any artwork which, in Licensor's opinion, is necessary to modify artwork initially prepared by Licensee and submitted to Licensor for approval) Licensee shall pay Licensor, whithin thirty (30) days following the date of Licensor's invoice therefore the amounts due, based upon Licensor's prevailing commercial art rates, including any delivery charges incurred by Licensor in connection therewith. Estimates of artwork charges are available upon request. Licensee acknowledges that in certain cases it may be required by Licensor to utilize artwork or renditions of the Licensed Material as specifically provided by Licensor, and Licensee agrees to so utilize such renditions. In those instances where Licensee is unable or unwilling to use such renditions, and if Licensor approves in writing, Licensee may create or procure the creation of artwork to be submitted for approval as required herein. Nonetheless, in those instances where Licensee is not obligated to utilize Licensor's services, Licensee is encouraged to do so in order to minimize delays which may occur if outside artists do renditions of Licensed Material which Licensor does not approve. 7. LICENSOR'S OWNERSHIP OF ALL RIGHTS IN LICENSED MATERIAL ------------------------------------------------------- Licensee acknowledges that, as between Licensee and Licensor, the Licensed Material and all copyrights and other proprietary rights in and to the Licensed Material are exclusively owned, reserved and/or controlled by Licensor. Licensee acknowledges that Licensor shall have the right to terminate this Agreement in the event Licensee asserts any rights in or to the Licensed Material. Licensee further agrees and acknowledges that all rights in and to any and all artwork created (including if created in whole or in part by Licensee) and authorized for use hereunder by Licensor in connection with the Licensed Articles or otherwise which utilizes or incorporates any of the Licensed Material shall, as between Licensee and Licensor, be owned, reserved, and/or controlled in its entirety exclusively by Licensor, who shall be the author at law and copyright proprietor thereof. Licensor reserves for itself or its designees all rights to use any and all artwork created, utilized and/or approved hereunder without limitation in the Territory, or otherwise, during or after the Term. At the request of Licensor, Licensee shall execute such form of assignment to Licensor of the copyright in any amendments to or derivative works based in whole or in part upon the Licensed Material and all other proprietary, rights in and to the Licensed Material as Licensor may reasonably request, 8. LEGAL NOTICES ------------- As a condition to the grant of rights hereunder, each Licensed Article and any other matter containing Licensed Material shall bear one or more properly located legal notice in the form as set forth above or as otherwise prescribed by Licensor. Licensee will comply with such instructions as to form, location and content of the notice as Licensor may give from time to time. Licensee will not affix to any Licensed Article or any other matter containing Licensed Material a legal notice in any other name. If by inadvertence a proper legal notice in Licensor's name is omitted from any Licensed Article or other matter containing Licensed Material, 6 Licensee agrees, at its expense, to immediately use all possible efforts to correct the omission on all such Licensed Articles or other matter in process of manufacture or in distribution. Licensee agrees to advise Licensor promptly and in writing of the steps being taken to correct any such omission and to cooperate fully with Licensor in making the corrections on all existing Licensed Articles which can be located. 9. GOODWILL -------- Licensee recognizes and acknowledges the great value of the publicity and goodwill associated with the Licensed Material and in such connection, it acknowledges that such goodwill exclusively belongs to Licensor and that the Licensed Material has acquired a secondary meaning in the mind of the purchasing public. Licensee further recognizes and acknowledges that a breach by it of any of its covenants, agreements or undertakings hereunder will cause Licensor irreparable harm, which cannot be readily remedied in damages in an action at law, and will, in addition thereto, constitute an infringement of Licensor's rights in and to the Licensed Material, thereby entitling Licensor to injunctive relief and other equitable remedies, costs and reasonable attorney's fees. 10. STATEMENTS, PAYMENTS AND AUDITS ------------------------------- (a) Within fifteen (15) days following the end of each calendar month during the Term ("Monthly Accounting Period"), Licensee shall submit to Licensor: (i) With respect to cumulative Net Invoiced Billings, a "Royalty Statement and Promotional Expenditures Report" which shall include, at a minimum, the information listed on the format to be provided by Licensor upon execution of this Agreement. (ii) With respect to Licensed Articles manufactured and sold and defective sales returns, an "Inventory Movement Report" which shall include, at a minimum, the information listed on the format to be provided by Licensor upon execution of this Agreement. Licensor will provide the formats for the above-referenced reports and reserves the right to review and amend the minimum requirements referred to above, from time to time, and in such event Licensee shall duly complete and return to Licensor any such amended version in accordance herewith. (b) Licensee shall provide Licensor at the beginning of the Term and thereafter within seven (7) days of the close of each financial quarter ("Quarterly Accounting Period") with a completed revenue forecast projected forward to a date twelve (12) months from the beginning of said quarter (the "Forecast"). The Forecast shall be completed by Licensee in a format which Licensor shall provide. Licensor reserves the right to review and amend the format of the Forecast from time to time and in such event Licensee shall duly complete and return to Licensor any such amended version in accordance herewith. (c) Within thirty (30) days following the end of each Contract Year, Licensee shall conduct at its own expense a physical inventory of all Licensed Articles in Licensee's possession or control and submit to Licensor a written statement detailing the results of such physical inventory. (d) Licensee shall utilize its best efforts to comply on a timely basis with all reasonable requests of Licensor for supplementary accounting information and reports in addition to the statements specifically required by this Agreement. (e) (i) Within fifteen (15) days following the end of each Monthly Accounting Period, Licensee shall pay Licensor in U.S. dollars the amount shown on the Royalty Statement and Promotional Expenditures Report to be due to Licensor. All sums due Licensor shall be deposited in a bank account to be designated by Licensor. In calculating the amount of U.S. dollars to be paid to Licensor, Licensee shall calculate the Royalties due in the national currency of the country of the Territory and then convert it into U.S. dollars based upon the exchange rate published by the national bank in the country of the Territory, and Licensee shall furnish Licensor with external evidence with respect to the authenticity of the exchange 7 rates used, such as a bank statement. Exchange rates in respect of each Monthly Accounting Period shall be determined as of the 15th day of the applicable month, or if such 15th day shall fall on a non-business day then as of the first business day following said 15th day. (ii) In no event shall any remittance restrictions in a particular country as comprises the Territory relieve Licensee of the obligation of reporting, and ultimately remitting, all Guaranteed Consideration and Royalties as required hereunder. (iii) In the event that amounts payable to Licensor are not remitted in full within the required payment period (which in the case of Royalties shall be fifteen (15) days following the end of a Monthly Accounting Period, or, in the case of Guaranteed Consideration shall be the date due), and Licensee has not provided evidence to Licensor that because of laws and restrictions in a country or countries of the Territory, amounts payable could not be remitted, then Licensee shall pay to Licensor as liquidated damages and not as a penalty an amount equal to five percent (5%) per month, without any deductions for tax or other purposes, on the outstanding balance. Interest will become due on the first day the payment is not made beyond the said fifteen (15) days as aforesaid, and an additional month will be deemed to have passed for the purposes hereof on the first day of each subsequent calendar month until the delinquent amounts are paid. (iv) In the event Licensor shall suffer any exchange losses arising from late payments, including those late payments arising as a result of understated amounts due discovered as a result of an audit, such losses shall be determined by deducting the U.S. dollars actually received by Licensor from the U.S. dollars which would have been received if the delinquent balance had been paid on the last due date at the exchange rate on that date (plus interest calculated in accordance with this Agreement from such last due date), as published by the national bank in the country of the Territory. Any resulting shortfall will be paid immediately by Licensee to Licensor in U.S. dollars. This exchange loss protection described above will also apply to all liquidated damages described above, and the last due date, for purposes of determining the exchange rate, shall be deemed to be the first day a payment becomes delinquent. (v) If remittance restrictions shall remain in effect for six (6) months or more, Licensor shall have the right and option, exercisable by the service of a written notice to such effect upon Licensee, to terminate this Agreement. Licensee will use its best efforts at all times to obtain government approval for remittance of all sums due to Licensor at the earliest possible date. (f) Licensee shall keep true and accurate books and records of all transactions relating to the manufacture, distribution, and exploitation of Licensed Articles hereunder, which shall include but not be limited to the following minimum requirements: (i) inventory records showing the receipt, dispatch, return and balance of Licensed Articles stocked by Licensee; (ii) billing records that are capable of being traced to the above inventory records; and (iii) an overall reconciliation showing the total number of Licensed Articles received and/or manufactured in connection with the exploitation of Licensee's rights hereunder and showing their actual disposition, i.e., whether with customers, damaged, destroyed, lost, or in stock. (g) Licensor shall have the right from time to time during normal business hours at reasonable intervals to inspect, audit and make extracts of the books and records of Licensee insofar as said books and records relate to the manufacture, distribution, and exploitation of Licensed Articles licensed hereunder and as said books and records relate to Licensee's fulfillment of the Promotional Commitment and such right of audit shall continue for a period of two (2) years following either expiry or termination of this Agreement. Should an inspection or audit carried out pursuant hereto reveal any shortfall, Licensee shall pay to Licensor an amount equal to such shortfall together with interest thereon from the respective dates that same should have been payable hereunder until the date 8 of payment of such shortfall at a rate equal to the lesser of (i) five percent (5%) per month, without any deductions for tax or other purposes, and (ii) the maximum legal rate in such country of the Territory. Should an inspection or audit carried out pursuant hereto reveal a shortfall of more than one percent (1%) of the total amount due to Licensor for the periods reviewed, the costs of such audit or inspection shall be reimbursed by Licensee to Licensor within thirty (30) days of Licensor's invoice therefor. Licensor shall also have the right to inspect or audit, under the same terms described in this Paragraph, the books and records of any of Licensee's affiliated companies which charged expenses to Licensee, including bills, invoices, and overhead charges. (h) Each character or element of the Licensed Material licensed hereunder shall constitute a separate unit for purposes of accounting statements and remittance to Licensor hereunder. (i) Any income taxes, other taxes, and/or fees which local law requires to be levied against Licensor's Guaranteed Consideration or Royalties shall, in order to avoid any interest charges or other penalties, be advanced by Licensee on behalf of Licensor within the period of time required by local law; provided that Licensee shall not make such advance if Licensor has advised Licensee in writing not to do so, and has taken appropriate legal action to contest the propriety of such taxes and/or fees and legally withhold payment, and in such event Licensor shall indemnify Licensee against any interest charges or other penalties with respect to such taxes. Any such taxes or fees which Licensee advances shall be deducted from the total amount of Guaranteed Consideration and Royalties otherwise payable to Licensor. In the event that new or revised law(s) establishing fees, taxes or other impositions are promulgated in the Territory, Licensee must notify Licensor immediately and in ample time to afford Licensor an opportunity to contest such impositions through the appropriate legal channels. Licensee shall file all necessary tax returns or other government documents on Licensor's behalf which are required by local law, within the time period required by local law. The original receipt, and the computations for such taxes as may be deducted from the Guaranteed Consideration and Royalties, must accompany the remittance of the Guaranteed Consideration or the monthly Royalty Statement and Promotional Expenditures Report (referred to in Subparagraph 10(a)(i) above) in the Monthly Accounting Period in which such tax deduction is made. If local law stipulates that the original tax receipt must be retained by the Licensee, a bonafide copy thereof must be attached to the Royalty Statement and Promotional Expenditures Report. 11. MANUFACTURE OF LICENSED ARTICLES BY THIRD PARTY MANUFACTURERS ------------------------------------------------------------- (a) Prior to entering into this Agreement, Licensee shall advise Licensor in writing of the place of manufacture of the Licensed Articles. If Licensee at any time desires to have Licensed Articles or components thereof containing Licensed Material manufactured by a third party, it must, as a condition to the continuation of this Agreement, notify Licensor of the name and address of such manufacturer and the Licensed Articles or components involved and obtain Licensor's prior written permission to do so. The granting of said permission, if Licensor is prepared to grant the same, will be conditional upon: (i) Licensee's signing a consent agreement in a form to be provided by Licensor; and (ii) Licensee causing each such manufacturer and any submanufacturer to sign such an agreement; and (iii) Licensor's receipt of such agreements properly signed. (b) Notwithstanding the above subparagraph (a), Licensee acknowledges and agrees that in the event Licensor shall request Licensee to have Licensed Articles or components thereof containing Licensed Material manufactured by Licensor's designee or source, Licensee shall comply with such request. (c) Licensee's purchase of Licensed Articles from a third party manufacturer without such an agreement as required hereunder being signed and delivered to Licensor shall be a violation of this Agreement. 9 (d) Licensee shall monitor the activity of each third party manufacturer under its respective consent agreement, and shall make its best efforts to ensure that such third party manufacturer complies with its respective consent agreement. If any such manufacturer utilizes Licensed Material for any unauthorized purpose, Licensee shall cooperate fully in bringing such utilization to an immediate halt. If, by reason of Licensee not having supplied the above-mentioned agreements to Licensor or not having given Licensor the name of any supplier, Licensor makes any representation or takes any action and is thereby subjected to any penalty or expense, Licensee will indemnify Licensor for any cost or loss Licensor sustains. 12. LICENSOR'S WARRANTIES AND REPRESENTATIONS ----------------------------------------- Licensor warrants and represents to Licensee that: (a) It has, and will have throughout the Term of this Agreement, the right to license the Licensed Material to Licensee in accordance with the terms and provisions of this Agreement; and (b) The entering into of this Agreement by Licensor does not violate any Agreement, rights or obligations existing between Licensor and any other person, firm or corporation. Except as expressly stated in this Section 12, Licensor makes no other representation or warranty with respect to the subject matter hereof. 13. INDEMNITY --------- (a) During the Term, and continuing after expiration or termination of this Agreement, Licensee shall indemnify Licensor against all claims, liabilities (including settlements entered into in good faith) and expenses (including reasonable attorney's fees) arising out of Licensee's activities hereunder or out of any alleged defect (whether obvious or hidden) in a Licensed Article or arising from personal injury or any infringement of any rights of Licensor's or of any third party by the manufacture, sale, possession or use of Licensed Articles (or the advertising therefor) or their failure to comply with applicable laws. The parties indemnified hereunder shall include Licensor, its parent, affiliates, subsidiaries and their respective officers, directors, shareholders, employees and agents. (b) No warranty or indemnity is given by Licensor with respect to any liability or expense arising from any claim that use of the Licensed Material on or in connection with the Licensed Articles hereunder or any packaging, advertising or promotional material infringes upon any trademark right of any third party or otherwise constitutes unfair competition by reason of any prior rights acquired by such third party. 13A. TRADEMARK REGISTRATIONS ----------------------- See attached Exhibit C which shall form part of this Agreement. 14. INSURANCE --------- To the extent consistent with Licensee's normal business practices, Licensee shall maintain in full force and effect at all times while this Agreement is in effect comprehensive general liability insurance, including product liability coverage with broad form vendor's endorsement. Licensee shall deliver to Licensor a certificate or certificates of insurance evidencing any such insurance coverage. 10 15. CREDIT AND SECURITY INTERESTS ----------------------------- (a) Licensee agrees to provide credit information and other documentation as Licensor may request including, but not limited to, fiscal year-end financial statements (profit and loss statement and balance sheet), and operating statements. (b) Licensee agrees to provide Licensor at Licensor's request a letter of credit issued in favor of Licensor from a financial institution as approved by Licensor in an amount and form approved by Licensor and/or such other form of security as may be acceptable to Licensor. Licensee agrees to execute all documentation as Licensor may require in connection with perfection of such security interests. 16. TERMINATION ----------- Without prejudice to any other right or remedy available to it and in addition to any other termination rights specified throughout this Agreement, Licensor shall have the right at any time to terminate this Agreement forthwith (and, unless specified hereunder, without written notice) under any of the following circumstances: (a) If Licensee defaults in the performance of any of its material obligations provided for in this Agreement and any such default is not corrected within ten (10) days after written notice to Licensee from Licensor thereof; or (b) If Licensee does not commence in good faith to manufacture, distribute and sell each Licensed Article throughout the Territory on or before the Marketing Date and thereafter fails to diligently and continuously manufacture, distribute and sell each of the Licensed Articles throughout the Territory. Such default, and Licensor's resultant right of termination, shall apply only to the specific characters, elements and logos of the Licensed Material and/or the specific Licensed Article(s) and/or the specific country or region of the Territory of which or wherein Licensee fails to meet said marketing requirements, and if any such failure is not corrected within ten (10) days after written notice to Licensee from Licensor thereof; or (c) If Licensee fails in its obligations to furnish all statements and accounts required by this Agreement and to pay any amount provided for herein, and in particular all Royalties and Guaranteed Consideration, and if any such failure is not corrected within ten (10) days after written notice to Licensee from Licensor thereof; or (d) If Licensee delivers to anyone without Licensor's written authorization merchandise containing representations of Licensed Material or other material, the copyright or other proprietary rights to which are owned or controlled by Licensor, other than the Licensed Articles approved in accordance with the provisions hereof; or (e) If Licensee or its affiliate shall breach any other agreement in effect between Licensee or its affiliate on the one hand and Licensor or any other company in the Time Warner Entertainment Company, L.P, group or Time Warner Inc. group on the other, including the license agreements between (1) Licensor and Green Food Peregrine Children's Food Co., Ltd., and (2) Licensor and Hangzhou Meilijian Dairy Products Co., Ltd.; or (f) If Licensee shall make any assignment for the benefit of creditors or file a petition in bankruptcy or is adjudged bankrupt or becomes insolvent or generally unable to pay its debts as and when due or is placed in the hands of a receiver or if the equivalent of any such proceedings or acts occurs though known by some other name or term; or (g) If Licensee is unable or not permitted to operate its business in the usual manner or is not permitted or is unable to provide Licensor with assurance satisfactory to it that Licensee will so operate its business as debtor in possession or its equivalent, or is not permitted or is unable to otherwise meet its obligations under this Agreement or to provide Licensor with assurance satisfactory to it that Licensee will meet such obligations; or 11 (h) If Licensee fails to make any two or more consecutive monthly payments of Royalties when due; or (i) If Licensee undergoes a substantial change of management or ownership. 17. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION ----------------------------------------------------- (a) Upon the expiration or termination of this Agreement, all rights herein granted to Licensee shall immediately revert to Licensor, Licensor shall be entitled to retain all Royalties and other things of value paid or delivered to Licensor, and any Guaranteed Consideration not theretofore paid shall become immediately due and payable to Licensor. (b) Licensee agrees that from and after the expiration or termination of this Agreement Licensee shall neither manufacture nor have manufactured for it Licensed Articles, that Licensee shall destroy or deface any molds, plates or other items used to reproduce Licensed Material and that, except as hereinafter provided, it shall cease selling Licensed Articles. (c) Except as otherwise agreed by Licensor in writing, any inventory of Licensed Articles in Licensee's possession or control upon the expiration or termination of this Agreement shall be destroyed forthwith. Such destruction shall be attested to in a certificate signed by an independent third party, firm, or agency approved by Licensor and delivered forthwith to Licensor. 18. WAIVERS ------- A waiver by either party at any time of a breach of any provision of this Agreement shall not apply to any breach of any other provision of this Agreement or imply that a breach of the same provision at any other time has been or will be waived. 19. NO SUB-LICENSING; ASSIGNABILITY ------------------------------- (a) Licensee shall have no right to sub-license any third party to perform any of Licensee's obligations under this Agreement. (b) This Agreement does not provide for a joint venture between the parties. Licensee's rights as granted hereunder cannot be assigned, disposed of or transferred, voluntarily or involuntarily, to anyone else without Licensor's prior written consent. Without limiting the foregoing, a merger of Licensee's company into another company or the transfer of a controlling interest in Licensee's company shall be deemed a disposal of Licensee's rights hereunder which, to be effective hereunder, would require Licensor's written consent. (c) Licensor shall have the right to assign this Agreement or any of its rights and obligations or interests hereunder to any subsidiary, affiliate, or successor in interest by merger or acquisition or otherwise, of Licensor, or of Time Warner Entertainment Company, L.P. or Time Warner Inc., or to, any person or entity succeeding to substantially all of the assets of Licensor or of Time Warner Entertainment Company, L.P. or Time Warner Inc., and such assignment shall not require the consent of Licensee. 20. CONFIDENTIALITY --------------- Licensee hereby agrees that, both during the term of this Agreement and after the expiration or termination hereof, it shall maintain in strict confidence all information, including but not limited to the Licensed Material, books of account, inventories, production and sales records, reports, correspondence and any other materials relating to this Agreement, and shall not disclose such information to third parties without the prior written consent of Licensor. 12 21. ETHICS ------ Licensee agrees that, in the course of its implementation of this Agreement, no monies shall be offered, paid or promised, directly or indirectly, by Licensee to any governmental official, political party or official thereof, or any candidate for political office, for the purpose of influencing any act or decision of such person or party or inducing such person or party to use his or its influence to affect or influence any act or decision of any national, state or local government or instrumentality thereof. For the purposes of this paragraph, the term "governmental official" shall include any officer or employee of a national, state or local government, or any department, agency or instrumentality thereof, or any person acting in an official capacity of or on behalf of such government or department, agency or instrumentality. In the performance of its obligations hereunder, Licensee agrees to comply with all applicable laws, rules and regulations, including, without limitation, the Food Hygiene Law of the People's Republic of China, and shall conduit its business in accordance with sound and generally accepted business practices. 22. HEADINGS -------- Headings of paragraphs herein are for convenience of reference only and are without substantive significance. 23. NOTICES/PAYMENTS ---------------- All notices which either party is required or may desire to serve upon the other party shall be in writing, addressed to the party to be served at the address set forth above and may be served personally or by facsimile. Such notice shall be deemed served upon personal delivery or, if sent by facsimile, on receipt by the addressee (as confirmed by a fax transmission confirmation slip). 24. FORCE MAJEURE ------------- The parties shall be excused from performance under this Agreement while and to the extent they are unable to perform by reason of war, fire, storm, flood, earthquake, explosion, rebellion, labor dispute, insurrection, action of the elements, or other acts of God. It is understood, however, that excuse from performance does not extend the Term of this Agreement. It is further understood that Licensor's inability to perform for any of the above enumerated causes shall not excuse Licensee's obligation to pay to Licensor the Guaranteed Consideration. Additionally, if the circumstance of a force majeure continues for a period of six months or longer, then either party shall have the right to terminate this Agreement forthwith on written notice to the other party. 25. CONSTRUCTION ------------ This Agreement shall be enforced, construed and interpreted in accordance with the laws of the State of California applicable to contracts executed and performed therein. This Agreement is being executed in the English language. 26. MISCELLANEOUS ------------- (a) Each of the parties acknowledges and agrees that the other has not made any representations, warranties or agreements of any kind relating to the subject matter hereof, except as may be expressly set forth herein. (b) This Agreement constitutes and contains the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior or contemporaneous agreements, oral or written. Nothing herein contained shall be binding upon the parties until this Agreement has been executed by an officer of each party. This Agreement may not be changed, modified, amended or supplemented, except in a writing signed by both parties. 13 (c) If any part of this Agreement shall be declared invalid or unenforceable by a court of competent jurisdiction, it shall not affect the validity of the balance of this Agreement, provided, however, that if any provision of this Agreement pertaining to the payment of monies to Licensor shall be declared invalid or unenforceable, Licensor shall have the right, at its option, to terminate the Term of this Agreement upon giving written notice to Licensee of its election to do so. (d) In the event of any action, suit, or proceeding hereunder, the prevailing party shall be entitled to recover its attorneys' fees and the costs of said action, suit, or proceeding. EX-10 4 chinex7l.txt EXHIBIT 7L EXHIBIT 7l [WARNER BROS. LOGO] WARNER BROS. CONSUMER PRODUCTS LICENSE AGREEMENT MODIFICATION FORM Licensee: China Premium Food Corporation Address: 11300 U.S. Highway 1, Suite 202, North Palm Beach, F1orida 33418 Contact Name and Title: Roy G. Warren -President, CEO Telephone: 561-625-1411 Fax: 561-625-1413 License Agreement No: 93085-WBLT Amendment Requested: Territory: Extend territory from Shanghai, Hangzhou to Nationwide PRC Term: Extend term to end June 30, 2003 Original term January 1, 1999- June 30, 2002 Minimum Guarantee: Additional US$100,000 will be added Payment Schedule: Advance of US$25,000 due upon signing, Balance US$75,O00 to be added to remaining installment, which we rescheduled as follows: -------------------------------------------------- From Rescheduled -------------------------------------------------- Due Date Amount(US$) Due Date Amount(US$) -------------------------------------------------- 12/31/00 21,250 1/31/01 33,750 -------------------------------------------------- 3/31/01 21,250 5/30/01 33,750 -------------------------------------------------- 6/30/01 21,250 9/30/01 33,75 -------------------------------------------------- 9/30/01 21,250 1/31/02 33,750 -------------------------------------------------- 12/31/01 21,250 5/31 02 33,750 -------------------------------------------------- 3/31/02 21,250 9/30/02 33,750 -------------------------------------------------- Licensee MUST provide on or before February 1.2001: Sales Forecast on a City by City and/ or Province by Province and/ or channel by channel Marketing and Promotion Plans on a city by city and/ or province by province and/ or channel by channel. Reason for Amendment: With the success in launching the product in Shanghai and Hangzhou, licensee request to roll out their products to different Cities and Province within PRC 1 - ---------------------------------- ------------------------------------ WBCP Account Executive Date Credit Approval Date - ---------------------------------- ------------------------------------ Licensing Director Date Contracts Administration Date - ---------------------------------- ------------------------------------ Legal Affairs Date Mark Matheny Date - ---------------------------------- ------------------------------------ Third Party (if necessary) Date cc; George Jones 2 EX-10 5 chinex7m.txt EXHIBIT 7M EXHIBIT 7m PROMOTIONAL LICENSE WARNER BROS. CONSUMER PRODUCTS #12053-WBLT PROMOTIONAL LICENSE AGREEMENT made July 21, 2000 by and between WARNER BROS., A DIVISION OF TIME WARNER ENTERTAINMENT COMPANY L.P., c/o Warner Bros. Consumer Products, a Division of Time Warner Entertainment Company L.P., whose address is 4000 Warner Blvd., Burbank, CA 91522 (hereinafter referred to as "LICENSOR") and Bravo! Foods, Inc. a wholly owned subsidiary of China Premium Food Corporation, whose address is 1130 U.S. Highway 1, Suite 202, North Palm Beach, FL 33408, Attention: Mr. Tony Guiliano (hereinafter referred to as "LICENSEE"). W I T N E S S E T H : The parties hereto mutually agree as follows: 1. DEFINITIONS: As used in this Agreement, the following terms shall have the following respective meanings: (a) "Channels of Distribution": Licensee may conduct the Licensed Promotion and produce, distribute and sell the Licensed Products and/or the Licensed Premiums through the following Channels of Distribution only (as such channels are defined and numbered in Exhibit 1 attached hereto and incorporated herein by reference): CHANNELS: EXHIBIT 1 NUMBER: Airport Gift and Other Airport Stores 1 Amusement Park Gift Stores limited to Six Flags only 3 Chain Drug Stores 13 Chain Toy Stores 15 College/University Stores 17 Convenience Stores 20 Educational Institutions 25 Food Service 31 Gourmet Food Specialty Stores 35 Ice Cream Stores 41 In-Store Bakeries 42 Military Exchange Services limited to AAFES only 46 Music/Video Stores 47 National Discount/Mass Retailers 48 Non-Chain Drug Stores 51 Regional Discount/Mass Retailers 62 Supermarket/Grocery Stores 70 Vending Machines 78 Warehouse Clubs 79 It is understood and agreed that distribution shall commence in Arizona, Colorado, Pennsylvania, Tennessee and Wyoming. All other Channels of Distribution defined in Exhibit 1 which are not specified above in this Paragraph 1(a) are specifically excluded from this Agreement. (b) "Guaranteed Consideration": (i) With respect to the Initial Term as set forth below, Licensee shall pay to Licensor the sum of $500,000, payable as follows: $250,000 payable simultaneously with the execution of this Agreement; $100,000 payable on or before June 1, 2001; $100,000 payable on or before December 1, 2001; and $50,000 payable on or before June 1, 2002. 1 (ii) With respect to the Renewal Term, if any, as set forth below, Licensee shall pay to Licensor an additional sum which shall be determined at a later date. (c) "Licensed Premium(s)": Licensee shall have the right to include premiums incorporating the Licensed Property in association with the Licensed Promotion. Any and all such premiums shall be determined by the parties at a later date, provided, however, that Licensor shall have the absolute right to approve in writing all the elements (i.e. all premiums as well as all product packaging, advertising, etc.) prior to manufacture of said premiums. For purposes of this subparagraph, the term "premium" shall be defined as including, but not necessarily limited to, combination sales, free or self-liquidating items offered to the public in conjunction with the sale or promotion of a product or service, including traffic building or continuity visits by the consumer/customer, or any similar scheme or device, the prime intent of which is to use the premiums in such a way as to promote, publicize and or sell the products, services or business image of the user of such item. (d) "Licensed Products": Branded Milk Products. (e) "Licensed Promotion": The right to utilize the Licensed Property in connection with the advertising and promotion of the Licensed Products and with the manufacture, distribution and advertisement of Licensed Premiums. (f) "Licensed Property": The fictional cartoon characters BUGS BUNNY, TWEETY, TASMANIAN DEVIL, ROAD RUNNER, WILE E. COYOTE, LOLA BUNNY, MARVIN THE MARTIAN, SYLVESTER, and DAFFY DUCK which constitute "LOONEY TUNES", including the names of said characters and all trademarks, copyrights, environmental settings and artwork associated therewith. Licensee specifically understands and agrees that no rights are granted herein with respect to the Warner Bros. "BABY LOONEY TUNES" or "BABY LOONEY TUNES CLASSIC COLLECTION" properties, it being understood that all rights in and to said property are reserved exclusively to Licensor for use and/or licensing as it deems appropriate to third parties of its choice. Licensee further understands and agrees that the rights granted herein are limited only to the cartoon characters set forth above and that any and all rights in, to or associated with any theatrical motion picture containing the "LOONEY TUNES" cartoon characters, whether live action, animation or both, as well as with any sequels thereto, are specifically excluded herefrom, it being understood that all rights in and to said property are reserved exclusively to Licensor for use and/or licensing as it deems appropriate to third parties of its choice. (g) "Marketing Date": September 1, 2000. (h) "Royalty Rate": Licensee shall pay to Licensor the following sums: i) Five Percent (5%) of Net Sales (as defined in Paragraph 4(b) below) of all Licensed Products; and ii) Ten Percent (10%) of Net Purchase Price of all Licensed Premiums distributed by Licensee hereunder. The term "Net Purchase Price" herein shall mean the price actually paid by Licensee for any Licensed Premium(s) authorized and distributed hereunder. 2 (i) "Term": (i) "Initial Term": January 1, 2000 through December 31, 2002. (ii) "Renewal Term": Licensee shall have the option to renew this Agreement for up to one (1) two-year period, provided that Licensee gives written notice to Licensor no later than sixty (60) days before the end of the Initial Term (the "Decision Due Date") and provided that Licensee meets the following requirements: (a) Licensee has faithfully performed each and every material obligation of this Agreement during the Initial Term referred to above; (b) Licensee shall have earned, under the provisions of Paragraph l(b) hereof, and paid to Licensor, no less than five hundred thousand ($500,000) during the Initial Term; (c) Licensee has spent and provides proof by the Decision Due Date that it has spent a minimum of three percent (3%) of wholesale sales on promotions and advertising the Licensed Products at over a thirty percent (30%) all commodity volume (ACV) distribution level. (j) "Territory": United States (fifty states), Puerto Rico, and United States Virgin Islands. (k) "Third Party Contracts": Pursuant to Paragraph 10(b), Licensor and Licensee acknowledge that Licensee will enter into a non-exclusive "Promotional Contract" with Quality Checd Dairies, Inc. and several "Production Contracts" with both Quality Checkd member dairies and dairies that are not members of Quality Checkd. (i) The "Promotional Contract" shall provide for the administration of the promotion, production and distribution of the Licensed Products by Quality Checd member dairies, including promotional, administrative, marketing, product development and logistical support for such member dairies by Licensee and Quality Checd. For an incremental fee (which fee shall be included within "net sales" hereunder) based upon the wholesale cost to such member dairies of producing four thousand (4,000) pints of the Licensed Products, Licensee and Quality Checd shall provide ingredient formulas to Quality Checd member dairies pursuant to the Promotional Contract, as well as advertising and promotional support for the production and sale of the Licensed Products. (ii) The "Production Contracts" shall provide for the production and sales of the Licensed Products on a non-exclusive basis with both Quality Checd member dairies and non-member dairies. For an incremental fee (which fee shall be included within "net sales" hereunder) based upon wholesale cost to such non-member dairies of producing four thousand (4,000) pints of the Licensed Products, Licensee and Quality Checd shall provide ingredient formulas to such non-member dairies and Licensee shall provide advertising and promotional support for the production and sale of the Licensed Products. 3 2. GRANT OF LICENSE: (a) Subject to the restrictions, limitations, reservations and conditions and Licensor's approval rights set forth in this Agreement, Licensor hereby grants to Licensee and Licensee hereby accepts for the Term of this Agreement, a license to utilize the Licensed Property solely on or in connection with the Licensed Promotion and the Licensed Products and/or Licensed Premiums throughout the Territory on a non-exclusive basis. (b) Without limiting any other approval rights of Licensor as contained herein, no television commercials (animated or live action) may be utilized under this Agreement without the specific prior written approval of Licensor. 3. RESERVATION OF RIGHTS; PREMIUMS: (a) Licensor reserves all rights not expressly conveyed to Licensee hereunder, and Licensor may grant licenses to others to use the Licensed Property, artwork and textual matter in connection with other uses, services and products without limitation. (b) Notwithstanding anything to the contrary stated herein, Licensor specifically reserves the right, without limitation throughout the world, to itself use, or license any third party(s) of its choice to use the Licensed Property for the manufacture, distribution and sale of products and/or the promotion of services similar or identical to those licensed herein in Paragraphs l(c) and l(d) above for sale through any catalogue(s) produced or distributed by or on behalf of Licensor or its affiliated companies, or for sale or distribution in any theaters or arenas, or for sale or distribution in any retail stores operated by or on behalf of Licensor, its affiliated companies or franchisees, or for sale or distribution in any theme/amusement parks operated by or on behalf of Licensor or its licensees, Six Flags, Premier Parks, Movie World, or their affiliated companies. In addition, Licensor reserves the right to allow Six Flags, Premier Parks and Movie World to manufacture (or have manufactured by a third party) products similar or identical to those licensed herein for distribution or sale in theme and/or amusement parks owned or operated by Six Flags, Premier Parks and/or Movie World. Further, Licensor, reserves the right to use, or license others to use, and/or manufacture products similar or identical to those licensed herein for use as premiums. (c) Licensee specifically understands and agrees that no rights are granted herein with respect to the Warner Bros. "shield" logo or trademark, or any other trademark(s), logo(s) or copyrights owned by Licensor other than those specifically set forth above in the Licensed Property, it being understood that all rights in and to said properties are reserved exclusively to Licensor for use and/or licensing as it deems appropriate to third party(s) of its choice. (d) Licensee agrees that it will not use, or knowingly permit the use of, and will exercise due care that its customers likewise will refrain from the use of, the Licensed Products as premiums or the Licensed Premiums as products for retail sale, except with the prior written consent of Licensor. 4. CONSIDERATION: (a) The Guaranteed Consideration paid by Licensee as set forth above shall be applied against such royalties as are, or have become, due to Licensor. No part of such Guaranteed Consideration shall be repayable to Licensee. Royalties earned in excess of the Guaranteed 4 Consideration applicable to the Term hereof shall not offset any Guaranteed Consideration required in respect of the succeeding renewal term (if any); likewise, royalties earned in excess of the Guaranteed Consideration applicable to the renewal term (if any) shall not offset any Guaranteed Consideration applicable to any prior term. (b) Royalty Payments: Licensee shall pay to Licensor a sum equal to the Royalty Rate as set forth above of (i) all Net Sales by Licensee of the Licensed Products and/or (ii) Net Purchase Price of the Licensed Premiums covered by this Agreement. The term "net sales" herein shall mean the gross invoice price billed to dairies producing, distributing and selling the Licensed Products, less actual quantity discounts and actual returns, but no deductions shall be made for uncollectible accounts and deductions for actual returns may not exceed five percent (5%) of total billing on a dairy by dairy basis, computed quarterly. No costs incurred in the manufacture, sale, distribution, advertisement, or exploitation of the Licensed Products shall be deducted from any royalties payable by Licensee. (c) Royalties shall be payable concurrently with the periodic statements required in Paragraph 5(a) hereof, except to the extent offset by the Guaranteed Consideration theretofore remitted. 5. PERIODIC STATEMENTS: (a) Within thirty (30) days after the initial shipment of the Licensed Products and/or Licensed Premiums and promptly on the fifteenth (15th) day of every quarter thereafter, Licensee shall furnish to Licensor complete and accurate statements certified to be accurate by Licensee, or if a corporation, by an officer of Licensee, showing the (i) number of units; (ii) country in which manufactured, sold, distributed and/or to which shipped; (iii) Description (as such term is defined below) of the Licensed Products and/or Licensed Premiums; (iv) gross sales price or Net Purchase Price (if applicable); and (v) itemized deductions from gross sales price and net sales price (if applicable) together with any returns made during the preceding calendar quarter. Such statements shall be furnished to Licensor whether or not any of the Licensed Products and/or Licensed Premiums have been distributed during calendar quarters to which such statements refer. Receipt or acceptance by Licensor of any of the statements furnished pursuant to this Agreement or of any sums paid hereunder shall not preclude Licensor from questioning the correctness thereof at any time, and in the event that any inconsistencies or mistakes are discovered in such statements or payments, they shall immediately be rectified and the appropriate payments made by Licensee. Upon demand of Licensor, Licensee shall at its own expense, but not more than once in any twelve (12) month period, furnish to Licensor a detailed statement by an independent certified public accountant showing the (i) number of units; (ii) country in which manufactured, sold, distributed and/or to which shipped; (iii) Description of the Licensed Products and/or Licensed Premiums; (iv) gross sales price or Net Purchase Price (if applicable); and (v) itemized deductions from gross sales price and net sales price (if applicable) of the Licensed Products and/or Licensed Premiums covered by this Agreement distributed and/or sold by Licensee up to and including the date upon which Licensor has made such demand. For purposes of this Paragraph 5(a), the term "Description" shall mean a detailed description of the Licensed Products and/or Licensed Premiums including the nature of each of the Licensed Products and/or Licensed Premiums, any and all names and 5 likenesses, whether live actors or animated characters, from the Licensed Property utilized on the Licensed Products and/or Licensed Premiums and/or any related packaging and/or wrapping material, and any other components of the Licensed Property utilized on the Licensed Products and/or Licensed Premiums and/or any related packaging and/or wrapping material. In the event Licensor is responsible for the payment of any additional third party participations based on Licensee not reporting by character name and likeness as provided above, Licensee shall be responsible for reimbursing Licensor for the full amount of all such third party claims, including without limitation the participation itself, interest, audit and attorneys' fees. Licensee understands and agrees that it is a material term and condition of this Agreement that Licensee include the Description on all statements. In the event Licensee fails to do so, Licensor shall have the right to terminate this Agreement, in accordance with the provisions of Paragraph 14 herein. (b) For the statements and payments required hereunder (Licensee shall reference the contract number(s) on all statements and payments) if the United States Postal Service is used deliver to the following: WARNER BROS. CONSUMER PRODUCTS 21477 Network Place Chicago, IL 60673-1214 For the statements and payments required hereunder. (Licensee shall reference the contract number(s) on all statements and payments) if sent by Federal Express or any other Courier Service deliver to the following: FIRST CHICAGO NATIONAL BANK Attention WBCP lockbox #21477 525 West Monroe 8th Floor Mail Room Chicago, IL 60661 Telephone Number 312-732-6277 (c) Any payments which are made to Licensor hereunder after the due date required therefore, shall bear interest at the then current prime rate plus six percent (6%) (or the maximum rate permissible by law, if less than the current prime rate plus six percent (6%)) from the date such payments are due to the date of payment. Licensor's right hereunder to interest on late payments shall not preclude Licensor from exercising any of its other rights or remedies pursuant to this Agreement or otherwise with regard to Licensee's failure to make timely remittances. (d) Licensee hereby grants to Licensor (subject to any liens or security interests granted by Licensee which are approved in writing by Licensor) a first-priority lien and security interest in Licensee's inventory, contract rights and accounts receivable, and all proceeds thereof, with respect to the Licensed Products only. Licensee further agrees to provide, at Licensor's request: (i) a letter of credit issued in favor of Licensor from a financial institution as approved by Licensor in an amount up to the Guaranteed Consideration; and/or (ii) such other form of security acceptable to Licensor. Licensee agrees to execute all documentation as Licensor may require in connection with perfecting such security interests. 6. BOOKS AND RECORDS: (a) Licensee shall keep, maintain and preserve (in Licensee's principal place of business) for at least two (2) years following termination or expiration of the Term of this Agreement or any renewal(s) hereof (if applicable), complete and accurate records of accounts 6 including, without limitation, purchase orders, inventory records, invoices, correspondence, banking and financial and other records pertaining to the various items required to be submitted by Licensee as well as to ensure Licensee's compliance with local laws as required pursuant to Paragraph 13(k) hereof. Such records and accounts shall be available for inspection and audit at any time or times during or after the Term of this Agreement or any renewal(s) hereof (if applicable) during reasonable business hours and upon reasonable notice by Licensor or its nominees. Licensee agrees not to cause or permit any interference with Licensor or nominees of Licensor in the performance of their duties. During such inspections and audits, Licensor shall have the right to take extracts and/or make copies of Licensee's records as it deems necessary. (b) The exercise by Licensor in whole or in part, at any time of the right to audit records and accounts or of any other right herein granted, or the acceptance by Licensor of any statement or statements or the receipt and/or deposit by Licensor, of any payment tendered by or on behalf of Licensee shall be without prejudice to any rights or remedies of Licensor and such acceptance, receipt and/or deposit shall not preclude or prevent Licensor from thereafter disputing the accuracy of any such statement or payment. (c) If pursuant to its right hereunder Licensor causes an audit and inspection to be instituted which thereafter discloses a deficiency between the amount found to be due to Licensor and the amount actually received or credited to Licensor, then Licensee shall, upon Licensor's demand, promptly pay the deficiency, together with interest thereon at the then current prime rate from the date such amount became due until the date of payment, and, if the deficiency is more than three percent (3%) of all payments made by Licensee during the period covered by the audit, then Licensee shall pay the reasonable costs and expenses of such audit and inspection. 7. INDEMNIFICATIONS: (a) During the Term, and continuing after the expiration or termination of this Agreement, Licensor shall indemnify Licensee and shall hold it harmless from any loss, liability, damage, cost or expense arising out of any claims or suits which may be brought or made against Licensee by reason of the breach by Licensor of the warranties or representations as set forth in Paragraph 12 hereof, provided that Licensee shall give prompt written notice, and full cooperation and assistance to Licensor relative to any such claim or suit and provided, further, that Licensor shall have the option to undertake and conduct the defense of any suit so brought. Licensee shall not, however, be entitled to recover for lost profits. Licensee shall cooperate fully in all respects with Licensor in the conduct and defense of said suit and/or proceedings related thereto. (b) During the Term, and continuing after the expiration or termination of this Agreement, Licensee shall indemnify Licensor and shall hold it harmless from any loss, liability, damage, cost or expense arising out of any claims or suits which may be brought or made against Licensor by reason of: (i) any breach of Licensee's covenants and undertakings hereunder; (ii) any unauthorized use by Licensee of the Licensed Property; (iii) any use of any trademark, copyright, design, patent, process, method or device, except for those uses of the Licensed Property that are specifically approved by Licensor pursuant to the terms of this Agreement; (iv) Licensee's non-compliance with any 7 applicable federal, state or local laws or with any other applicable regulations; and (v) any alleged defects and/or inherent dangers (whether obvious or hidden) in the Licensed Products and/or Licensed Premiums, or the use of such Licensed Products and/or Licensed Premiums. (c) With regard to 7(b)(v) above, Licensee agrees to obtain, at its own expense, product liability insurance providing adequate protection for Licensor and Licensee against any such claims or suits in amounts no less than three million dollars ($3,000,000) per occurrence, combined single limits. Simultaneously with the execution of this Agreement, Licensee undertakes to submit to Licensor a fully paid policy or certificate of insurance naming Licensor as an additional insured party and, requiring that the insurer shall not terminate or materially modify such policy or certificate of insurance without written notice to Licensor at least twenty (20) days in advance thereof. Such insurance and delivery of the policy or certificate are material obligations of Licensee. 8. ARTWORK; COPYRIGHT AND TRADEMARK NOTICES: (a) The Licensed Property shall be displayed or used only in such form and in such manner as has been specifically approved in writing by Licensor in advance and Licensee undertakes to assure usage of the trademark(s) and character(s) solely as approved hereunder. Licensee further agrees and acknowledges that any and all Artwork (defined below) created, utilized, approved and/or authorized for use hereunder by Licensor in connection with the Licensed Products and/or Licensed Premiums or which otherwise features or includes the Licensed Property shall be owned in its entirety exclusively by Licensor. "Artwork" as used herein shall include, without limitation, all pictorial, graphic, visual, audio, audio-visual, digital, literary, animated, artistic, dramatic, sculptural, musical or any other type of creations and applications, whether finished or not, including, but not limited to, animation, drawings, designs, sketches, images, tooling and tooling aids, illustrations, film, video, electronic, digitized or computerized information, software, object code, source code, on-line elements, music, text, dialogue, stories, visuals, effects, scripts, voiceovers, logos, one-sheets, promotional pieces, packaging, display materials, printed materials, photographs, interstitials, notes, shot logs, character profiles and translations, produced by Licensee or for Licensee, pursuant to this Agreement. Licensor reserves for itself or its designees all rights to use any and all Artwork created, utilized and/or approved hereunder without limitation. (b) Licensee acknowledges that, as between Licensor and Licensee, the Licensed Property and Artwork and all other depictions expressions and derivations thereof, and all copyrights, trademarks and other proprietary rights therein are owned exclusively by Licensor and Licensee shall have no interest in or claim thereto, except for the limited right to use the same pursuant to this Agreement and subject to its terms and conditions. Licensee agrees and acknowledges that any Artwork created by Licensee or for Licensee hereunder is a "work made for hire" for Licensor under the U.S. Copyright Act, and any and all similar provisions of law under other jurisdictions, and that is the author of such works for all purposes, and that is the exclusive owner of all the rights comprised in the undivided copyright and all renewals, extensions and reversions therein, in and to such works in perpetuity 8 and throughout the universe. Licensee hereby waives and releases in favor of all rights (if any) of "droit moral," rental rights and similar rights in and to the Artwork (the "Intangible Rights") and agrees that Licensor shall have the right to revise, condense, abridge, expand, adapt, change, modify, add to, subtract from, re- title, re-draw, re-color, or otherwise modify the Artwork, without the consent of Licensee. Licensee hereby irrevocably grants, transfers and assigns to Licensor all right, title and interest, including copyrights, trademark rights, patent rights and other proprietary rights, it may have in and to the Artwork, in perpetuity and throughout the universe, and to all proprietary depictions, expressions or derivations of the Licensed Property created by or for Licensee. Licensee acknowledges that Licensor shall have the right to terminate this Agreement in the event Licensee asserts any rights (other than those specifically granted pursuant to this Agreement) in or to the Licensed Property or Artwork. Licensee hereby warrants that any and all work created by Licensee under this Agreement apart from the materials provided to Licensee by Licensor is and shall be wholly original with or fully cleared by Licensee and shall not copy or otherwise infringe the rights of any third parties, and Licensee hereby indemnifies Licensor and will hold Licensor harmless from any such claim of infringement or otherwise involving Licensee's performance hereunder. At the request of Licensor, Licensee shall execute such form(s) of assignment of copyright or other papers as Licensor may reasonably request in order to confirm and vest in Licensor the rights in the properties as provided for herein. In addition, Licensee hereby appoints Licensor as Licensee's Attorney-in-Fact to take such actions and to make, sign, execute, acknowledge and deliver all such documents as may from time to time be necessary to confirm in Licensor, its successors and assigns, all rights granted herein. If any third party makes or has made any contribution to the creation of Artwork authorized for use hereunder, Licensee agrees to obtain from such party a full confirmation and assignment of rights so that the foregoing rights shall vest fully in Licensor, in the form of the Contributor's Agreement attached hereto as Exhibit 2 and by this reference made a part hereof, prior to commencing work, ensuring that all rights in the Artwork and Licensed Property arise in and are assigned to Licensor. Promptly upon entering into each such Agreement, Licensee shall give Licensor a copy of such Agreement. Licensee assumes all responsibility for such parties and agrees that Licensee shall bear any and all risks arising out of or relating to the performance of services by them and to the fulfillment of their obligations under the Contributor's Agreement. (c) Upon expiration of termination of this Agreement for any reason, or upon demand by Licensor at any time, Licensee shall promptly deliver to Licensor all Artwork or Licensed Property, whether finished or not, including drawings, drafts, sketches, illustrations, screens, data, digital files and information, copies or other items, information or things created in the course of preparing the Licensed Property and all materials provided to Licensee by Licensor hereunder, or, at Licensor's option and instruction, shall destroy some or all of the foregoing and shall confirm to Licensor in writing that Licensee has done so. Licensee shall not use such Artwork or Licensed Property, items, information or things, material, for any purpose other than is permitted under this Agreement. (d) Licensee shall, within thirty (30) days of receiving an invoice, pay Licensor for artwork executed for Licensee 9 by Licensor (or by third parties under contract to Licensor) at Licensee's request for use in the development of the Licensed Products and/or Licensed Premiums and any related packaging, display and promotional materials at Licensor's prevailing commercial art rates. The foregoing shall include any artwork that, in Licensor's opinion, is necessary to modify artwork initially prepared by Licensee and submitted for approval. Estimates of artwork charges are available upon request. (e) Licensee shall cause to be imprinted, irremovably and legibly on each Licensed Product and/or Licensed Premium manufactured, distributed or sold under this Agreement, and all printed and/or televised advertising, promotional, packaging and wrapping material wherein the Licensed Property appears, the following copyright and/or trademark notice(s) or such other notice as may be approved by Licensor: LOONEY TUNES, characters, names, and all related indicia are trademarks of Warner Bros. (C)200_. (The year date shall be as instructed by Licensor.) (f) In no event shall Licensee use, in respect to the Licensed Products and/or Licensed Premiums and/or in relation to any advertising, promotional, packaging or wrapping material, any copyright or trademark notices which shall conflict with, be confusing with, or negate, any notices required hereunder by Licensor in respect to the Licensed Property. (g) Licensee agrees to deliver to Licensor free of cost six (6) of each of the Licensed Premiums together with their packaging and wrapping material for trademark registration purposes in compliance with applicable laws, simultaneously upon distribution to the public. Any copyrights or trademarks with respect to the Licensed Promotion or Licensed Products and/or Licensed Premiums shall be procured by and for the benefit of Licensor and at Licensor's expense. Licensee further agrees to provide Licensor with the date of the first use of the Licensed Products and/or Licensed Premiums in interstate and intrastate commerce. (h) Licensee shall assist Licensor, at Licensor's expense, in the procurement, protection, and maintenance of Licensor's rights to the Licensed Property. Licensor may, in its sole discretion, commence or prosecute and effect the disposition of any claims or suits relative to the imitation, infringement and/or unauthorized use of the Licensed Property either in its own name, or in the name of Licensee, or join Licensee as a party in the prosecution of such claims or suits. Licensee agrees to cooperate fully with Licensor in connection with any such claims or suits and undertakes to furnish full assistance to Licensor in the conduct of all proceedings in regard thereto. Licensee shall promptly notify Licensor in writing of any infringements or imitations or unauthorized uses by others of the Licensed Property, on or in relation to promotions similar to the Licensed Promotion or products identical to similar to or related to the Licensed Products and/or Licensed Premiums. Licensor shall in its sole I discretion have the right to settle or effect compromises in respect thereof. Licensee shall not institute any suit or take any action on account of such infringements, imitations or unauthorized uses. 9. APPROVALS AND QUALITY CONTROLS: (a) Licensee agrees to strictly comply and maintain compliance with the quality standards, specifications and rights of approval of Licensor in respect to any and all usage of the Licensed Property on or in 10 relation to the Licensed Products and/or Licensed Premiums throughout the Term of this Agreement and any renewals or extensions thereof (if applicable) . Licensee agrees to furnish to Licensor free of cost for its written approval as to quality and style, samples of each of the Licensed Products and/or Licensed Premiums, together with their packaging, hangtags, and wrapping material, as follows in the successive stages indicated: (i) rough sketches/layout concepts; (ii) finished artwork or final proofs; (iii) pre-production samples or strike-offs; and (iv) finished products, including packaged samples. (b) No Licensed Products and/or Licensed Premiums and no material utilizing the Licensed Property shall be manufactured, sold, distributed or promoted by Licensee without prior written approval. In addition to the foregoing, Licensee understands that it shall furnish to Licensor, scripts and storyboards of any proposed media use of the Licensed Property as may be authorized hereunder, in sufficient time for Licensee to make all revisions which Licensor in its sole discretion may request. Licensee may, subject to Licensor's prior written approval, use textual and/or pictorial matter pertaining to the Licensed Property on promotional, display and advertising material as may, in its reasonable judgment, promote the sale of the Licensed Products and/or Licensed Premiums. All advertising and promotional materials relating to the Licensed Promotion and Licensed Products and/or Licensed Premiums must be submitted to the Licensor for its written approval at the following stages appropriate to the medium used. For print materials, submissions are to be made at the following stages: (a) rough sketches or layout concepts; (b) finished artwork or final proofs; and (c) finished materials. For television commercials, if approved by Licensor, submissions are to be made at the following stages: (a) initial concept; (b) storyboard, including written text; (c) pencil tests and voice- overs for animation and/or selection of performers for live action; and (d) a cassette of the finished commercial prior to air date. For radio or other audio materials, if approved by Licensor, submissions are to be made at the following stages: (a) initial concept; (b) script; (c) voice-overs; and (d) a cassette of the finished commercial prior to the air date. (c) Approval or disapproval shall lie in Licensor's sole discretion. Any Licensed Products and/or Licensed Premiums not so approved in writing shall be deemed unlicensed and shall not be manufactured, distributed or sold. If any unapproved Licensed Products and/or Licensed Premiums are being distributed or sold, Licensor may, together with other remedies available to it including, but not limited to, immediate termination of this Agreement, require such Licensed Products and/or Licensed Premiums to be immediately withdrawn from the market and to be destroyed, such destruction to be attested to in a certificate signed by an officer of Licensee. (d) Any modification of a Licensed Product and/or Licensed Premium must be submitted in advance for Licensor's written approval as if it were a new Licensed Product and/or Licensed Premium. Approval of a Licensed Product and/or Licensed Premium which uses particular artwork does not imply approval of such artwork for use with a different Licensed Product and/or Licensed Premium. (e) Licensed Products and/or Licensed Premiums must conform in all material respects to the final production samples approved by Licensor. If in Licensor's reasonable judgement, the quality of a Licensed Product and/or Licensed Premium originally approved has 11 deteriorated in later production runs, or if a Licensed Product and/or Licensed Premium has otherwise been altered, Licensor may, in addition to other remedies available to it, require that such Licensed Product and/or Licensed Premium be immediately withdrawn from the market. (f) Licensee shall permit Licensor to inspect Licensee's manufacturing operations, testing and payroll records (including those operations and records of any supplier or manufacturer approved pursuant to Paragraph 10 (b) below) with respect to the Licensed Products and/or Licensed Premiums. (g) If any changes or modifications are required to be made to any material submitted to Licensor for its written approval in order to ensure compliance with Licensor's specifications or standards of quality, Licensee agrees promptly to make such changes or modifications. (h) Subsequent to final approval, no fewer than twenty-four (24) production samples of Licensed Products and/or Licensed Premiums will be sent to Licensor, to ensure quality control simultaneously on distribution to the public. In addition, Licensor shall have the right to purchase any and all Licensed Products and/or Licensed Premiums in any quantity at the maximum discount price Licensee charges its best customer. (i) To avoid confusion of the public, Licensee agrees not to associate other characters or properties with the Licensed Property on the Licensed Products and/or Licensed Premiums or in any packaging, promotional or display materials unless Licensee receives Licensor's prior written approval. Furthermore, Licensee agrees not to use the Licensed Property (or any component thereof) on any business sign, business cards, stationery or forms, nor as part of the name of Licensee's business or any division thereof. (j) Licensee shall use its best efforts to notify its customers of the requirement that Licensor has the right to approve all promotional, display and advertising material pursuant to this Agreement. (k) It is understood and agreed that any animation used in electronic media, including but not limited to animation for television commercials and character voices for radio commercials, shall be produced by Warner Bros. Animation pursuant to a separate agreement between Licensee and Warner Bros. Animation, subject to Warner Bros. Animation customary rates. It is understood and agreed that, in the event Licensee utilizes the services of WB Toys, Licensee shall reimburse WB Toys for all costs and expenses at WB Toys' customary rates. Any payment made to Warner Bros. Animation for such animation shall be in addition to and shall not offset the Guaranteed Consideration set forth in Paragraph l(b). (l) Licensor's approval of Licensed Products and/or Licensed Premiums (including, without limitation, the Licensed Products and/or Licensed Premiums themselves as well as promotional, display and advertising materials) shall in no way constitute or be construed as an approval by Licensor of Licensee's use of any trademark, copyright and/or other proprietary materials not owned by Licensor. 10. DISTRIBUTION; SUBLICENSE MANUFACTURE: (a) Licensee may distribute the Licensed Products and/or Licensed Premiums solely through the Channels of Distribution set forth in above. Licensee shall not distribute the Licensed Products and/or Licensed Premiums through any cable home shopping service or 12 through electronic media, including on any on-line network or service. If Licensee sells or distributes the Licensed Products and/or Licensed Premiums at a special price, directly or indirectly, to itself, including without limitation, any subsidiary of Licensee or to any other person, firm, or corporation affiliated with Licensee or its officers, directors or major stockholders, for ultimate sale to unrelated third parties, Licensee shall pay royalties with respect to such sales or distribution, based upon the price generally charged the trade by Licensee. (b) Licensee shall not be entitled to sublicense any of its rights under this Agreement. Licensee, however, shall have the right to enter into Third Party Contracts (as defined in Paragraph l(k)) for the promotion (Promotion Contract), production, distribution and sale (Production Contract) of the Licensed Products, subject to the written approval of Licensor, which approval shall not be unreasonably withheld by Licensor, provided that such promoter or producer each shall execute a letter in the form of Exhibit 3 attached hereto and by this reference made apart hereof. In such event, Licensee shall remain primarily obligated under all of the provisions of this Agreement and any default of this Agreement by such manufacturer shall be deemed a default by Licensee hereunder. In no event shall any such third party manufacturer agreement include the right to grant any rights to subcontractors. 11. GOOD WILL: Licensee recognizes the great value of the publicity and good will associated with the Licensed Property and, acknowledges that: (i) such good will is exclusively that of Licensor; and (ii) the Licensed Property has acquired a secondary meaning as Licensor's trademarks and/or identifications in the mind of the purchasing public. Licensee further recognizes and acknowledges that a breach by Licensee of any of its covenants, agreements or undertakings hereunder will cause Licensor irreparable damage, which cannot be readily remedied in damages in an action at law, and may, in addition thereto, constitute an infringement of Licensor's copyrights, trademarks and/other proprietary rights in, and to the Licensed Property, thereby entitling Licensor to equitable remedies and costs. 12. LICENSOR'S WARRANTIES AND REPRESENTATIONS: Licensor represents and warrants to Licensee that: (a) It has, and will have throughout the Term of this Agreement, the right to license the Licensed Property to Licensee in accordance with the terms and provisions of this Agreement; and (b) The making of this Agreement by Licensor does not violate any agreements, rights or obligations of any person, firm or corporation. 13. LICENSEE'S WARRANTIES AND REPRESENTATIONS: Licensee represents and warrants to Licensor that, during the Term and thereafter: (a) It will not attack the title of Licensor (or third parties that have granted rights to Licensor) in and to the Licensed Property or any copyright or trademarks pertaining thereto, nor will it attack the validity of the license granted hereunder; (b) It will not harm, misuse or bring into disrepute the Licensed Property, but on the contrary, will maintain the value and reputation thereof to the best of its ability; 13 (c) It will conduct the Licensed Promotion as well as manufacture, promote and distribute the Licensed Products and/or Licensed Premiums in an ethical manner and in accordance with the terms and intent of this Agreement, and in compliance with all applicable government regulations and industry standards; (d) It will not create any expenses chargeable to Licensor without the prior written approval of Licensor in each and every instance. It will not cause or allow any liens or encumbrances to be placed against, or grant any security interest (except to Licensor as provided hereunder) in, the Licensed Property and/or Licensee's inventory, contract rights and/or accounts receivables, and/or proceeds thereof, with respect to the Licensed Products without Licensor's prior written consent; (e) It will protect to the best of its ability its right to manufacture, promote and distribute the Licensed Products and/or Licensed Premiums hereunder; (f) It will at all times comply with all government laws and regulations, including but not limited to product safety, food, health, drug, cosmetic, sanitary or other similar laws, and all voluntary industry standards relating or pertaining to the conduct of the Licensed Promotion as well as the manufacture, distribution, advertising or use of the Licensed Products and/or Licensed Premiums, and shall maintain its appropriate customary high quality standards during the Term hereof. It shall comply with any regulatory agencies which shall have jurisdiction over the Licensed Promotion or Licensed Products and/or Licensed Premiums and shall procure and maintain in force any and all permissions, certifications and/or other authorizations from governmental and/or other official authorities that may be required in response thereto. Each Licensed Product and/or Licensed Premium and component thereof distributed hereunder shall comply with all applicable laws, regulations and voluntary industry standards. Licensee shall follow reasonable and proper procedures for testing that all Licensed Products and/or Licensed Premiums comply with such laws, regulations and standards. Licensee shall permit Licensor or its designees to inspect testing records and procedures with respect to the Licensed Products and/or Licensed Premiums for compliance. Licensed Products and/or Licensed Premiums that do not comply with all applicable laws, regulations and standards shall automatically be deemed unapproved and immediately taken off the market; (g) It shall, upon Licensor's request, provide credit information to Licensor including, but not limited to, fiscal year-end financial statements (profit-and-loss statement and balance sheet) and operating statements; (h) It will provide Licensor with the date(s) of first use of the Licensed Products and/or Licensed Premiums in interstate and intrastate commerce, where appropriate; (i) It will, pursuant to Licensor's instructions, duly take any and all necessary steps to secure execution of all necessary documentation for the recordation of itself as user of the Licensed Property in any jurisdiction where this is required or where Licensor reasonably requests that such recordation shall be effected. Licensee further agrees that it will at its own expense cooperate with Licensor in cancellation of any such recordation at the expiration of this Agreement or upon termination of Licensee's right to use the Licensed Property. Licensee hereby appoints Licensor its Attorney-in-Fact for such purpose; (j) It will not deliver or sell Licensed Products and/or 14 Licensed Premiums outside the Territory or knowingly deliver or sell Licensed Products and/or Licensed Premiums to a third party for delivery outside the Territory; (k) It will not use any labor that violates any local labor laws, including all wage and hour laws, laws against discrimination and that it will not use prison, slave or child labor in connection with the manufacture of the Licensed Products and/or Licensed Premiums; (l) It shall not send, share with or otherwise disclose any Artwork to any third party, including licensees of Licensor, but with the exception of those parties approved in accordance with Paragraph 10(b), without the prior written consent of Licensor; (m) It shall at all times comply with all manufacturing, sales, distribution, retail and marketing policies and strategies promulgated by Licensor from time-to-time; and (n) If requested by Licensor to do so, it will utilize specific design elements of the Licensed Property provided to Licensee by Licensor on any promotional or advertising materials and/or hangtags, labels or other materials with respect to the Licensed Products and/or Licensed Premiums. 14. TERMINATION BY LICENSOR: (a) Licensor shall have the right to terminate this Agreement without prejudice to any rights which it may have, whether pursuant to the provisions of this Agreement, or otherwise in law, or in equity, or otherwise, upon the occurrence of anyone or more of the following events (herein called "defaults"): (i) Licensee defaults in the performance of any of its obligations provided for in this Agreement; or (ii) Licensee shall have failed to deliver to Licensor or to maintain in full force and effect the insurance referred to in Paragraph 7(c) hereof; or (iii) Licensee shall fail to make any payments due hereunder on the date due; or (iv) Licensee shall fail to deliver any of the statements required herein or to give access to the premises and/or license records pursuant to the provisions hereof to Licensor's authorized representatives for the purposes permitted hereunder; or (v) Licensee shall fail to comply with any laws, regulations or voluntary industry standards as provided in Paragraph 13(f) or any governmental agency or other body, office or official vested with appropriate authority finds that the Licensed Products and/or Licensed Premiums are harmful or defective in any way, manner or form, or are being manufactured, sold or distributed in contravention of applicable laws, regulations or standards, or in a manner likely to cause harm; or (vi) Licensee shall be unable to pay its debts when due, or shall make any assignment for the benefit of creditors, or shall file any petition under the bankruptcy or insolvency laws of any jurisdiction, county or place, or shall have or suffer a receiver or trustee to be appointed for its business or property, or be adjudicated a bankrupt or an insolvent; or 15 (vii) Licensee does not commence in good faith to execute the Licensed Promotion (i.e. manufacture, distribute and sell each of the Licensed Products and/or Licensed Premiums) and utilize each character set forth in the Licensed Property ("Character") throughout the Territory on or before the Marketing Date and thereafter fails to diligently and continuously execute the Licensed Promotion and utilize each Character throughout the Territory. Such default and Licensor's resultant right of termination (or recapture) shall only apply to the specific Character(s) and/or the specific aspect of the Licensed Promotion (i.e. a specific Licensed Product and/or Licensed Premium), which or wherein Licensee fails to meet said Marketing Date requirement; or (viii) Licensee shall execute the Licensed Promotion and/or manufacture, sell or distribute (whichever first occurs) any of the Licensed Products and/or Licensed Premiums without the prior written approval of Licensor as provided in Paragraph 9 hereof; or (ix) Licensee undergoes a substantial change of management or control; or (x) A manufacturer approved pursuant to Paragraph lO(b) hereof shall sell Licensed Products and/or Licensed Premiums to parties other than Licensee or engage in conduct, which conduct if engaged in by Licensee would entitle Licensor to terminate this Agreement; or (xi) Licensee delivers or sells Licensed Products and/or Licensed Premiums outside the Territory or knowingly sells Licensed Products and/or Licensed Premiums(s) to a third party who Licensee knows intends to, or who Licensee reasonably should suspect intends to, sell or deliver such Licensed Products and/or Licensed Premiums outside the Territory; or (xii) Licensee uses any labor that violates any local labor laws and/or it uses prison, slave or child labor in connection with the manufacture of the Licensed Products and/or Licensed Premiums; or (xiii) Licensee has made a material misrepresentation or has omitted to state a material fact necessary to make the statements not misleading; or (xiv) Licensee shall breach any other agreement in effect between Licensee on the one hand and Licensor on the other. (b) In the event any of these defaults occur, Licensor shall give notice of termination in writing to Licensee by facsimile and certified mail. Licensee shall have ten (10) days from the date of giving notice in which to correct any of these defaults (except subdivisions (vii), (viii), (xi) and (xiii) above which are not curable), and failing such, this Agreement shall thereupon immediately terminate, and any and all payments then or later due from Licensee hereunder (including Guaranteed Consideration) shall then be promptly due and payable in full and no portion of those prior payments shall be repayable to Licensee. 15. FINAL STATEMENT UPON TERMINATION OR EXPIRATION: Licensee shall deliver, as soon as practicable, but not later than thirty (30) days following expiration or termination of this Agreement, a statement indicating the number and description of Licensed Products and/or Licensed Premiums on hand together with a description of all advertising and promotional materials relating thereto. Following expiration 16 or termination of this Agreement, Licensee shall immediately cease any and all manufacturing of the Licensed Products and/or Licensed Premium. However, if Licensee has complied with all the terms of this Agreement, including, but not limited to, complete and timely payment of the Guaranteed Consideration and Royalty Payments, then Licensee may continue to distribute its remaining inventory for a period not to exceed sixty (60) days following such termination or expiration (the "Sell-Off Period"), subject to payment of applicable royalties thereto. In no event, however, may Licensee distribute during the Sell-Off Period an amount of Licensed Products and/or Licensed Premiums that exceeds the average amount of Licensed Products and/or Licensed Premiums distributed during any consecutive sixty (60) day period during the Term. In the event this Agreement is terminated by Licensor for any reason under this Agreement, Licensee shall be deemed to have forfeited its Sell-Off Period. If Licensee has any remaining inventory of the Licensed Products and/or Licensed Premiums following the Sell- Off Period, Licensee shall, at Licensor's option, make available such inventory to Licensor for purchase at or below cost, deliver up to Licensor for destruction said remaining inventory or furnish to Licensor an affidavit attesting to the destruction of said remaining inventory. Licensee shall, at Licensor's option, deliver to Licensor at no charge all tooling, tooling aids and other Artwork related to the Licensed Products, deliver up to Licensor for destruction said tooling, tooling aids and other Artwork or furnish to Licensor an affidavit attesting to the destruction of said tooling, tooling aids and other Artwork. Licensor shall have the right to conduct a physical inventory in order to ascertain or verify such inventory and/or statement. In the event that Licensee refuses to permit Licensor to conduct such physical inventory, Licensee shall forfeit its right to the Sell-Off Period hereunder or any other rights to dispose of such inventory. In addition to the forfeiture, Licensor shall have recourse to all other legal remedies available to it. 16. NOTICES: Except as otherwise specifically provided herein, all notices which either party hereto is required or may desire to give to the other shall be given by addressing the same to the other at the address set forth above, or at such other address as may be designated in writing by any such party in a notice to the other given in the manner prescribed in this paragraph. All such notices shall be sufficiently given when the same shall be deposited so addressed, postage prepaid, in the United States mail and/or when the same shall have been delivered, so addressed, by facsimile or by overnight delivery service and the date of transmission by facsimile, receipt of overnight delivery service or two business days after mailing shall for the purposes of this Agreement be deemed the date of the giving of such notice. 17. NO PARTNERSHIP, ETC.: This Agreement does not constitute and shall not be construed as constitution of a partnership or joint venture between Licensor and Licensee. Neither party shall have any right to obligate or bind the other party in any manner whatsoever, and nothing herein contained shall give, or is intended to give, any rights of any kind to any third persons. 18. NO SUBLICENSING/NON-ASSIGNABILITY: This Agreement shall bind and inure to the benefit of Licensor, its successors and assigns. This Agreement is personal to Licensee. Licensee shall not sublicense, franchise or delegate to third parties its rights hereunder (except as set forth in Paragraph lO(b) hereof) Neither this Agreement nor any of the rights of Licensee hereunder shall be sold, transferred or assigned by Licensee and no rights hereunder shall devolve by operation of law or otherwise upon any receiver, liquidator, trustee or other party. 19. BANKRUPTCY RELATED PROVISIONS: (a) The parties hereby agree and intend that this Agreement is an executory contract governed by Section 365 of the 17 Bankruptcy Code. (b) In the event of Licensee's bankruptcy, the parties intend that any royalties payable under this Agreement during the bankruptcy period be deemed administrative claims under the Bankruptcy Code because the parties recognize and agree that the bankruptcy estates's enjoyment of this Agreement will (i) provide a material benefit to the bankruptcy estate during its reorganization and (ii) deny Licensor the benefit of the exploitation of the rights through alternate means during the bankruptcy reorganization. (c) The parties acknowledge and agree that any delay in the decision of trustee of the bankruptcy estate to assume or reject the Agreement (the "Decision Period") materially harms Licensor by interfering with Licensor's ability to alternatively exploit the rights granted under this Agreement during a Decision Period of uncertain duration. The parties recognize that arranging appropriate alternative exploitation would be a time consuming and expensive process and that it is unreasonable for Licensor to endure a Decision Period of extended uncertainty. Therefore, the parties agree that the Decision Period shall not exceed sixty (60) days. (d) Licensor, in its interest to safeguard its valuable interests (including, without limitation, its intellectual property rights in the Licensed Property), has relied on the particular skill and knowledge base of Licensee. Therefore, the parties acknowledge and agree that in a bankruptcy context this Agreement is a license of the type described by Section 365(c)(1) of the Bankruptcy Code and may not be assigned without the prior written consent of the Licensor. 20. CONSTRUCTION: This Agreement shall be construed in accordance with the laws of the State of California of the United States of America without regard to its conflicts of laws provisions. 21. WAIVER, MODIFICATION ETC.: No waiver, modification or cancellation of any term or condition of this Agreement shall be effective unless executed in writing by the party charged therewith. No written waiver shall excuse the performance of any acts other than those specifically referred to therein. The fact that the Licensor has not previously insisted upon Licensee expressly complying with any provision of this Agreement shall not be deemed to be a waiver of Licensor's future right to require compliance in respect thereof and Licensee specifically acknowledges and agrees that the prior forbearance in respect of any act, term or condition shall not prevent Licensor from subsequently requiring full and complete compliance thereafter. If any term or provision of this Agreement is held to be invalid or unenforceable by any court of competent jurisdiction or another authority vested with jurisdiction, such holding shall not affect the validity or enforceability of any other term or provision hereto and this Agreement shall be interpreted and construed as if such term or provision, to the extent the same shall have been held to be invalid, illegal or unenforceable, had never been contained herein. Headings of paragraphs herein are for convenience only and are without substantive significance. 22. ENTIRE AGREEMENT: This Agreement, including Exhibits, constitutes the entire Agreement between the parties concerning the subject matter hereof and cancels and supersedes any prior understandings and agreements between the parties hereto with respect thereto. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, expressed, implied or statutory, between the parties other than as expressly set forth in this Agreement. 23. ACCEPTANCE BY LICENSOR: This instrument, when signed by 18 Licensee shall be deemed an application for license and not a binding agreement unless and until accepted by Warner Bros. Consumer Products by signature of a duly authorized officer and the delivery of such a signed copy to Licensee. The receipt and/or deposit by Warner Bros. Consumer Products of any check or other consideration given by Licensee and/or delivery of any material by Warner Bros. Consumer Products to Licensee shall not be deemed an acceptance by Warner Bros. Consumer Products of this application. The foregoing shall apply to any documents relating to renewals or modifications hereof. This Agreement shall be of no force or effect unless and until it is signed by all of the parties listed below: AGREED AND ACCEPTED: AGREED AND ACCEPTED: LICENSOR: LICENSEE: WARNER BROS. CONSUMER PRODUCTS, BRAVO! FOODS, INC. a Division of Time Warner Entertainment Company L.P. on behalf of itself and as Agent for Warner Bros., a Division of Time Warner Entertainment Company L.P. By: By: ------------------------------ -------------------------- Gary R. Simon Anthony P. Guiliano Vice President & General Counsel Date: July 27, 2000 Date: July 21, 2000 ---------------------------- ------------------------------ 19 Exhibit 1 #12053-WBLT CHANNELS OF DISTRIBUTION DEFINITIONS LICENSEE MAY SELL THE LICENSED PRODUCTS ONLY THROUGH THE CHANNELS OF DISTRIBUTION AS SPECIFIED ABOVE IN PARAGRAPH l(a) OF THIS LICENSE AGREEMENT AND AS SUCH CHANNELS ARE DEFINED IN THIS EXHIBIT 1. ALL OTHER CHANNELS OF DISTRIBUTION DEFINED IN THIS EXHIBIT 1, WHICH ARE NOT SPECIFIED IN PARAGRAPH l(a) ABOVE, ARE SPECIFICALLY EXCLUDED FROM THIS LICENSE AGREEMENT. 1. "Airport Gift and Other Airport Stores" shall mean gift and other stores located within airports, excluding Duty-Free Store Operators (as defined below) Examples of Airport Gift and Other Stores include, without limitation, Paradies and W.H. Smith. 2. "Amusement Game Redemption" shall mean distribution of products as prizes awarded in amusement games. 3. "Amusement Park Gift Stores" shall mean gift stores located within amusement parks, such as Six Flags, Paramount Parks, Universal Theme Parks, Dollywood, Walt Disney World and Walt Disney Land. 4. "Art & Craft Stores" shall mean stores that offer for sale primarily art and craft supplies. Examples of Art & Craft Stores include, without limitation, Aaron Brothers, Fast Frame, Michaels and Michaels MJ Designs. 5. "Athletic Apparel & Footwear Stores" shall means stores that offer for sale primarily athletic apparel and footwear. Examples of Athletic Apparel & Footwear Stores include, without limitation, Footlocker, Athlete's Foot and Champs. 6. "Automotive/Carwash Stores" shall mean (a) stores that offer for sale primarily automotive supplies, or (b) stores located at carwash or gasoline station premises. 7. "Baby Specialty Stores" shall mean stores that offer for sale primarily infant apparel, furniture, accessories and other products designed specifically for babies. Examples of Baby Specialty Stores include, without limitation, Babies R Us. 8. "Beauty Supply Stores" shall mean stores that offer for sale primarily cosmetics, haircare products, beauty accessories and personal grooming related items. 9. "Candy/Confectionery Specialty Stores" shall mean stores that offer for sale primarily candy and confectionery products. Examples of Candy/Confectionery Specialty Stores include, without limitation, FAO Schweetz, and The Sweet Factory. 10. "Catalog Showrooms" shall mean stores that offer a broad assortment of products for sale primarily through a catalog along with display of samples of products in a showroom. Examples of Catalog Showrooms include, without limitation, Service Merchandise. 11. "Chain Book Stores" shall mean chain stores (containing twenty (20) or more individual stores) that offer for sale primarily books. Examples of Chain Book Stores include, without limitation, B. Dalton, SuperCrown, Walden Books, and Brentano's. 12. "Chain Comic Book Stores" shall mean chain stores (containing twenty (20) or more individual stores) that offer for sale primarily comic books. 13. "Chain Drug Stores" shall mean chain stores (containing twenty (20) or more individual stores) that offer for sale primarily prescription and over-the-counter drugs, personal care products and household products. Examples of Chain Drug 20 Stores include, without limitation, Walgreens, Rite-Aide, Thrifty/Payless, C.V.S./Revco, Thrift Drug, Phar Mor, and Longs Drugs. 14. "Chain Jewelry Stores" shall mean chain stores (containing twenty (20) or more individual stores) that offer for sale primarily jewelry. The "Chain Jewelry Stores" channel shall specifically exclude Guild Jewelers (as defined below). Examples of Chain Jewelry Stores include, without limitation, Sterling, Barry's, Lipman's and Hellsburg. 15. "Chain Toy Stores" shall mean chain stores (containing twenty (20) or more individual stores) that offer for sale primarily toys. In order to be considered a "Toy Store" hereunder, the total number of toy-type SKU's (stock-keeping units) must represent eighty percent (80%) or more of such store's total SKU's. Examples of Chain Toy Stores include, without limitation, Toys R Us. 16, "Coffee Specialty Stores" shall mean stores that offer for sale primarily specialty coffee and related products, such as coffee mugs. Examples of Coffee Specialty Stores include, without limitation, Starbucks, Buzz Coffee, Gloria Jeans and The Coffee Beanery. 17. "College/University Stores" shall mean stores located on the campuses of colleges or universities. 18. "Commercial Facilities" shall mean offering products for sale to architectural firms or interior designers working with commercial facilities, such as hotels and daycare facilities. 19. "Computer Specialty Stores" shall mean stores that offer for sale primarily computer equipment and supplies. Examples of Computer Specialty Stores include, without limitation, Comp USA. 20. "Convenience Stores" shall mean stores that offer for sale primarily packaged and "quick service" food products, are generally open 24 hours a day, and are designed to offer greater convenience than larger Supermarket/Grocery Stores. Examples of Convenience Stores include, without limitation, 7-11, AM/PM, Dairy Mart and Circle K. 21. "Dental/Medical Profession" shall mean institutions or, offices that provide dental or medical services, such as hospitals, laboratories or doctors' offices. 22. "Direct Mail Cataloqs" shall mean catalogs that offer products for sale and are mailed directly to consumers' homes. The "Direct Mail Catalogs" channel shall specifically exclude catalogs for fundraising purposes which shall be included in the "Fundraising" channel defined below. Examples of Direct Mail Catalogs include, without limitation, Speigel, Hearth & Home, Domestications, Tapestry, Company Store, Hammacher Schlemmer, Fingerhut, Amway, and Lillian Vernon. If Licensor grants to Licensee the right to distribute Licensed Products through any Direct Mail Catalogs: (a) each such catalog shall be specified in the Channels of Distribution set forth in the License Agreement or otherwise expressly approved in writing by Licensor, and (b) each such catalog depicting or referring to the Licensed Products or the Licensed Property must be submitted to Licensor for prior written approval in accordance with Licensor's Brand Assurance policies and procedures. 23. "Door-to-Door Solicitation" shall mean offering products for sale through personal visits by salespersons to consumers' homes. 24. "Duty-Free Operators" shall mean (a) stores usually located in transit locations (i.e. airports, in-flight, train, ferry stations, cruise lines and ports) which offer products for sale to international travelers free of taxes and duties and 21 (b) sales offered to diplomat shops, diplomat suppliers and individual diplomats free of taxes and/or duties. If Licensor grants to Licensee the right to distribute products through Duty-Free Operators, such channels of distribution (i.e. all other channels of distribution granted) shall be limited to those stores located within the Territory. 25. "Educational Institutions" shall mean offering products (generally books) for sale to public or private schools or other educational institutions. Examples of Educational Institutions include, without limitation, the Los Angeles Unified School District. 26. "Educational Specialty Stores" shall mean stores that offer for sale primarily educational products. Examples of Educational Specialty Stores include, without limitation, Imaginarium and Nature Company. 27. "Electronics Stores" shall mean stores that offer for sale primarily electronic products. Examples of Electronics Stores include, without limitation, Circuit City, Fry's, and Best Buy. 28. "Family Restaurants" shall mean a food service establishment or group of food service establishments that offer a sit down meal menu conducive to all members of the family and generally offers table service to customers. Examples of Family Restaurants' include, without limitation, Denny's and Friendly's. 29. "Fashion Accessory Stores" shall mean stores that offer for sale primarily costume jewelry, hair accessories and other fashion accessories. Examples of Fashion Accessory Stores include, without limitation, Claire's Boutique, Afterthoughts, It's About Time and Piercing Pagoda. 30. "Florists" shall mean stores or companies that offer for sale primarily flowers. Examples of Florists include, without limitation, Conroy's, FTD, and 1-800-Flowers. 31. "Food Service" shall mean locations that provide food service to consumers in cafeterias, hospital food services, school lunch programs, and similar institutional food service locations. 32. "Fundraising" shall mean offering products for sale through catalogs, direct mail brochures, prize programs and in-school sales, which are used by schools and charitable, religious or other organizations to raise funds. Examples of Fundraising companies include, without limitation, Giftco, Springwater, and Darlington Farms. 33. "Garden Specialty Stores" shall mean stores that offer for sale primarily garden supplies and plants. Examples of Garden Specialty Stores include, without limitation, Armstrong's, Callaway's, and Wolf Nurseries. 34. "Gift Retailers" shall mean stores that (a) offer products for sale that are in somewhat related product categories and are known as "gifts" in the trade, which products generally are classified in the trade as "better" quality and are higher priced (as compared to National and Regional Discount/Mass Retailers' products), (b) do not usually discount merchandise or sell it at greatly reduced prices, (c) usually focus more on aesthetics in merchandise displays than on price, and (d) generally require individual store servicing by suppliers in merchandise set-up, display, SKU maintenance and reordering. Suppliers to gift retailers typically advertise in trade publications, such as "Gift & Stationery Business" "Giftware News" and "Gifts & Decorative Accessories". Suppliers to Gift Retailers usually include companies such as Enesco, Midwest of Cannon Falls, New Creative Enterprises, Dale Tiffany, Pacific Rim, Ande Rooney, Waterford, GiftCraft, Carson Industries, Possible Dreams, Lenox, Department 56, Lefton, Swarovski and Flambro. The "Gift Retailers" channel shall specifically exclude Novelty, 22 Gift Stores (as defined below), Duty-Free Store Operators (as defined above), and Airport Gift and Other Airport Stores (as defined above) 35. "Gourmet Food Specialty Stores" shall mean stores that offer for sale primarily gourmet and specialty food products. Examples of Gourmet Food Specialty Stores include, without limitation, Bristol Farms, Whole Foods and Gelsons. 36. "Greeting Card Stores" shall mean stores that offer for sale primarily greeting cards. Examples of Greeting Card Stores include, without limitation, Hallmark. 37. "Guild Jewelers" shall mean stores that offer for sale primarily fine jewelry which is generally classified in the trade as "best" or "highest" quality. Examples of Guild Jewelers include, without limitation, Mayers, Rogers, and Baily Banks & Biddle. 38. "Hobby & Model Stores" shall mean stores that offer for sale primarily hobby and model supplies. 39. "Home Improvement Stores" shall mean stores that offer for sale primarily hardware and home improvement supplies. Examples of Home Improvement Stores include, without limitation, Home Depot, OSH, Home Base, and Lowes. 40. "Home Specialty Stores" shall mean stores that offer for sale primarily bedding, towels and other bathroom products, kitchen merchandise and housewares. Examples of Home Specialty Stores include, without limitation, Strouds, Linens 'N' Things, 3D Bed & Bath, Bed/Bath/Beyond, and Luxury Linens. 41. "Ice Cream Shops" shall mean stores that offer for sale primarily ice cream, ice cream cakes and similar frozen dessert products. Examples of Ice Cream Shops include, without limitation, Baskin-Robbins, Dairy Queen and Ben and Jerry's Shops. 42. "In-Store Bakeries" shall mean the in-store bakery departments within Supermarket/Grocery Stores, National and Regional Discount/Mass Retailers and Warehouse Clubs. Such departments offer for sale primarily freshly baked breads, cakes, cookies and similar bakery items. 43. "Internet" shall mean offering products for sale through the electronic network known as the Internet. 44. "Mail Clothing Specialty Stores" shall mean stores that offer for sale primarily clothing and are located within a mall. Examples of Mall Clothing Specialty Stores include, without limitation, Millers Outpost and Wet Seal. 45. "Mid-Tier Department Stores" shall mean stores that offer products for sale in a broad assortment of unrelated product categories, which products are generally classified in the trade as "better" (but not "best") quality products. Examples of Mid-Tier Department Stores include, without limitation, JC Penney, Sears, Mervyn's, SteinMart, Kohls, Fred Meyer and Montgomery Wards. 46. "Military Exchange Services" shall mean military headquarters as well as individual bases of armies and/or airforces of each country within the Territory. Examples of Military Exchange Services include, without limitation, U.S. Army and Airforce Exchange Service ("AAFES") and the Canadian Forces Exchange Service ("CANEX").If Licensor grants to Licensee the right to distribute products through Military Exchange Services, such channel of distribution (like all other channels of distribution granted) shall be limited to those stores located within the Territory. 47. "Music/Video Stores" shall mean stores that offer for sale primarily musical recordings, on compact discs, cassettes or other media, and/or movie recordings on videos, laser disks 23 or other media for home use by consumers. Examples of Music/Video Stores include, without limitation, Blockbuster, Musicland, Tower Records, Virgin Records, Warehouse Records, Sam Goody's, and Suncoast. 48. "National Discount/Mass Retailers" shall mean stores that (a) have nation-wide distribution, (b) offer products for sale in a broad assortment of unrelated product categories, which products generally are not classified in the trade as "better/best" quality products, (c) are usually "self-service" with more of an emphasis on price than aesthetics, and (d) generally do not require individual store servicing by suppliers. Suppliers to National Discount/Mass Retailers typically advertise in trade publications, such as "Discount Store News" and "Discount Merchandiser", and usually attend the IMRA (International Mass Retailer Association) trade show. The "National Discount/Mass Retailers" channel shall specifically exclude the in-store bakery departments of such stores, which shall be included in the "In-Store Bakeries" channel defined above. Examples of National Discount/Mass Retailers include, without limitation, Walmart, K-Mart, Target and Zellers. 49. "Non-Chain Book Stores" shall mean stores or groups of stores (containing fewer than twenty (20) individual stores) that offer for sale primarily books. 50. "Non-Chain Comic Book Stores" shall mean stores or groups of stores (containing fewer than twenty (20) individual stores) that offer for sale primarily comic books. 51. "Non-Chain Drug Stores" shall mean stores or groups of stores (containing fewer than twenty (20) individual stores) that offer for sale primarily prescription and over-the-counter drugs, personal care products and household products. 52. "Non-Chain Jewelry Stores" shall mean stores or groups of stores (containing fewer than twenty (20) individual stores) that offer for sale primarily jewelry. The "Non-Chain Jewelry Stores" channel shall specifically exclude Guild Jewelers (as defined above). 53. "Non-Chain Toy Stores" shall mean stores or groups of stores (containing fewer than twenty (20) individual stores) that offer for sale primarily toys. In order to be considered a "Toy Store" hereunder, the total number of toy-type SKU's must represent eighty percent (80%) or more of such store's total SKU's. Examples of Non-Chain Toy Stores include, without limitation, Talbot's Toyland and Tons of Toys, Inc. 54. "Non-Mall Clothing Specialty Stores" shall mean stores that offer for sale primarily clothing and are not located within a mall. Examples of Non-Mall Clothing Specialty Stores include, without limitation, Kids Mart, Kids R Us, Clothestime and Fashion Bug. 55. "Novelty Gift Stores" shall mean stores that offer for sale primarily novelty gift items. The "Novelty Gift Stores" channel shall specifically exclude Airport Gift and Other Airport Stores and Duty- Free Operators (as such terms are defined above). Examples of Novelty Gift Stores include, without limitation, Spencer's. 56. "Off-Price/Closeout Stores" shall mean stores that offer for sale primarily discounted apparel and other merchandise. Examples of Off- Price/Closeout Stores include, without limitation, Marshall's, T.J. Maxx, Ross for Less, Hit or Miss and Tuesday Morning. 57. "Office Specialty Stores" shall mean stores that offer for sale primarily office supplies. Examples of Office Specialty Stores include, without limitation, Office Depot, Staples, and Office Max. 58. "Outlet Stores" shall mean stores that offer for sale primarily discounted merchandise of a particular manufacturer 24 or retailer. 59. "Party Stores" shall mean stores that offer for sale primarily party supplies. Examples of Party Stores include, without limitation, Party City and Party World. 60. "Pet Stores" shall mean stores that offer for sale primarily pet supplies. Examples of Pet Stores include, without limitation, PetCo and PetSmart. 61. "Quick Service Restaurants" shall mean a food service establishment or group of food service establishments that offer rapid meal menus to consumers and generally do not offer table service to customers. Examples of Quick Service Restaurants include, without limitation, Subway and Burger King. 62. "Regional Discount/Mass Retailers" shall mean stores that (a) have regional distribution, (b) generally offer products for sale in a broad assortment of unrelated product categories, which products generally are not classified in the trade as "better/best" quality products, (c) are usually "self-service" with more of an emphasis on price than aesthetics, and (d) generally do not require individual store servicing by suppliers. Suppliers to Regional Discount/Mass Retailers typically advertise in trade publications, such as "Discount Store News" and "Discount Merchandiser", and usually attend the IMRA (International Mass Retailer Association) trade show. The "Regional Discount/Mass Retailers" channel shall specifically exclude the in-store bakery departments of such stores, which shall be included in the "In-Store Bakeries" channel defined above. Examples of Regional Discount/Mass Retailers include, without limitation, Meijers, Caldor, Ames, Bradlees, Hill's, Rose's, Venture, and Shopko. 63. "Retail Bakeries" shall mean stores that offer for sale primarily freshly baked breads, cakes, cookies and similar bakery items. The "Retail Bakeries" channel shall specifically exclude In-Store Bakeries (as defined above). 64. "School Book Clubs/Fairs" shall mean offering products for sale through book catalogs distributed to teachers and students at public or private schools (usually elementary or high school) or through book fairs conducted on the premises of such schools. Examples of School Book Clubs/Fairs include, without limitation, Troll Book Club and Scholastic Book Fair. 65. "Souvenir Stores" shall mean stores that offer for sale primarily souvenirs. 66. "Sporting Good Stores" shall mean stores that offer for sale primarily sporting goods, equipment, athletic apparel, and other merchandise that reflects a sports theme. Examples of Sporting Good Stores include, without limitation, Big 5 and Sports Chalet. 67. "Sports Stadium Shops" shall mean concessionaire shops located within stadiums or arenas where sporting events are held. 68. "Stationery Stores" shall mean stores that offer for sale primarily stationery. Examples of Stationery Stores include, without limitation, Farr's Stationaires. 69. "Street Peddlers" shall mean individual merchants who offer products for sale in stands, booths or other non-permanent structures usually located on the sidewalk and designed to attract passing pedestrians. 70. "Supermarket/Grocery Stores" shall mean stores that offer for sale primarily packaged food products. The "Supermarket/ Grocery Stores" channel shall specifically exclude the in-store bakery departments of such stores, which shall be included in the "In-Store Bakeries" channel defined above. The "Supermarket/Grocery Stores" channel shall specifically 25 exclude Gourmet Food Specialty Stores (as defined above) and Convenience Stores (as defined above). Examples of Supermarket/Grocery Stores include, without limitation, Kroger, Safeway, American Stores, Albertson's, Winn Dixie, Food Lion, Von's, Finast, Ralphs and Marsh. 71. "Swap Meets/Flea Markets" shall mean offering products for sale through organized events known as swap meets or flea markets, which involve a group of vendors offering for sale a variety of products, often collectibles or antiques. 72. "Television Home Shopping" shall mean offering products for sale through cable and broadcast television, including infomercials, QVC and Home Shopping Network. The "Television Home Shopping" channel shall specifically exclude sales through the Internet, CD-Interactive and other electronic media. 73. "Toy Wholesalers" shall mean companies that offer for sale primarily toys to retail stores. In order to be considered a "Toy Wholesaler" hereunder, the total number of toy-type SKU's must represent eighty percent (80%) or more of such wholesaler's total SKU's. 74. "Trackside-CART" shall mean offering products for sale at races organized and sponsored by Championship Auto Racing Teams. 75. "Trackside-NASCAR" shall mean offering products for sale at races organized and sponsored by the National Association for Stock Car Racing. 76. "Trackside-NHRA" shall mean offering products for sale at races organized and sponsored by the National Hot Rod Association. 77. "Upstairs Department Stores" shall mean stores that (a) offer products for sale in a broad assortment of unrelated product categories, which products are generally classified in the trade as "best" quality products, and (b) offer a high level of customer service with a strong emphasis on store aesthetics. Examples of Upstairs Department Stores include, without limitation, Bloomingdale's, Macy's, Nordstrom's, May Department Stores, Saks Fifth Avenue, Neiman Marcus, and Dillards. 78. "Vending Machines" shall mean self-contained automated dispensing equipment operated by insertion of coin or paper currency or the equivalent thereof (i.e. debit cards, credit cards, etc.) 79. "Warehouse Clubs" shall mean stores that offer for sale products in large sizes and quantities with more of an emphasis on price than service or store aesthetics. The "Warehouse Clubs" channel shall specifically exclude the in-store bakery departments of such stores, which shall be included in the "In-Store Bakeries" channel defined above. Examples of Warehouse Clubs include, without limitation, Sam's Club and Price Costco. 80. "WBSS" shall mean the retail stores known as Warner Bros. Studio Stores, which are operated by or on behalf of Licensor, its affiliated companies or its franchisees, including the Warner Bros. Studio Store catalogs. 26 EXHIBIT 2 #12053-WBLT CONTRIBUTOR'S AGREEMENT ----------------------- I, ______________________, the undersigned ("Contributor"), have been engaged by BRAVO! FOODS, INC. ("Licensee") to work on or contribute to the creation of Licensed Products, described as ___________________, by Licensee under an agreement between Licensee and Warner Bros., a division of Time Warner Entertainment Company L.P., c/o Warner Bros. Consumer Products, a division of Time Warner Entertainment Company L.P. {"Warner"} dated ________________. I understand and agree that the Licensed Products, and all artwork or other results of my services for Licensee in connection with such Licensed Products {"Work"} is a "work made for hire" for Warner and that all right, title and interest in and to the Work shall vest and remain with Warner. I reserve no rights therein. Without limiting the foregoing, I hereby assign and transfer to Warner all other rights whatsoever, in perpetuity throughout the universe which I may have or which may arise in me or in connection with the Work. I hereby waive all moral rights in connection with such Work together with any other rights which are not capable of assignment. I further agree to execute any further documentation relating to such transfer or waiver or relating to such Work at the request of Warner or Licensee, failing which Warner is authorized to execute same as my Attorney-in-Fact. Contributor: By: signature print name address country date Warner Bros. Consumer Products: By: ______________________________ Date: ____________________________ 27 EXHIBIT 3 #12053-WBLT WARNER BROS. CONSUMER PRODUCTS 4000 Warner Boulevard Bridge Building 156 South-4th Floor Burbank, CA 91522 Re: Approval of Third Party Contracts Gentlemen: This letter will serve as notice to you that pursuant to Paragraph 10(b) of the License Agreement dated _______________, 2000 between WARNER BROS., A DIVISION OF TIME WARNER ENTERTAINMENT COMPANY L.P. and BRAVO! FOODS, INC. ("Licensee") , we have been engaged by Licensee in connection with the promotion, manufacture, distribution and sale of the Licensed Products as defined in the aforesaid License Agreement. We hereby acknowledge that we may not promote, manufacture, distribute or sell the Licensed Products, except as provide for herein and in the aforesaid License Agreement. We hereby further acknowledge that we have received a copy and are cognizant of the terms and conditions set forth in said License Agreement and hereby agree to observe those provisions of said License Agreement which are applicable to our function as promoter or manufacturer, distributor and seller of the Licensed Products. It is expressly understood that we are obligated to comply with all local laws, including without limitation, labor laws, wage and hour laws and anti- discrimination laws and that you or your representatives shall, at anytime, have the right to inspect our facilities and review our records to ensure compliance therewith. It is understood that this engagement is on a royalty free basis and that we may not subcontract any of our work without your prior written approval. We understand that our engagement as the promoter or manufacturer, distributor and seller for Licensee is subject to your written approval. We request, therefore, that you sign in the space below, thereby showing your acceptance of our engagement as aforesaid. Very truly yours, manufacturer/company name By: signature print name address country date product(s) manufacturing AGREED TO AND ACCEPTED: WARNER BROS. CONSUMER PRODUCTS, a Division of Time Warner Entertainment Company L.P. By: Gary R. Simon Vice President & General Counsel Date: 28 EX-10 6 chinex7o.txt EXHIBIT 7O Exhibit 7o China Peregrine Food Corporation EMPLOYMENT CONTRACT This Employment Contract is between China Peregrine Food Corporation (the Company), a corporation organized and existing under the laws of the state of Delaware, United States of America, and Mr. Stephen R. Langley, a resident of Pudong, Shanghai, China and a citizen of the United States of America (Langley). 1. Position: This Contract is for the position of Chief Operating Officer-China of China Peregrine Food Corp. (Shanghai) Co. Ltd., a subsidiary of the Company (CHPF-SH). 2. Responsibilities: Langley shall have overall responsibilities for CHPF-SH's operations throughout the Peoples Republic of China (PRC). These responsibilities will include: financial (profits, sales, controls, budgets), sales management, marketing, delivery, administration, operations, etc. Langley will, on a day-to-day basis, have overall responsibility for managing CHPF-SH's interests in the PRC. While employed directly by CHPF-SH, Langley will have supervisory responsibilities for operations (as described above) of other business interests of the Company in China, as determined from time to time by the Company. Langley shall report directly to the President and CEO of the Company. From time to time, Langley shall report on the status of the business interests of the Company in China to the Executive Committee and the Board of Directors of the Company. 3. Salary: The annual salary for this position shall be US$75,000, paid in twelve equal monthly installments. This salary, and other cash compensation, shall be distributed in US dollars or other currency that best suits the needs of Langley and the Company. This salary will be reviewed at each year-end. The Company shall deduct the appropriate amount of all applicable federal taxes from Langley's salary payments, based upon the deductions supplied to the Company by Langley. The Company shall be responsible for the payment of Chinese income taxes on Langley's salary and the actual United States income taxes based upon tax equalization concepts and provisions of the Internal Revenue Code. 4. Bonus Plan: The bonus plan shall have three elements: 4.1 First Year Quarterly Bonus. Langley shall receive US$7,500 as a bonus in each of four calendar quarters of the first employment year under this contract. 4.2 Subsequent Years Quarterly Bonus. Langley shall be eligible for a US$7,500 bonus and shall receive such amount as a minimum bonus in each of four calendar quarters of subsequent employment years under this contract, based on short term performance objectives as mutually agreed to in writing by Langley and the Company. 4.3 Langley shall have the option of receiving the bonus described in the preceding sections 4.1 and 4.2 in either cash payment or stock. If in stock, the amount of stock due shall be based upon a per share price determined by an average of the monthly stock trading price calculated monthly, but paid on a quarterly basis, commencing with the fourth quarter of the Company's 1999 fiscal year. 5. Stock options: A one-time grant of an option for 50,000 shares of the Company's common stock shall be awarded as a signing bonus. Also, an option on 50,000 shares shall be awarded at the end of each calendar year for three years. These four grants shall total options for 200,000 shares. These options shall be vested over three years from the date of each respective award. Once these options are awarded, they shall have a five-year life. The Stock Option Agreement between the Company and Langley shall govern the detailed terms and conditions for these options. 6. Corporate Benefits: 6.1 The Company shall provide the same corporate benefits (medical, etc.) to the Langley as it provides to its other US employees. 6.2 Housing: An annual housing allotment of US$48,000, payable monthly will be provided for housing in the PRC for Langley. 6.3 Education: An annual education allotment of US$22,000 will be provided for the education of Langley's family members in the PRC. 6.4 Local Transportation: The Company, through CHPF-SH, will supply an automobile and driver for Langley's local transportation needs in the PRC, on a pre-approved basis. 7. Compliance with Company Policies and Regulations: Langley will execute his duties and responsibilities in strict accordance with Company policies and regulations, approved budgets, and specific directives. Further, Langley shall be responsible, and accountable, for the employees under his responsibility to also abide by these policies and regulations. In the event Langley is, among other things, negligent in his performance of his responsibilities, especially as it relates to compliance with Company policies and procedures, he will be subject to termination for cause. 8. Termination: Either side may terminate employment by giving six calendar months written notice. Langley may be terminated for cause only subsequent to five days written termination notice to Langley, which notice shall specify the grounds for termination for cause, and provide for the opportunity for Langley to address the Executive Committee of the Company's Board of Directors with respect to the matters set forth in the written termination notice. 9. Confidentiality: Langley agrees and acknowledges that acquired information and knowledge concerning the business operations of the Company, trade secrets, methods of operation, product formula, manufacturing procedures, business practices, financial information, records and reports, and data related to the operation of the Company is confidential and secret (the foregoing hereinafter referred to as "Confidential Information"). Langley shall not at any time disclose, or after termination or expiration of this Contract disclose, any Confidential Information to any person, company, government, or use any Confidential Information in direct competition with the business of the Company or its subsidiaries. 10. Commencement and Term: This Contract is effective with the signing by both parties below as of September 1, 1999. Except as otherwise provided in this document, this Contract shall be valid for five (5) years, and shall automatically renew under the same terms and conditions unless thirty (30) days prior to the expiration date one, or both, of the parties notifies the other party of the intention to terminate, or modify, this Contract. 11. Inside Information--Securities Laws Violations: In the course of the performance of Langley's duties, it is expected that Langley will receive information that is considered material inside information within the meaning and intent of the federal securities laws, rules, and regulations. Langley will not disclose this information directly or indirectly for Langley or as a basis for advice to any other party concerning any decision to buy, sell, or otherwise deal in the Company's securities or those of any of the Company's affiliated companies. 12. Warranty That Agreement Does Not Contemplate Corrupt Practices-- Domestic or Foreign: Langley represents and warrants that (a) all payments under this Agreement constitute compensation for services performed and (b) this Agreement and all payments, and the use of the payments by Langley, do not and shall not constitute an offer, payment, or promise, or authorization of payment of any money or gift to an official or political party of, or candidate for political office in, any jurisdiction within or outside the United States. These payments may not be used to influence any act or decision of an official, party, or candidate in his, her, or its official capacity, or to induce such official, party, or candidate to use his, her, or its influence with a government to affect or influence any act or decision of such government to assist the Company in obtaining, retaining, or directing business to the Company or any person or other corporate entity. As used in this Paragraph, the term "official" means any officer or employee of a government, or any person acting in an official capacity for or on behalf of any government; the term "government" includes any department, agency, or instrumentality of a government. 13. Governing Law. This Agreement is subject to and shall be interpreted in accordance with the laws of Delaware. Signatures: _______________________________ September 1, 1999 Stephen R. Langley Date China Peregrine Food Corporation _______________________________ September 1, 1999 Roy G. Warren Date President China Premium Food Corporation EXECUTIVE COMPENSATION AGREEMENTEMPLOYMENT CONTRACT This Executive Compensation Agreement is made September 1, 2000, between China Premium Food Corporation (the Company), a corporation organized and existing under the laws of the state of Delaware, United States of America, and Mr. Stanley A. Hirschman, a individual residing at 2600 Rutgers Court, Plano, Texas (Hirschman) 1. Purpose: This Executive Compensation Agreement sets forth the compensation of Hirschman in connection with and for the performance of his duties as Chairman of the Board of Directors of the Company. 2. Responsibilities: The Chairman is the chief officer of Company and, subject to the control and direction of the Board of Directors, will supervise the overall corporate and business affairs of the Company. The Chairman will preside at all meetings of the Board of Directors. From time to time, Hirschman, as Chairman, shall report on the status of the business interests of the Company to the Board of Directors of the Company. Hirschman shall not assume any additional consulting or employment positions with other businesses not presently held by him during the initial six months of the term of this Agreement. The Company may place a similar condition upon the continuation of Hirschman as Chairman subsequent to the initial six month term of this Agreement. 3. Salary: Hirschman shall be paid the sum of $7,500 per month for the six months commencing September 1, 2000 and ending February 28, 2001. At the expiration of that six month period, the Compensation Committee of the Board of Directors shall review Hirschman's monthly compensation and make a recommendation to the Board with respect to any adjustment in that monthly amount. Hirschman's monthly compensation subsequent for the initial six month period shall be determined by the agreement of the parties to this Compensation Agreement. 4. Bonus Plan: In addition to the monthly compensation to be paid to Hirschman, he shall be entitled to participate in an executive bonus plan, as follows: 4.1. Hirschman shall receive options to purchase 100,000 of the Company's common stock at the then current market price as a bonus when the Company's common stock achieves and maintains a closing price of $2.00 or more for sixty consecutive trading days. The "then current market price" is defined to mean the average closing price of the Company's common stock during such sixty consecutive trading days. These options shall be exercisable during the three year period commencing with the date of their issue to Hirschman. 4.2. Hirschman shall receive options to purchase an additional 100,000 of the Company's common stock at the then current market price as a bonus when the Company's common stock achieves and maintains a closing price of $3.00 or more for sixty consecutive trading days. The "then current market price" is defined to mean the average closing price of the Company's common stock during such sixty consecutive trading days. These options shall be exercisable during the three year period commencing with the date of their issue to Hirschman. 4.3. Hirschman shall receive options to purchase an additional 100,000 of the Company's common stock at the then current market price as a bonus when the Company's common stock achieves and maintains a closing price of $4.00 or more for sixty consecutive trading days. The "then current market price" is defined to mean the average closing price of the Company's common stock during such sixty consecutive trading days. These options shall be exercisable during the three year period commencing with the date of their issue to Hirschman. 4.4 Hirschman shall receive options to purchase an additional 100,000 of the Company's common stock at the then current market price as a bonus when the Company's common stock achieves and maintains a closing price of $5.00 or more for sixty consecutive trading days. The "then current market price" is defined to mean the average closing price of the Company's common stock during such sixty consecutive trading days. These options shall be exercisable during the three year period commencing with the date of their issue to Hirschman. 4.5 If Hirschman shall cease to serve as Chairman of the Board, the exercise period for any options issued but not exercised shall be the lesser of (i) the exercise period remaining for such options or (ii) 365 days. 5. Compliance with The Company Policies and Regulations: Hirschman will execute his duties and responsibilities in strict accordance with Company policies and regulations, approved budgets, and specific directives. 6. Termination: Hirschman shall serve as Chairman at the pleasure of the Board of Directors. Either side may terminate this Agreement by giving thirty calendar days written notice. Hirschman may be terminated as Chairman for cause only subsequent to five days written termination notice to Hirschman, which notice shall specify the grounds for termination for cause, and provide for the opportunity for Hirschman to address the Company's Board of Directors with respect to the matters set forth in the written termination notice. 7. Confidentiality: Hirschman agrees and acknowledges that acquired information and knowledge concerning the business operations of the Company, trade secrets, methods of operation, product formula, manufacturing procedures, business practices, financial information, records and reports, and data related to the operation of the Company is confidential and secret (the foregoing hereinafter referred to as "Confidential Information"). Hirschman shall not at any time disclose, or after termination or expiration of this Contract disclose, any Confidential Information to any person, company, government, or use any Confidential Information in direct competition with the business of the Company. 8. Commencement and Term: This Contract is effective with the signing by both parties below as of September 1, 2000. As provided in this document, this Agreement is subject to termination by the parties upon appropriate notice. 9. Inside Information--Securities Laws Violations: In the course of the performance of Hirschman's duties, it is expected that Hirschman will receive information that is considered material inside information within the meaning and intent of the federal securities laws, rules, and regulations. Hirschman will not disclose this information directly or indirectly for Hirschman or as a basis for advice to any other party concerning any decision to buy, sell, or otherwise deal in the Company's securities or those of any of the Company's affiliated companies. 10. Warranty That Agreement Does Not Contemplate Corrupt Practices-- Domestic or Foreign: Hirschman represents and warrants that (a) all payments under this Agreement constitute compensation for services performed and (b) this Agreement and all payments, and the use of the payments by Hirschman, do not and shall not constitute an offer, payment, or promise, or authorization of payment of any money or gift to an official or political party of, or candidate for political office in, any jurisdiction within or outside the United States. These payments may not be used to influence any act or decision of an official, party, or candidate in his, her, or its official capacity, or to induce such official, party, or candidate to use his, her, or its influence with a government to affect or influence any act or decision of such government to assist the Company in obtaining, retaining, or directing business to the Company or any person or other corporate entity. As used in this Paragraph, the term "official" means any officer or employee of a government, or any person acting in an official capacity for or on behalf of any government; the term "government" includes any department, agency, or instrumentality of a government. 11. Governing Law. This Agreement is subject to and shall be interpreted in accordance with the laws of Delaware, without choice of law considerations. Signatures: ______________________________ September 1, 2000 Stanley A. Hirschman Date China Premium Food Corporation _______________________________ September 1, 2000 Roy G. Warren Date President China Premium Food Corporation EXECUTIVE COMPENSATION AGREEMENT This Executive Compensation Agreement is made December 1, 2000, between China Premium Food Corporation (the Company), a corporation organized and existing under the laws of the state of Delaware, United States of America, and Mr. John J. McCormack, an individual residing at 8750 South Grant, Burridge, Illinois (McCormack) 1. Purpose: This Executive Compensation Agreement sets forth the compensation of McCormack in connection with and for the performance of his duties as President and Chief Operating Officer of the Company. 2. Responsibilities: McCormack as President and Chief Operating Officer shall be subject to the control and direction of the Board of Directors, and shall have responsibility for and supervise the overall day to day operations of the Company. These responsibilities will include: financial (profits, sales, controls, budgets), sales management, marketing, delivery, administration, operations, etc. McCormack shall report directly to the Chief Executive Officer of the Company and, from time to time, McCormack shall report on the status of the business operations of the Company to the Board of Directors. McCormack shall not assume any additional consulting or employment positions with other businesses during the term of this Agreement. 3. Salary: McCormack shall be paid the sum of $180,000 per year commencing December 1, 2000. This salary will be paid in equal monthly installments and shall be reviewed at each year-end, commencing December 31, 2001. The Company shall deduct the appropriate amount of all applicable federal and state taxes from McCormack's salary payments, based upon the deductions supplied to the Company by McCormack. 4. Incentive Bonus Plan: In addition to the annual compensation to be paid to McCormack, he shall be entitled to participate in an executive incentive bonus plan, as follows: Signing Bonus - Common Stock 4.1. McCormack shall receive 100,000 shares of the Company's common stock as an incentive for employment with the Company and for his anticipated future services. This common stock shall be issued contemporaneous with the effective date of this Agreement. Signing Bonus - Options 4.2. A one-time grant of options for 400,000 shares of the Company's common stock at an exercise price of $0.75 per share shall be awarded as an incentive for McCormack to accept employment with the Company and for his anticipated future services. These options shall be vested over a two year period, with 50%vested on December 31, 2001 and 50% vested on December 31, 2002. Once these options are vested, they shall have a three year exercise period. The Stock Option Agreement between the Company and McCormack shall govern the detailed terms and conditions for these options. Performance Bonus - Options 4.3. $1.00 Options. Subsequent to "vesting" as provided herein, McCormack shall receive options to purchase 100,000 of the Company's common stock at the then current market price as a bonus when the Company's common stock achieves and maintains a closing price of $1.00 or more for sixty consecutive trading days. The "then current market price" is defined to mean the average closing price of the Company's common stock during such sixty consecutive trading days. These options shall be exercisable during the three year period commencing with the date of their issue to McCormack. 4.4. $2.00 Options. Subsequent to "vesting" as provided herein, McCormack shall receive options to purchase an additional 100,000 of the Company's common stock at the then current market price as a bonus when the Company's common stock achieves and maintains a closing price of $2.00 or more for sixty consecutive trading days. The "then current market price" is defined to mean the average closing price of the Company's common stock during such sixty consecutive trading days. These options shall be exercisable during the three year period commencing with the date of their issue to McCormack. 4.5. $3.00 Options. Subsequent to "vesting" as provided herein, McCormack shall receive options to purchase an additional 100,000 of the Company's common stock at the then current market price as a bonus when the Company's common stock achieves and maintains a closing price of $3.00 or more for sixty consecutive trading days. The "then current market price" is defined to mean the average closing price of the Company's common stock during such sixty consecutive trading days. These options shall be exercisable during the three year period commencing with the date of their issue to McCormack. 4.6. $4.00 Options. Subsequent to "vesting" as provided herein, McCormack shall receive options to purchase an additional 100,000 of the Company's common stock at the then current market price as a bonus when the Company's common stock achieves and maintains a closing price of $4.00 or more for sixty consecutive trading days. The "then current market price" is defined to mean the average closing price of the Company's common stock during such sixty consecutive trading days. These options shall be exercisable during the three year period commencing with the date of their issue to McCormack. 4.7. $5.00 Options. Subsequent to "vesting" as provided herein, McCormack shall receive options to purchase an additional 100,000 of the Company's common stock at the then current market price as a bonus when the Company's common stock achieves and maintains a closing price of $5.00 or more for sixty consecutive trading days. The "then current market price" is defined to mean the average closing price of the Company's common stock during such sixty consecutive trading days. These options shall be exercisable during the three year period commencing with the date of their issue to McCormack. 4.8. Vesting Schedule. McCormack shall be entitled to have the options set forth in Sections 4.3 through 4.9 herein issued to him only (i) when the conditions for issuance contained in Sections 4.1 through 4.6 herein are satisfied and (ii) subsequent to the "vesting" dates set forth in the following "vesting" schedule. Vesting $1.00 Options $2.00 Options $3.00 Options $4.00 Options 5.00 Options Dates 12/31/2001 50% 50% 50% 50% 50% 12/31/2002 50% 50% 50% 50% 50% General Conditions - Options 4.9. Provided that, these Signing and Performance Options shall vest only if McCormack is employed by the Company on the applicable Vesting Date. If McCormack is not employed by the Company on the applicable Vesting Date, then the option to purchase common shares appurtenant to such performance option shall be null and void and McCormack shall not have the right or claim to purchase such common shares. 4.10. If McCormack shall cease to serve as President and Chief Operating Officer of the Company, the exercise period for any options issued but not exercised shall be the lesser of (i) the exercise period remaining for such options or (ii) 365 days. 5. Compliance with The Company Policies and Regulations: McCormack will execute his duties and responsibilities in strict accordance with Company policies and regulations, approved budgets, and specific directives. 6. Termination: McCormack shall serve as President and Chief Operating Officer of the Company at the pleasure of the Board of Directors. Either side may terminate this Agreement without cause by giving six calendar months written notice after the expiration of the two (2) year term of this Contract. McCormack may be terminated for cause immediately, but only subsequent to five days written termination notice to McCormack, which notice shall specify the grounds for termination for cause, and provide for the opportunity for McCormack to address the Company's Board of Directors with respect to the matters set forth in the written termination notice. Termination for cause may include, without limitation, insubordination, moral turpitude, commission of a crime, or actions which in the judgment of a majority of the Board of Directors are inconsistent with the positions of President and Chief Operating Officer of a publicly reporting company. 7. Confidentiality: McCormack agrees and acknowledges that acquired information and knowledge concerning the business operations of the Company and its subsidiaries, trade secrets, methods of operation, product formula, manufacturing procedures, business practices, financial information, records and reports, and data related to the operation of the Company and its subsidiaries is confidential and secret (the foregoing hereinafter referred to as "Confidential Information"). McCormack shall not disclose any Confidential Information to any person, company, government, or use any Confidential Information in direct competition with the business of the Company or any of the Company's subsidiaries at any time during the term of this Contract or for a period of one year after termination or expiration of this Contract. 8. Commencement and Term: This Contract is effective with the signing by both parties below as of December 1, 2000. This contract shall have a two (2) year term. As provided in this document, this Contract is subject to termination by the parties upon appropriate notice. 9. Inside Information--Securities Laws Violations: In the course of the performance of McCormack's duties, it is expected that McCormack will receive information that is considered material inside information within the meaning and intent of the federal securities laws, rules, and regulations. McCormack will not disclose this information directly or indirectly for McCormack or as a basis for advice to any other party concerning any decision to buy, sell, or otherwise deal in the Company's securities or those of any of the Company's affiliated companies. 10. Warranty That Agreement Does Not Contemplate Corrupt Practices-- Domestic or Foreign: McCormack represents and warrants that (a) all payments under this Agreement constitute compensation for services performed and (b) this Agreement and all payments, and the use of the payments by McCormack, do not and shall not constitute an offer, payment, or promise, or authorization of payment of any money or gift to an official or political party of, or candidate for political office in, any jurisdiction within or outside the United States. These payments may not be used to influence any act or decision of an official, party, or candidate in his, her, or its official capacity, or to induce such official, party, or candidate to use his, her, or its influence with a government to affect or influence any act or decision of such government to assist the Company in obtaining, retaining, or directing business to the Company or any person or other corporate entity. As used in this Paragraph, the term "official" means any officer or employee of a government, or any person acting in an official capacity for or on behalf of any government; the term "government" includes any department, agency, or instrumentality of a government. 11. Governing Law. This Agreement is subject to and shall be interpreted in accordance with the laws of Delaware, without choice of law considerations. Signatures: _______________________________ December 1, 2000 John J. McCormack Date China Premium Food Corporation _______________________________ December 1, 2000 Roy G. Warren Date Chief Executive Officer China Premium Food Corporation EMPLOYMENT AGREEMENT This employment agreement is between China Premium Food Corporation (the Company), a corporation organized and existing under the laws of the state of Delaware, United States of America, having a place of business at 11300 U.S. Highway 1, North Palm Beach, FL 33408 and Michael C. Edwards, of 8120 SE Windjammer Way, Hobe Sound, FL 33455 and a citizen of the United States of America (Edwards). 1. Position Edwards will assume and perform the duties associated with the position of Senior Vice President Sales for the Company. The parties understand and agree that, from time to time, Edwards will be directed to perform these services for subsidiaries of the Company. Notwithstanding the performance of services for subsidiaries of the Company, Edwards at all times will remain an employee of and be compensated by the Company. 2. Responsibilities. Edwards shall have overall responsibilities for the Company's sales and marketing operations. These responsibilities will include: financial (sales, controls, budgets), sales management, marketing, delivery, sales administration and sales operations. 3. Salary. The annual salary for this position shall be US$110,000, paid in twelve equal monthly installments. This salary will be reviewed at each contract year-end by the Company's Compensation Committee of the Board of Directors. The Company shall deduct the appropriate amount of all applicable federal taxes from Edwards's salary payments, based upon the deductions supplied to the Company by Edwards. 4. Bonus. The Company shall establish a bonus plan for Edwards, which shall have the following elements: (a) First Year Signing Bonus. Contemporaneous with the execution of this agreement, Edwards shall receive options for a total of 50,000 shares of the Company's common stock as a first year signing bonus. These options shall have an exercise price of $0.69 per share, shall immediately vest upon issuance and shall be exercisable for a period of five years, all as set forth in an option agreement to be executed between the Company and Edwards. (b) First Annual Bonus. Contemporaneous with May 31, 2001, Edwards shall receive options for a total of 50,000 shares of the Company's common stock. These options shall have an exercise price equal to the trading price of the Company's common stock on May 31, 2001, shall immediately vest upon issuance and shall be exercisable for a period of five years, all as set forth in an option agreement to be executed between the Company and Edwards. (c) Second Annual Bonus. Contemporaneous with May 31, 2002, Edwards shall receive options for a total of 50,000 shares of the Company's common stock. These options shall have an exercise price equal to the trading price of the Company's common stock on May 31, 2002, shall immediately vest upon issuance and shall be exercisable for a period of five years, all as set forth in an option agreement to be executed between the Company and Edwards. (d) Third Annual Bonus. Contemporaneous with May 31, 2003, Edwards shall receive options for a total of 50,000 shares of the Company's common stock. These options shall have an exercise price equal to the trading price of the Company's common stock on May 31, 2003, shall immediately vest upon issuance and shall be exercisable for a period of five years, all as set forth in an option agreement to be executed between the Company and Edwards. (e) Quarterly Bonus. Edwards shall receive as bonus of $16,250 as of the end each contract quarter, commencing with the contract quarter ending August 31, 2000. This quarterly bonus shall be paid to Edwards by the issuance to him of 16,250 shares of the Company's freely tradeable common stock, which shall issued pursuant to and upon the filing of a Form S-8 registration statement by the Company. This quarterly bonus will be reviewed at each contract year-end by the Company's Compensation Committee of the Board of Directors. (f) The options described in sections 4.(b) (c) and (d) shall be issued immediately upon the sale or transfer of in excess of 80% of the Company's assets, as valued in the then last financial statement filed with the Securities and Exchange Commission, to an unrelated thrid party or upon the tender offer by an unrelated third party for in excess of 80% of the then issued and outstanding common stock of the Company; in determining the total issued and outstanding common stock of the Company, the common stock underlying any series of the Company's convertible preferred shall be included. The exercise price of the options issued pursuant to this section 4 (f) shall have an exercise price equal to the trading price of the Company's common stock on the day of issue. 5. Corporate Benefits. The Company shall provide the same corporate benefits (medical, etc.) to Edwards as it provides to its other US employees. In addition, the Company shall pay the annual premium for Edwards $1,000,000 personal life insurance. 6. Compliance with The Company Policies and Regulations. Edwards will execute his duties and responsibilities in strict accordance with Company policies and regulations, approved budgets, and specific directives. Further, Edwards shall be responsible, and accountable, for the employees under his responsibility to also abide by these policies and regulations. In the event Edwards would be found, among other things, negligent in his performance of his responsibilities, including compliance with Company policies and procedures, he would be subject to termination for cause. 7. Termination. The parties may terminate this employment agreement by mutual consent. Edwards may be terminated for cause only subsequent to fifteen days written termination notice to Edwards, which notice shall specify the grounds for termination for cause, and the opportunity for Edwards to address the Executive Committee of the Company's Board of Directors with respect to the matters set forth in the written termination notice. If the present senior executive management of the Company changes and Edwards is terminated without cause by new senior executive management, Edwards shall be entitled to receive whatever bonus plan benefits that would have become due to Edwards for the six month period following such termination. 8. Confidentiality. Edwards agrees and acknowledges that acquired information and knowledge concerning the business operations of the Company, trade secrets, methods of operation, product formula, manufacturing procedures, business practices, financial information, records and reports, and data related to the operation of the Company or its subsidiaries is confidential and secret (the foregoing hereinafter referred to as "Confidential Information"). Edwards shall not at any time disclose, or after termination or expiration of this agreement, disclose any Confidential Information to any person, company, government, or use and Confidential Information in direct competition with the business of the Company for a period of one year subsequent to the termination or expiration of this agreement. 9. Commencement and Term. This agreement is effective with the signing by both parties below as of June 1, 2000. Except as otherwise provided in this document, this Contract shall be valid for three years and shall automatically renew under the same terms and conditions unless thirty (30) days prior to the expiration date one, or both, of the parties notifies the other party of the intention to terminate, or modify, this agreement. 10. Inside Information--Securities Laws Violations. In the course of the performance of Edwards's duties, it is expected that Edwards will receive information that is considered material inside information within the meaning and intent of the federal securities laws, rules, and regulations. Edwards will not disclose this information directly or indirectly for Edwards or as a basis for advice to any other party concerning any decision to buy, sell, or otherwise deal in the Company's securities or those of any of the Company's affiliated companies. 11. Warranty That Agreement Does Not Contemplate Corrupt Practices-- Domestic or Foreign. Edwards represents and warrants that (a) all payments under this agreement constitute compensation for services performed and (b) this agreement and all payments, and the use of the payments by Edwards, do not and shall not constitute an offer, payment, or promise, or authorization of payment of any money or gift to an official or political party of, or candidate for political office in, any jurisdiction within or outside the United States. These payments may not be used to influence any act or decision of an official, party, or candidate in his, her, or its official capacity, or to induce such official, party, or candidate to use his, her, or its influence with a government to affect or influence any act or decision of such government to assist the Company in obtaining, retaining, or directing business to the Company or any person or other corporate entity. As used in this paragraph, the term "official" means any officer or employee of a government, or any person acting in an official capacity for or on behalf of any government; the term "government" includes any department, agency, or instrumentality of a government. 12. Miscellaneous. (a) This agreement is subject to and shall be interpreted in accordance with the laws of Delaware, without choice of law considerations; (b) This agreement cannot be modifies except in writing executed by the parties. China Premium Food Corporation _________________ __________________________________ Date Roy G. Warren, President _________________ __________________________________ Date Michael C. Edwards Bravo! Foods, Inc. EMPLOYMENT CONTRACT This Employment Contract is made this ____ day of November, 2000 (effective July 1, 2000), by and between Bravo! Foods, Inc. (the Company), a subsidiary of China Premium Food Corporation, a corporation organized and existing under the laws of the state of Delaware and having a place of business at 11300 U.S. Highway No. 1, North Palm Beach, FL 33408, United States of America, and Mr. Anthony P. Guiliano, residing at 9189 Forest Hill Lane, Germantown, TN 38139 and a citizen of the United States of America (Guiliano). 1. Position. This Contract is for the positions of President and Chief Operating Officer, an employment position with the Company. 2. Responsibilities. Guiliano shall have such responsibilities as are customary and appropriate for these positions , including overall responsibilities for the Company's operations. These responsibilities will include: financial (profits, sales, controls, budgets), production, sales management, marketing, delivery, operations, etc. Guiliano will, on a day- to-day basis, have overall responsibility as directed by the Board of Directors. Guiliano shall report directly to the Board of Directors of the Company or to the Chief Executive Officer, or to the Chairman, at the discretion of the Board. 3. Salary and Bonus. 3.1 Salary. Commencing July 1, 2000, the annual salary for this position shall be US$120,000.00, paid in twelve equal monthly installments. This salary, and other cash compensation, shall be distributed in US dollars or other currency that best suits the needs of Guiliano and the Company. This salary will be reviewed and adjusted at each contract year-end. The Company shall deduct the appropriate amount of all applicable taxes from Guiliano's salary payments, based upon the deductions supplied to the Company by Guiliano. 3.2 Bonus. 3.2.1 Guiliano shall receive a minimum bonus of $30,000.00 for the first year, payable quarterly at the rate of $7,500.00. 3.2.2 In addition, during the term of this contract, Guiliano shall receive performance bonuses based upon his participation in the procurement of processor dairies as participants in the Company's branded flavored milk licensing, marketing and promotion program, as set forth below. Guiliano shall be entitled to such bonuses when a processor dairy executes a binding Production Contract with the Company for the processing of Branded Flavored Milk Products, and shall be paid 90 days after the first sale of Branded Flavored Milk Products by such processor dairy. The amount of the bonus shall be determined by the size of the participating processor dairy, based upon the number of employees of such dairy, as set forth below. The number of employees to be attributed to a processor dairy for use in this performance based bonus program shall be as then currently reported by the International Association of Food Industry Suppliers. A performance bonus shall be due notwithstanding that such processor dairy enters into a co-packer agreement with a third party dairy for the actual processing of the flavored milk product. Size of Processor Dairy One Time Bonus Amount ----------------------- --------------------- (number of employees) (per new participant) More than 250 $30,000 101 to 250 $15,000 51 to 100 $10,000 26 to 50 $ 5,000 4. Stock Grant and Options. Guiliano shall receive a one-time grant of incentive options to purchase 150,000 shares of the Company's common stock a price of $0.55 per share, which grants shall be awarded immediately as a signing bonus under this compensation plan. The common stock underlying these options represents15% of the total issued and outstanding common stock of Bravo! on a fully diluted basis, as of the date of the option grant. These options shall be exercisable immediately and for a five year period ending June 30, 2005. These options shall be governed by a separate Incentive Stock Option Agreement between Guiliano and the Company. 5. Corporate Benefits. The Company shall provide the same corporate benefits (medical, etc.) to Guiliano as it provides to its other US employees. 6. Compliance with The Company Policies and Regulations. Guiliano will execute his duties and responsibilities in strict accordance with Company policies and regulations, approved budgets, and specific directives. Further, Guiliano shall be responsible, and accountable, for the employees under his responsibility to also abide by these policies and regulations. In the event Guiliano would be found, among other things, negligent in his performance of his responsibilities, especially as it relates to compliance with Company policies and procedures, he will be subject to termination for cause. 7. Termination and Severance Package. Either side may terminate Guiliano's employment by giving one calendar month written notice. Guiliano may be terminated for cause only subsequent to five days written termination notice to Guiliano, which notice shall specify the grounds for termination for cause, and the opportunity for Guiliano to address the Executive Committee of the Company's Board of Directors with respect to the matters set forth in the written termination notice. If Guiliano is terminated without cause during the first two employment years, he shall receive a severance package consisting of seven months salary. 8. Confidentiality. Guiliano agrees and acknowledges that acquired information and knowledge concerning the business operations of the Company, trade secrets, methods of operation, product formula, manufacturing procedures, business practices, financial information, records and reports, and data related to the operation of the Company is confidential and secret (the foregoing hereinafter referred to as "Confidential Information"). Guiliano shall not at any time disclose, or after termination or expiration of this Contract disclose, any Confidential Information to any person, company, government, or use and Confidential Information in direct competition with the business of the Company. 9. Commencement and Term. This Contract is effective with the signing by both parties below as of July 1, 2000. Except as otherwise provided in this document, this Contract shall be valid for two contract years, terminating June 30, 2002. 10. Inside Information--Securities Laws Violations. In the course of the performance of Guiliano's duties, it is expected that Guiliano will receive information that is considered material inside information within the meaning and intent of the federal securities laws, rules, and regulations. Guiliano will not disclose this information directly or indirectly for Guiliano or as a basis for advice to any other party concerning any decision to buy, sell, or otherwise deal in the Company's securities or those of any of the Company's affiliated companies. 11. Warranty That Agreement Does Not Contemplate Corrupt Practices-- Domestic or Foreign. Guiliano represents and warrants that (a) all payments under this Agreement constitute compensation for services performed and (b) this Agreement and all payments, and the use of the payments by Guiliano, do not and shall not constitute an offer, payment, or promise, or authorization of payment of any money or gift to an official or political party of, or candidate for political office in, any jurisdiction within or outside the United States. These payments may not be used to influence any act or decision of an official, party, or candidate in his, her, or its official capacity, or to induce such official, party, or candidate to use his, her, or its influence with a government to affect or influence any act or decision of such government to assist The Company in obtaining, retaining, or directing business to The Company or any person or other corporate entity. As used in this Paragraph, the term "official" means any officer or employee of a government, or any person acting in an official capacity for or on behalf of any government; the term "government" includes any department, agency, or instrumentality of a government. 12. Trade Secrets and Unfair Competition. The parties to this Agreement understand and agree that the business of the Company is unique. The parties further understand that in the course of rendering services to the Company as an employee, officer or director, Guiliano will have access to the Company's confidential and proprietary information and trade secrets, including technical, e-commerce, financial, licensing contacts, dairy industry contacts and marketing data, customer lists and other items of proprietary information (collectively called "Confidential Information"). The use of Confidential Information or the solicitation of the Company's clients, customers or business associates either directly or indirectly by Guiliano, during the term of this Agreement or after termination of Guiliano's employment or other involvement in the Company as an officer or director, would materially and adversely affect the Company and its shareholders economically and otherwise. Accordingly, as an inducement to the Company to enter into this Agreement, Guiliano agrees during the term of this agreement and, if subsequent to the termination of this Agreement, for three (3) years from and after the later of the date of termination of Guiliano's employment or involvement in the Company as an officer or director: (a) not to directly or indirectly divulge, sell, transfer, or utilize any Confidential Information to or for the benefit of any person, firm, business, or corporation, without the prior written consent of the Company; (b) not to solicit or assist in the solicitation of any of the Company's employees or customers, licensors, clients or business associates, either directly or indirectly, for the purpose of engaging in or assisting, in any way, a competing business; and (c) not to accept the position as an employee of or a consultant to or be or become, directly or indirectly, the owner to any of the outstanding equity interest in any entity in a business which directly or indirectly competes with the business of the Company. 13. Employment to be Full Time. During his period of employment by the Company, Guiliano will devote his full time and best efforts solely to the business of the Company and, except as agreed to in writing by the Company, to the exclusion of all other business activities and during such period of employment, and for a period of three (3) years thereafter, Guiliano will take no action prejudicial to the financial condition, business affairs or prospects of the Company. Nothing contained herein shall prohibit the Guiliano from (a) owing less than 10% of any class of securities of a corporation which is publicly held or (b) from owning any class of securities of or being a partner in any other corporation or business not competing directly or indirectly with the Company. 14. Governing Law. This Agreement is subject to and shall be interpreted in accordance with the laws of Florida without choice of law considerations and cannot be modified except in a written modification executed by the parties. _______________________________ __________________ Anthony P. Guiliano Date Bravo! Foods, Inc. By_____________________________ __________________ Roy G. Warren, Chief Executive Officer Date EX-10 7 chinex7p.txt EXHIBIT 7P EXHIBIT 7p THE OMEGA COMPANY AUGUST 1, 1999 Contract THE OMEGA COMPANY OF WISCONSIN, LTD. 425 Apache Drive, Janesville, WI 53545 This long term contract is between the Omega Company of Wisconsin Ltd. And the China Peregrine Food Corporation. It is based on the understanding that The Omega Company has the ability and the demonstrated experience to provide consulting services for the Chinese dairy and food operation. 1. Scope of work: Work designated under this contract will be undertaken by Arthur W. Blanding and/or other members of Omega's, and will include the following: A. Consultation and advice regarding any and all production issues involved with the Chinese plants. B. Ingredient, formulation and production procedures, sourcing, and purchasing assistance, performed from Omega's offices. C. Follow up work performed in Omega's office as result of off- shore visits. 2. Omega agrees to assure proprietary interests of China Peregrine Food Corporation. 3. Compensation: Work will begin January 1, 1999 and will continue indefinitely until cancelled by either party with 90 days notice. The fee will be U.S.$5,000 per month payable within 15 days of invoicing and may be paid in cash with the option of payment of the amount due in equal value at the time of payment in stock of China. Peregrine Food Corporation. 4. In order to minimize our expenses and because we will be serving as your consultants it is understood that we will be included in your insurance liability contracts. 5. Further, and outside of this contract, Omega will be avai1able for off-shore work as requested. Compensation will be in two parts: A. Business class airfare. B. US$1,500 for each day away from Omega's offices. 6. Further, and outside of this contact, Omega will be available for work and travel within the continental United States as requested. Compensation will be in two parts: A. Coach class airfare. B. US$250 for each day away from Omega's offices. 7. This contract, dated August 1, 1999 replaces and supercedes the former contract, dated January 1. 1999 end signed April 21, 1999. Signatures: The Omega Company Arthur W. Blanding President China Peregrine Food Corporation Roy G. Warren President THE OMEGA COMPANY OCTOBER 1, 2000 Contract THE OMEGA COMPANY OF WISCONSIN, LTD. 425 Apache Drive, Janesville, WI 53545 This long term contract is between the Omega Company of Wisconsin Ltd. and Bravo! Foods, Inc. It is based on the understanding that The Omega Company has the ability and the demonstrated experience to provide consulting services for dairy and food operations. 1. Scope of work: Work designated under this contract will be undertaken by Arthur W. Blanding and/or other members of Omega's, and will include, but not be limited to the following: A. Consultation and advice regarding any and all product production issues. B. Ingredient, formulation and production procedures, sourcing, and purchasing assistance, performed from Omega's offices. C. Follow up work performed in Omega's offices resulting from consultation plant visits. 2. Omega agrees to assure proprietary interests of Bravo! and China Premium Food Corporation. 3. Compensation: Work will begin October 1, 2000 and will continue indefinitely until cancelled by either party with 90 days notice. The fee will be U.S.$5,000 per month payable within 15 days of invoicing and will be paid in cash. 4. In order to minimize our expenses and because we will be serving as your consultants it is understood that we will be included in your insurance liability contracts. 5. Further, and outside of this contract, Omega will be avai1able for off-shore work as requested. Compensation will be in two parts: A. Business class airfare. B. US$1,500 for each day away from Omega's offices. 6. Further, and outside of this contact, Omega will be available for work and travel within the continental United States as requested. Compensation will be in two parts: A. Coach class airfare. B. US$250 for each day away from Omega's offices. 7. This contract, dated October 1, 2000 replaces and supercedes the former contract, dated August 1, 1999 and signed below. Signatures: The Omega Company Arthur W. Blanding President Bravo! Foods, Inc. Roy G. Warren Chief Executive Officer EX-10 8 chinex7q.txt EXHIBIT 7Q EXHIBIT 7q PRIVATE LABEL PRODUCT CONTRACT THIS PRIVATE LABEL PRODUCT CONTRACT (the "Agreement") is made and entered into between China Peregrine Food Corporation, a Delaware corporation ("Buyer") and Lance, Inc., a North Carolina corporation ("Seller"), effective as of April 23, 1999 (the "Effective Date"). WHEREAS Buyer desires to purchase from Seller those private label items listed on Appendix A-1, A-2 and A-3 during the term of this Agreement; and WHEREAS Seller agrees to provide those items listed on Appendix A-1, A-2 and A-3, as Buyer's private label items for the prices shown; WHEREAS the Products will be added to Appendix A-1, A-2 and A-3 at a later date and initialed at that time by both parties, whereupon each so initialed Appendix shall become binding upon the parties, NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Buyer agrees to purchase from Seller of those private label items listed on Appendix A-1, A-2 and A-3 at the prices set forth on Appendix A-1, A-2 and A-3, during the term of this Agreement. 2. Seller agrees to provide those items listed on Appendix A-1, A-2 and A-3, as Buyer's private label items for the prices shown. Seller further agrees to firm prices, adjusted for commodity fluctuations, for those products for at least one (1) year from the Effective Date. 3. Seller agrees to use the facsimile number listed on Appendix A-1 to order items listed on Appendix A-1, the facsimile number listed on Appendix A-2 to order those items listed on Appendix A-2, and the facsimile number listed on Appendix A-3 to order those items listed on Appendix A-3. 4. This Agreement commences on April 23, 1999 and shall continue for one year. Thereafter, this Agreement shall be considered "Evergreen", meaning it continues from year to year without resigning new agreements each year with the understanding prices are reviewed as the market dictates, with thirty (30) written days notification prior to the effective date of any price change. Either party may terminate the agreement by providing one year's prior written notice. Any termination by Buyer shall be subject to the requirements in Paragraph six (6). 5. Buyer shall provide Seller with camera ready artwork to purchase labels, lithographed or other printed materials. All reasonable expenses incurred by Seller to complete or modify Buyer's artwork (including without limitation: producing negatives, color proofs, plates, or other similar expenses) shall be the responsibility of Buyer and will be billed separately. In the event that it becomes necessary to revise product labels etc., due to changes in ingredients, weight or to maintain regulatory compliance, all expenses incurred shall be the responsibility of Seller. In the event Buyer requests Seller to create new art work for labels etc. for reasons other than those specified above, within 12 months of the approval date of the artwork currently in use, all expenses incurred shall be the responsibility of Buyer. 6. Within 30 days after the termination or expiration of this Agreement, or within 60 days of when Buyer discontinues ordering a substantial volume of any individual private label item, whichever occurs sooner, Buyer shall as to the affected items: a. Purchase all finished goods and unused specific use or customized components including without limitation, unless such components reasonably can be utilized by Seller in the manufacture of other products: cartons, boxes, packaging materials, caps, bottles, cans, labels, etc. which have been purchased by Seller in reasonable reliance on the forecasts provided to Seller by Buyer not to exceed three (3) months supply of finished and/or unfinished goods, unless otherwise directed in writing by Buyer; and b. Buyer further agrees to purchase all components immediately that become obsolete due to Buyer's change in specifications, not to exceed three (3) months supply unless otherwise directed in writing by Buyer. Running changes will be made after components purchased have been exhausted whenever possible. i) Ordering a "substantial volume" shall be defined as ordering at least half the volume that was forecast or at least half the volume that was ordered, whichever is greater, during the comparable period of the previous year. For these purposes a "comparable period" shall be at least a six months period. ii) Buyer shall also agree to take delivery of all remaining finished goods or unused components within a reasonable period of time (but not greater than 60 days) after termination, expiration, or failure of the substantial volume provisions or compensate Seller for all reasonable expenses incurred for storage or disposal of unreleased finished products or components, not to exceed three (3) months supply unless otherwise directed in writing by Buyer. 7. Buyer shall provide Seller with timely forecasts of its annual need by month at the commencement of this agreement and will update those forecasts quarterly. These will be used by Lance for capacity and materials planning. On the first of each month, Buyer shall furnish the current month's requirements to Seller. Seller shall manufacture and ship product without further instructions except for Buyer's shipping instructions. Due consideration shall be given to minimum order quantities of components, production runs, and limited storage area for inventory of private label finished goods at Seller's facilities. 8. In the event Buyer decides to terminate this Agreement in order to enter into a substantially similar agreement with another supplier, Buyer agrees to give Seller written notice of Buyer's intention to do so ("Notice Date") along with documentation of more favorable pricing quoted by said other supplier. Buyer agrees that Seller will thereafter have 120 days to quote new pricing terms which meet or beat those of said other supplier, to become effective one year from the Notice Date. If Seller meets or beats such competitive supplier's price, this Agreement shall continue unaffected. 9. Buyer shall not advertise or, except as required by law, otherwise disclose the fact that Seller is providing private label products to Buyer without Seller's prior written consent. Nothing contained in this Agreement grants any interest to Buyer in the formulas used nor does this Agreement create any joint venture or partnership between the parties. 10. Other than the obligations set forth in paragraph six (6), neither party shall be liable to the other for delay in performing its obligations if caused by any event beyond the reasonable control of the affected party, including, without limitation, fire, strike, riot, war, act of God, government order or regulation, complete or partial shut down of plant or distribution facility by reason of loss of power, unavailability of raw materials or otherwise. Prompt written notice shall be given by the party whose performance is delayed to the other setting forth full particulars. 11. Freight terms are F.O.B. Seller's facility. Payment terms are net 30 days from date product leaves Seller's facility. A 1% per month interest rate is applied on unpaid balances beyond 30 days and Buyer may be considered in default, at the discretion of Seller without regard to the imposition of such interest charge, for purposes of irrevocable letter of credit (see paragraph fifteen (15)). 12. Seller is authorized by Buyer to assign the appropriate Universal Product Code and Shipper Container Codes for all private label merchandise, and agrees that if this Agreement is terminated the new supplier can purchase the remaining inventory of unused labels until that inventory of labels has expired or new artwork can be developed...which ever comes first. 13. Seller will use commercially reasonable efforts to fill all orders but has 48 hours to notify Buyer of short shipment items. Otherwise, Seller agrees to reimburse Buyer for premium portion of freight cost when an item is shorted, should the item be included in the 1st of the month forecast/release to manufacture, pursuant to the terms of paragraph seven (7). Buyer expects to receive product with at least 80% of Lance-stated standard shelf life remaining from the date of shipment. 14. Seller acknowledges that Buyer owns certain names, marks and logos used in connection with its organizations (collectively referred to herein as the "Names"), whether or not registered or copyrighted, and all goodwill associated with or symbolized by the Names. a. Seller shall not do anything inconsistent with the ownership of the Names and related goodwill, and all uses of the names will inure to the benefit of the respective owners thereof. Nothing in the Agreement shall be deemed to constitute or result in an assignment of any of the Names, a license to use the Names or the creation of any equitable or other interest in them to any party other than the owner. Buyer shall be solely responsible for taking such actions as it deems appropriate to obtain trademark, service mark or copyright registration of the Names. All rights with respect to the Names not specifically granted in the Agreement shall be and are hereby reserved to the owners thereof. b. Seller is expressly forbidden to use any of the Names of Buyer on the products it manufacturers without the express written consent of Buyer's Vice President of Marketing. Furthermore, Seller shall not sell any products with the Buyer label or any other Buyer Name to anyone other than Buyer, especially its defective products. All defects will be sold only to Buyer as defects at discounted rates or will be destroyed. Notwithstanding anything to the contrary herein, Seller shall not, through the use of any Name or otherwise, represent that it is an agent or employee of Buyer. 15. Buyer will purchase an irrevocable stand-by letter of credit at a U.S. financial institution reasonably acceptable to Seller covering expected receivables for 30 days. Said letter of credit shall name Seller as beneficiary and shall be payable upon draft by Seller on default by Buyer pursuant to paragraph eleven (11). 16. Seller hereby warrants and guarantees and certifies to Buyer and to any parent, subsidiary, division or affiliate of Buyer, and to the franchisee or licensee thereof (collectively "Buyer"), that all products purchased from time to time by or on the order of Buyer from Seller (the "Articles"): (i) are in compliance with all applicable laws, regulations and other legal requirements (including, but not limited to those relating to health, safety, labeling, flammability, price discrimination, wage-hour, labor and conditions of employment); (ii) will be produced and furnished in compliance with the provisions of the Federal Fair Labor Standards Act and similar state laws; (iii) are not and will not be misbranded hazardous substances or banned hazardous substances within the meaning of the Federal Child Protection and Toy Safety Act; (iv) are not in a misbranded package within the meaning of that term in the Federal Hazardous Substance Labeling Act; (v) all packages containing articles reflect true net weight, measure, contents and size pursuant to applicable Federal and State requirements; (vi) are properly labeled as to contents as required by applicable Regulations of the Federal Trade Commission; and (vii) will be produced to the specifications contained on Appendix A-4. EXCEPT AS EXPRESSLY PROVIDED IN THIS PARAGRAPH SIXTEEN (16), SELLER MAKES NO WARRANTY REGARDING THE ARTICLES INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR INTENDED USE.. a. Buyer agrees, in addition to any and all other rights or remedies of Seller, to indemnify and hold Seller harmless from (i) liability of any nature or kind for or on account of any allegation of a violation of any patent, trademark, copyright or contractual or other rights of any third parties arising from the purchase, use or sale by Buyer of the Articles; and (ii) any and all losses, damages, liabilities or expenses arising out of or resulting from or in connection with the breach of any warranty, guarantee or certificate to Buyer or in any way pertaining to or in connection with the manufacture, production or sale of the Articles to Buyer or from any consumer complaint, claim or legal action whatsoever, alleging damages, death, illness or injury resulting from the purchase or use of any of the Articles whether foreseen or unforeseen. b. In the event of any claim, demand, action or proceeding being commenced against Buyer by reason of any matter contemplated in the indemnity agreement set forth in subparagraph (a) above, Buyer agrees: i. to give Seller prompt written notice thereof, at least within 90 days, after Buyer becomes aware of said claims or suits; and ii. to accept and act upon the reasonable requests of Seller as to the manner in which and the means by which said claims or suits are to be dealt with; and iii. not to compromise Seller's position by unnecessary admissions or statements or conduct which could prejudice the defense of any such suit or claim; and iv. not to settle any said suit or claim without Seller's written consent. c. Termination of this Agreement by either party shall not alter or change the obligations of either party under the Agreement applying to incidents occurring during the term of the Agreement. d. Buyer agrees to keep in force at all times while any of the Articles are being offered for sale by Buyer, adequate public liability insurance with both "products" and "contractual" coverage, each with an aggregate limit of at least $1,000,000 and to furnish Seller with a certificate from a financially responsible insurance company evidencing that such insurance is in force, naming Buyer as an additional insured and providing that such coverage may not be canceled or amended without thirty (30) days prior written notice to Seller. 17. Seller shall be Buyer's exclusive supplier of all Buyer's requirements for cookie, cookie sandwich, cracker, cracker sandwich and nut products. 18. Buyer shall be Seller's exclusive private label distributor for cookie, cookie sandwich, cracker, cracker sandwich and nut products in China. 19. This Agreement shall be deemed to be made under and shall be construed in accordance with the laws of the State of North Carolina without regard to conflicts of laws principles of such State and the United States of America. 20. Multiple Counterparts: Facsimile Signature. This Agreement may be executed in one or more counterparts, each of which should be an original and all of which taken together shall constitute one in the same instrument. Signatures exchanged by facsimile transmission shall be deemed to constitute original, manually executed signatures and shall be binding by the parties. AGREED: CHINA PEREGRINE FOOD LANCE, INC. CORPORATION By: By: -------------------------- --------------------------- Title: President Title: President Date: Date: ------------------------ ------------------------- EX-10 9 chinex7r.txt EXHIBIT 7R EXHIBIT 7r THE TOWERS OF PALM BEACH GARDENS, FLORIDA ___________________________ LEASE AGREEMENT This Lease Agreement (hereafter called the "Lease") is made as of the _____ day of January, 1999 (hereafter called the "Date of this Lease") by and between HCF Realty, Inc., a Michigan corporation, (hereafter called "Landlord") and China Peregrine Food Corporation, a Delaware corporation (hereafter called "Tenant"). 1. DESCRIPTION OF PREMISES. 1.1 By executing this Lease, Landlord leases to Tenant and Tenant leases from Landlord, on the terms, covenants, and conditions set forth herein, those premises shown on Exhibit A attached hereto (hereafter called the "Leased Premises") located in the building (hereafter called the "Building") located on the property described on Exhibit B attached hereto (hereafter called the "Property") and known as 11300 US Highway No. 1, Palm Beach Gardens, Florida, said Leased Premises aggregating 2,485 Rentable Square Feet. 1.2 During the period that Tenant is properly entitled to have and continue in possession of the Leased Premises as provided in article 2 below, Tenant shall peacefully have, hold, and enjoy the Leased Premises against all persons claiming by, through, or under Landlord, provided that Tenant pays the rent and other sums herein recited to be paid by Tenant and performs all of Tenant's covenants and agreements herein contained. 1.3 If necessary to comply with laws, rules, or requirements of any governmental bureau or agency, Landlord shall have the right, with reasonable notice to Tenant and without liability to Tenant, to move any wall or partition in or dividing the Leased Premises and, in the event that the amount of Tenant's Rentable Square Feet is affected, the rent to be paid hereunder shall be increased or decreased in proportion to the change in such square footage. 2. TERM AND HOLDING OVER. 2.1 The Leased Premises are leased for a term of five years to commence at 12:01 a.m. on the third day after a Certificate of Completion is issued by Palm Beach Gardens for the Leased Premises, but not later than May 1, 1999 and shall expire at 11:59 p.m. on the day immediately preceding the fifth anniversary of the Commencement Date (hereafter called the "Term"), unless the Term shall sooner expire as hereafter provided. 2.2 If Landlord fails to deliver possession of the Leased Premises at the aforesaid commencement of the Term because (i) Landlord's Work (as defined in section 2.4 below) shall not have been substantially completed or (ii) of any other cause or reason beyond the reasonable control of Landlord, then: (a) The Term shall not commence on the date set forth in section 2.1 above but instead shall commence at 12:01 a.m. on such date as is fixed by Landlord in a notice to Tenant as the earliest date as of which Landlord is not thus prevented from delivering possession of the Leased Premises substantially complete and ready for occupancy by Tenant (provided, however, that Landlord may similarly at any time prior to such date, by notice to Tenant, change the date thus fixed for the commencement of the Term in a prior notice), (b) The Term shall expire at 11:59 p.m. on the day which immediately precedes the fifth anniversary of the delayed commencement date described in clause (a) above, unless the Term shall sooner expire as hereafter provided, (c) Neither the validity of this Lease nor the obligations of Tenant under this Lease shall be affected by such failure to deliver possession, except that the Term shall begin and end as provided in clauses (a) and (b) above, and (d) Tenant shall have no claim against Landlord because of Landlord's failure due to such circumstances to deliver possession of the Leased Premises on the date originally or subsequently fixed therefor. 2.3 The dates upon which the Term shall commence and expire for the purposes of this Lease as provided in section 2.1 (as modified by section 2.2) above are herein called the "Commencement Date" and the "Expiration Date", respectively, which dates shall be unaffected by the time as of which Tenant's physical occupancy of the Leased Premises actually begins and ends. 2.4 Prior to the Commencement Date, Landlord shall perform the work and make the installations in the Leased Premises substantially as set forth in Exhibit C attached hereto (such work and installations being herein called "Landlord's Work"). Landlord's obligation to perform Landlord's Work shall not require Landlord to incur overtime costs or expenses and shall be subject to unavoidable delays due to acts of God, governmental restrictions, strikes, labor disturbances, shortages of material and supplies, and for any other cause or event beyond Landlord's reasonable control. If any dispute shall arise as to whether the Leased Premises are substantially complete and ready for Tenant's occupancy, a certificate furnished by Landlord's architect certifying the date of substantial completion shall be conclusive and binding upon Landlord and Tenant of that fact and date. Effective as of the execution of this Lease, Tenant has paid Landlord the nonrefundable sum of $21,321, representing Tenant's share of the cost of Landlord's Work. Neither Landlord nor Tenant shall be obligated to pay to the other any amount in the event that there is a decrease or increase in the total costs of Landlord's Work. 2.5 If Tenant shall continue in possession after the expiration of the Term until this Lease is terminated effective as of the end of any calendar month by Landlord or Tenant upon advance notice to the other (the effective date of which notice is not less than one month prior to such month end), such possession shall be on a month to month basis subject to all the conditions, provisions, and obligations of this Lease insofar as the same are applicable to a month to month tenancy except that, during such month to month tenancy and until Tenant shall have surrendered possession of the Leased Premises, the Base Rent as provided in section 3.1 below shall be at a rate equal to twice the monthly Base Rent payable during the last month immediately prior to the expiration of the Term. 3. RENT. 3.1 Tenant agrees to pay Landlord [without deduction or offset (other than the credit for the good faith deposit as provided in section 4.2 below), prior notice, or demand] and Landlord agrees to accept, as rent for the Leased Premises, the sum of $3,416.88 per month (such rent being herein called the "Base Rent") in lawful money of the United States payable in advance each month during the Term of this Lease, the first such monthly rent payment being due on the first day of the calendar month in which the Commencement Date occurs and a similar monthly rent payment being due on the first day of each calendar month thereafter during the Term of this Lease, provided, however, that, if either the first or last monthly rent payment relates to a less than full month of the Term, the amount of such first and/or last payment shall be prorated on a per diem basis. Said Base Rent shall be increased as required pursuant to section 3.2 below. Unless otherwise directed by Landlord, all rent and other payments under this Lease shall be payable to Landlord and delivered to Landlord in care of: Walters/Gottlieb Partners, Inc. Phillips Point East Tower 777 South Flagler Drive Suite 221 West Palm Beach, FL 33401 3.2 The monthly Base Rent specified in section 3.1 above shall be the amount due and payable for each full calendar month with respect to the first 12 full calendar months of the Term. Commencing with the amount due and payable for the first calendar month after that first 12 calendar month period, with respect to each subsequent 12 calendar month period wholly (or partially) within the Term, the monthly Base Rent shall be increased by an amount equal to the Cost of Living Percentage applied to the Base Rent applicable to the last month of the immediately preceding 12 month period. The "Cost of Living Percentage" shall be 5%. 3.3 In addition to the Base Rent due pursuant to section 3.1 above, as increased by the Cost of Living Percentage under section 3.2 above, Tenant agrees to pay Landlord as additional rent Tenant's Proportionate Share of the Operating Expenses of the Building and Property, which is estimated to be $1,331.55 per month for the Leased Premises for 1999 (an Operating Expense Breakdown Per 1999 Proposed Operating Costs is attached as Exhibit E). The term "Proportionate Share" shall mean that fraction, the numerator of which is the total number of Rentable Square Feet applicable to the Leased Premises as described in sections 1.1 (i.e., presently 2,485 Rentable Square Feet), 1.3, and 1.4 above and the denominator of which is the total number of Rentable Square Feet of space contained within the Building (i.e., presently 55,841 Rental Square Feet), Tenant's Proportionate Share presently being .0445013. If the Term, including any holding over period as described in section 2.5 above, covers less than the entire calendar year involved, Tenant's Proportionate Share of that year's Operating Expenses shall be prorated on a per diem basis. The term "Operating Expenses" shall mean all costs for the calendar year involved in operating, servicing, managing, and maintaining the Property and the Building (but shall not include leasing commissions, interest on debt, or capital retirement of debt) and more particularly, but without restricting the generality of the foregoing, shall include such costs as the following insofar as they are attributable to the Property or the Building - (a) Salaries, wages, medical, surgical, fringe and general welfare benefits (including medical and surgical benefits), group life insurance, contributions to pension and profit sharing plans, payroll taxes, worker's compensation and unemployment insurance contributions, employment agency fees, and other employee expenses of Landlord. (b) Water and sewer charges, common electric, common power and fuel, and common other utilities. (c) Window cleaning (inside and outside), Building alarm service, elevator maintenance service, pest control, air conditioning, janitorial service, and any supplies or materials required with the service items. (d) General maintenance, including the service and replacement of all machinery, supplies, equipment, tools, and materials (including light bulbs and ballasts for all common areas). (e) Management fees and chargeable expenses of any management company(ies) employed by Landlord in connection with managing the Property and the Building for Landlord (including all charges and fees in connection with terminating such arrangements). (f) All taxes and assessments (including special assessments) and governmental charges and fees assessed upon the Property, the Building, and any personal property of Landlord, wherever situated, to the extent such personal property's use is a component of Operating Expenses, including without limitation any occupancy, gross receipts, or rental taxes assessed against Landlord, but not income or franchise taxes or any other taxes imposed or measured by Landlord's income or profits unless the same is in lieu of real estate taxes. (g) Landscape and lawn care, sprinkler system service, maintenance of street lights, power and manual broom sweeping of parking lot surface and drives, relining and sealing of asphaltic surface areas, maintenance of signs, trash structures, and in general any and all similar items related to the asphalt surface spaces, landscaping, sodded areas, and sidewalks. (h) Legal and accounting services, hazard and liability insurance, and all other costs and expenses of operating the Building and the Property, including the cost (amortized in such manner and over such period as is permissible for federal income tax purposes under the Internal Revenue Code and Treasury Regulations at the time placed into service as determined by Landlord in its sole discretion together with 12% per annum of the unamortized balance) of (i) any capital improvements made to the Building or the Property by Landlord after the Date of this Lease if such capital improvements are for labor or energy saving devices or materials in order to reduce operating expenses or are required under any governmental law or regulation that was not applicable to the Building or the Property at the time it was constructed and (ii) any equipment, furniture, or other personal property to the extent used and/or available for use in connection with such operating, servicing, managing, or maintaining of the Property or the Building. (i) All warranty and contract maintenance fees and charges. The accrual method of accounting shall be used to determine whether a cost or expense item shall be included in the amount of Operating Expenses for any given calendar year. 3.4 Prior to the Commencement Date and during the 30 days immediately preceding the beginning of each calendar year thereafter, Landlord shall furnish to Tenant a written estimate of the Operating Expenses for the current or ensuing calendar year, as the case may be, and Tenant's monthly Proportionate Share of such estimated Operating Expenses. Tenant shall pay as additional rent such monthly estimated amount to Landlord on the same dates as payments are due on the Base Rent applicable to the months of such calendar year. Within 120 days after the end of each calendar year involved, Landlord shall furnish to Tenant a statement setting forth in reasonable detail the actual Operating Expenses incurred by Landlord during such year and Landlord or Tenant shall within 30 days thereafter make such allowance or payment, respectively, as is necessary to adjust such estimated amounts to Tenant's actual share of Operating Expenses as shown on such statement. Any amount due Tenant shall be credited against installments next coming due pursuant to this section 3.4 (or by payment to Tenant if adjustment is to be made with respect to the last year of this Lease). Tenant's obligation to pay Landlord for actual Operating Expenses hereunder shall survive the termination of this Lease. 3.5 If at any time during any calendar year involved the Operating Expenses are increased to rate(s) or amount(s) greater than that used in calculating the estimated Operating Expenses for such calendar year, Tenant's estimated monthly payment of such Operating Expenses shall be increased for the month in which such increase becomes effective and for succeeding months to reflect such increase as applicable. Upon receipt of notice of such increase in rate or amount, Landlord shall notify Tenant of the amount or estimated amount of increase, the month in which it shall become effective, and Tenant's monthly share thereof. Tenant shall pay such increases to Landlord as part of Tenant's monthly payments of estimated Operating Expenses as provided in section 3.4 above commencing with the month in which such increase shall be effective. 3.6 Landlord agrees to keep true and accurate records of Operating Expenses in accordance with commercially reasonable accounting principles for each calendar year. Each statement of Operating Expenses provided to Tenant shall set forth in reasonably sufficient detail the Operating Expenses for said year. Tenant shall have the right during reasonable business hours and upon not less than 10 days prior notice to Landlord to examine the records of Operating Expenses within six months from the date of any such statement of Operating Expenses. Upon expiration of such six month period, Landlord's statement of Operating Expenses shall be deemed conclusively accepted by Tenant. 3.7 Tenant acknowledges that late payment by Tenant to Landlord of rent or other amounts due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which would be extremely difficult and impractical to ascertain (such costs include, but are not limited to, processing and accounting charges). Therefore, in the event Tenant shall fail to pay any rent or other amount due hereunder at the time such amount is due, Tenant shall pay to Landlord a late charge equal to 5% thereof and said charges shall be due and payable immediately as additional rent. In addition, any amounts due pursuant to the terms of this Lease (including late charges) not paid within 30 days of the due date shall incur interest at the rate of 18% per annum from and after the due date. 4. DEPOSITS. 4.1 Tenant has deposited with Landlord effective as of execution of this Lease the sum of $10,000 as security for Tenant's full performance of all applicable provisions of this Lease, receipt of which is hereby acknowledged. If at any time Tenant shall be in default in payment of rent or any other sum due Landlord hereunder or is otherwise in default hereunder, Landlord may in its sole discretion apply all or any part of the security deposit toward such payment or toward the curing of such default. Landlord may likewise apply all or any part of the security deposit to repair damages to the Leased Premises occurring during the tenancy created by this Lease. In such event, Tenant shall on demand pay to Landlord a like sum as additional security. Landlord may also retain all or any part of the security deposit as needed to repair damages to the Leased Premises upon termination of the tenancy created by this Lease. If Tenant is not in default at the termination of this Lease and there are no damages to the Leased Premises, Landlord shall return the security deposit to Tenant. 4.2 A good faith deposit in the amount of $10,643.62 (equal to Base Rent and estimated Operating Expenses for the first and 60th months of the Term) has been paid by Tenant to Landlord effective as of the execution of this Lease, receipt of which is hereby acknowledged. Such amount represents consideration for entering into this Lease. If Tenant takes possession of the Leased Premises pursuant to this Lease, such amount shall be credited as payment of Base Rent and Operating Expenses when and as such respective rental payments for the first and 60th months of the Term come due. If this Lease is accepted by Landlord and Tenant then fails to occupy the Premises within 60 days after the Commencement Date, such good faith deposit shall be forfeited. 4.3 Tenant hereby acknowledges that Landlord shall be entitled to immediately endorse and cash Tenant's security and good faith deposit check(s) accompanying this Lease. It is further agreed and understood that such action shall not guarantee acceptance of this Lease by Landlord but, in the event Landlord does not accept this Lease within 30 days of its receipt, the amount received by Landlord on cashing such check(s) shall be promptly refunded in full to Tenant. Landlord may commingle all security and good faith deposits with other funds. In the event Landlord transfers its interest in the Leased Premises, Landlord may assign to the transferee thereof the amount of such security and good faith deposits in which event Landlord shall thereafter have no further liability for the return of such amounts. 5. USE OF PREMISES. 5.1 The Leased Premises shall be used for general executive office activities but for no other purpose. The Leased Premises shall not be used for any illegal purposes or in violation of any regulation of any governmental body or in any manner which might be expected to create any nuisance or trespass, to vitiate any insurance, or to increase the premium rate of insurance on the Leased Premises, the Building, or the Property. Tenant agrees to comply with all governmental laws, ordinances, rules, regulations, decrees, or requirements applicable to the use and occupancy of the Leased Premises. Tenant shall not do or permit anything to be done in or about the Leased Premises which will obstruct or interfere with the rights of other tenants in the Building or which may be dangerous to the person or property of others. If Tenant receives notice of any claim of violation of any law, rule, or regulation applicable to the Leased Premises, Tenant shall give prompt notice thereof to Landlord. 5.2 Tenant shall not commit or suffer any waste upon the Leased Premises or any nuisance or other act or thing which may disturb the quiet enjoyment of any other tenant in the Building or on the Property. Tenant shall maintain order in the Building and shall not make or permit any improper noise in the Building or interfere in any way with other tenants or those having business with them. 5.3 Tenant shall not (i) put up or operate any refrigeration, heating, or air conditioning apparatus, steam engine, boiler, machinery, oven, or stove within the Leased Premises [except a typical household refrigerator, dishwasher (assuming there is adequate plumbing, etc.), and microwave and a commercial coffee maker], (ii) carry on any mechanical business thereon, (iii) do any cooking therein, or (iv) use or allow to be used upon the Leased Premises any inflammables or explosives or any offensive gases or liquids. Tenant shall keep the Leased Premises equipped with all safety appliances required by law, ordinance, or any other regulation of public authority. 5.4 No use shall be made or permitted to be made of the Leased Premises, nor acts done, which will increase the existing premium rate upon, be prohibited by, be in conflict with, invalidate, or cause the cancellation of insurance on the Building (or any fixture, equipment, or other property therein) or the Property. At its sole cost and expense, Tenant shall comply with any and all requirements pertaining to the Leased Premises of any insurance organization or company necessary for the maintenance of reasonable fire and public liability insurance covering the Leased Premises, Building, and the Property. Tenant agrees to pay to Landlord as additional Base Rent any increase attributable to Tenant's acts in premiums on policies which may be carried by Landlord on the Leased Premises covering personal injury, damages to the Building, and loss of rent caused by fire and the perils normally included in extended coverage. 5.5 Landlord shall provide draperies, shutters, and/or blinds to the Leased Premises' interior windows. Tenant will not place any draperies, shutters, blinds, signs, advertising matter, or material (except for such notices mandated by applicable law as approved by Landlord) on the exterior or the interior of the Building or Leased Premises which may be seen from the exterior of the Leased Premises or of the Building. 5.6 Tenant shall not (i) vacate or abandon the Leased Premises at any time during the Term of this Lease or (ii) permit the Leased Premises to remain unoccupied for a period longer than 30 consecutive days during the Term of this Lease. If Tenant shall abandon, vacate, or surrender the Leased Premises or be dispossessed by process of law or otherwise, any personal property belonging to Tenant and left on the Leased Premises shall, at the option of Landlord, be deemed abandoned and available to Landlord to use or sell, without accountability to Tenant, in such manner as determined by Landlord. In the event that Tenant shall fail to remove all or the designated portion of such personal property within ten days of Landlord's notice to Tenant to do so, all costs, expenses, and losses incurred by Landlord in the removal and disposal by Landlord of such personal property shall be borne by Tenant and reimbursed by Tenant to Landlord as additional rent due under this Lease. 5.7 Tenant shall not place a load upon any floor of the Leased Premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight, location, and position of all safes, heavy business machines, and equipment. Such installations shall be placed and maintained by Tenant, at Tenant's expense, in settings sufficient in Landlord's judgment to absorb and prevent vibration, noise, and annoyance. 5.8 Tenant will observe and comply with the Rules and Regulations attached hereto as Exhibit D, together with such amendments thereto and further rules and regulations as Landlord may prescribe on notice to Tenant with regard to use of the Leased Premises, the Building, and the Property by Tenant, its officers, agents, contractors, servants, employees, patrons, customers, clients, licensees, visitors, and invitees. 6. KEYS AND ENTRY BY LANDLORD. 6.1 Not more than two keys for the Leased Premises will be furnished to Tenant without charge by Landlord (the charge for additional keys shall be equal to Landlord's cost thereof). At termination of the Lease, Tenant shall return to Landlord all keys to doors in the Building. 6.2 Tenant shall permit Landlord and Landlord's agents to enter the Leased Premises at any time in the event of an emergency to perform any acts relating to the safety, preservation, or protection of the Building and at all reasonable times for the purpose of (i) inspecting the Leased Premises or the Building, (ii) exhibiting the Leased Premises or the Building to prospective purchasers, mortgagees, or assignees of mortgagees of the Building or the Property, or any portion thereof, (iii) making repairs, alterations, or additions to any portion of the Building, or (iv) showing the Leased Premises to prospective tenants during the last six months of this Lease, all without any liability to Tenant for any loss of occupation or quiet enjoyment of the Leased Premises thereby occasioned. At all times Landlord shall have and retain a key with which to unlock all of the doors in, upon, and about the Leased Premises, excluding Tenant's vaults and safes. No changes to existing locks shall be made and no additional locks or latches shall be put upon any door without the prior consent of Landlord. 7. ALTERATIONS AND MECHANICS' LIENS. 7.1 Alterations shall not be made to the Leased Premises without the prior consent of Landlord, which consent Tenant acknowledges and accepts Landlord may withhold in its sole and absolute discretion. 7.2 Should Tenant desire to alter the Leased Premises and should Landlord approve and consent to such alteration(s) (at Landlord's option), Tenant shall permit Landlord to make said alterations and amortize the total cost thereof as additional Base Rent (subject to escalation as provided in section 3.2 above) for the balance of the Lease Term. Landlord shall be entitled to utilize all investment, energy, and similar tax credits as are provided by the Internal Revenue Code or tax laws of the state of Florida on eligible property acquired or constructed by Landlord at its expense, regardless of whether such expense may be eventually borne by Tenant in the form of increased Base Rent and/or as a component of Operating Expenses. Should Landlord elect to not provide said alterations: (a) Tenant shall only contract with such contractors as are approved by Landlord (and all said alterations shall be subject to Landlord's prior consent relative to design, location, materials and workmanship, and control of payments to contractor) and (b) Prior to commencement by Tenant of said alterations, Tenant shall provide Landlord with (i) evidence satisfactory to Landlord regarding adequate financial arrangements to insure proper and timely payment of the cost thereon and (ii) copies of all governmental permits and authorizations which may be required in connection with such work together with evidence of such workers compensation, personal injury, property damage, and other insurance as Landlord may require because of the nature of the work to be done by Tenant. 7.3 Notwithstanding anything in sections 7.1 and 7.2 above, Tenant may, upon Landlord's prior consent, install trade fixtures or other trade equipment in conformance with applicable federal, state, and local government laws and regulations and the same may be removed upon the termination of this Lease, provided that Tenant shall not be in default under any of the terms and conditions of this Lease and the Leased Premises are not damaged by such removal. Tenant shall keep the Leased Premises, the Building, and the Property free from any liens arising out of any work performed for, materials furnished to, or obligations incurred by Tenant (the bonding of a lien by a reputable casualty or insurance company satisfactory to Landlord shall be deemed the equivalent of a discharge of such lien). All such work provided for above shall be (i) done at such times and in such manner as Landlord may from time to time designate, (ii) of quality at least equal to the original work or installations, and (iii) done in a good and workmanlike manner. 7.4 Except as provided in section 7.3 above, all fixtures, improvements, alterations, and additions which may be made or installed by either Landlord or Tenant in or about the Leased Premises which are in any manner attached to the floors, walls, or ceilings shall belong to and be the property of Landlord and shall remain on the Leased Premises during the Term of this Lease and at the expiration or termination hereof, except for such property, if any, which Landlord may designate that Tenant shall remove prior to such expiration or termination. Tenant agrees to repair all damage to the Leased Premises caused by any such removal and to restore the Leased Premises to the condition in which they were prior to removal of said articles. Any such property so designated by Landlord to be removed, which shall be left in or upon the Leased Premises, shall be deemed to have been abandoned by Tenant and may be retained or disposed of by Landlord, as Landlord shall desire. Tenant shall return the Leased Premises on the termination of the Lease in broom clean condition together with all improvements in the same condition as when rented to Tenant, reasonable wear and tear excepted. All costs and expenses, including risk of loss, of such removal or disposal by Landlord shall be borne by Tenant and reimbursed by Tenant to Landlord as additional rent due under this Lease. 8. PARKING AND COMMON AREAS. 8.1 Tenant shall be entitled to park in common with other tenants of Landlord. Tenant agrees not to overburden the parking facilities and agrees to cooperate with Landlord and other tenants in the use of parking facilities. Tenant acknowledges and accepts that Landlord reserves the right in its absolute discretion to determine whether parking facilities are becoming crowded or overburdened and, in such event, to allocate parking space among Tenant and other tenants. 8.2 The phrase "Parking by Tenant" as used herein means the use of the Property and lower level covered parking garage, if applicable, by Tenant and by Tenant's officers, agents, contractors, servants, employees, patrons, customers, clients, licensees, visitors, and invitees for the parking of motor vehicles in connection with the use of and/or visits to the Leased Premises. There will be no assigned parking except as provided in section 8.3 below or as provided by Landlord in specific instances. Parking by Tenant of any trucks, trailers, motor homes, and commercial vehicles in any of the parking spaces is prohibited. All Parking by Tenant shall be subject to and in accordance with any applicable law, ordinance, or other regulation of public authority. 8.3 During the period that Tenant is properly entitled to have and continue in possession of the Leased Premises as provided in article 2 above, Tenant is assigned five parking space(s) in the lower level covered parking garage. The monthly parking fee for such parking space(s) shall be $30 per space per month and shall be considered as additional Base Rent, subject to all of the terms and conditions set forth in sections 3.1, 3.2, 3.7, and 4.2 above. Parking by Tenant in any lower level covered parking space(s) shall be limited to the location(s) as from time to time specified by Landlord. 8.4 Lubrication, painting, steam cleaning, sandblasting, or other repair, service, and maintenance of any motorized vehicle, equipment, or machinery on the Property is specifically prohibited. Any motorized vehicle, equipment, or machinery abandoned, disabled, or in a state of nonoperation or disrepair shall not be permitted on the Property. Tenant hereby agrees to enforce said restriction with respect to Tenant's own motorized vehicles, equipment, or machinery and those known to be owned by its officers, agents, contractors, servants, employees, patrons, customers, clients, licensees, visitors, and invitees. Should Landlord, in its sole discretion, determine that a violation of this restriction has occurred, the vehicle, equipment, trailer, or machinery shall be deemed abandoned or in trespass and shall be removed from the Property and all costs thereof (including any towing, removal, or storage charges) incurred by Landlord shall be the obligation of Tenant, if identified as being responsible under the terms of this provision, and shall be reimbursed to Landlord as additional rent when invoiced. Landlord accepts no responsibility for theft, collision, vandalism, fire, acts of God, or any other casualty of motorized vehicles, equipment, or machinery parked or stored on the Property (or while the motorized vehicle, equipment, or machinery is under tow or otherwise stored should removal be required as heretofore set forth). 8.5 Landlord shall have the right at any time without thereby creating any actual or constructive eviction or incurring any liability to Tenant therefor, and without abatement in rent, to change (i) the arrangement or location of entrances, passageways, doors, doorways, corridors, stairs, restrooms, and other common areas of the Building and to change the designated express or local stops of elevators servicing the Leased Premises or (ii) any aspect of the Property, but such changes shall be designed to avoid any material obstruction or reduction in Tenant's access to the Leased Premises and other appurtenances. 9. REPRESENTATIONS AND ACCEPTANCE OF PREMISES. 9.1 Landlord and Landlord's agents have made no representations or promises with respect to the Building, the Property, or the Leased Premises except as herein expressly set forth and no rights, easements, or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this Lease. 9.2 By execution of this Lease should the Leased Premises be already complete and improved without any Landlord's Work being called for in section 2.4 above or, if otherwise, by occupying the Premises, Tenant acknowledges that it has examined the Leased Premises and accepts them "AS IS" and as being in the condition and improved as called for by this Lease. 10. LANDLORD'S SERVICES. 10.1 Except where otherwise specified, Landlord shall furnish the following services during workday hours of 8:00 a.m. to 6:00 p.m. on Mondays through Fridays and 8:00 a.m. to 1:00 p.m. on Saturdays, inclusive, except holidays observed by national banks in Palm Beach County, Florida: (a) Elevator service in common with other tenants during such hours as are set by Landlord, provided that at all times Landlord shall make available to Tenant one elevator to service the Leased Premises in common with the premises of other tenants, (b) Water for ordinary lavatory purposes and common use restrooms, (c) Heating, cooling, and ventilation service for the Building and Leased Premises, (d) Cleaning and pest control services of the Building, including the Leased Premises, during nonbusiness hours, except Saturdays and Sundays, and (e) Electric current and lighting (including bulbs, switches, ballasts, tubes, etc.) for common areas. 10.2 Landlord shall in no way be liable for cessation of any of the services under this article 10 caused by strike, accident, breakdown, or other causes beyond Landlord's reasonable control nor shall Landlord be liable for damages from the stopping of elevators or elevator service or from any of the fixtures or equipment in the Building being out of repair or for injury to person or property caused by any defects in the electrical equipment, ventilating and air conditioning system, elevators, or water apparatus or for any damages arising out of failure to furnish the services enumerated in this article. Cessation of any of the services of this article 10 shall not be considered to be an eviction or disturbance of Tenant's use of the Leased Premises nor shall this Lease or any of the provisions be deemed invalidated by such cessation. 10.3 There shall be no abatement, setoff, or apportionment of rent payable by Tenant relative to the failure of Landlord to furnish any of the services under this article 10 or the making of any of the repairs or maintenance. 10.4 Landlord's obligation to furnish light, power, and utilities shall be conditioned upon the availability of adequate sources thereof. Landlord shall have the right to reduce heating, cooling, lighting, and water supplies within the Building as required by any mandatory or voluntary fuel, energy or water savings, conservation, allocation, or similar statute, regulation, order, or program. 11. UTILITIES AND TAXES. 11.1 Tenant shall pay directly to the supplier or utility company involved all charges for electric service relative to the Leased Premises, said services to be separately metered by individual meters applied for by Tenant and in Tenant's own name. 11.2 If Tenant uses the water or sewer services for other than restroom or drinking purposes, any increased water or sewer fees resulting from such usage shall, at the option of Landlord, be charged to and paid by Tenant as additional rent for the applicable months involved. 11.3 Should Tenant's trash volume or frequency be of such size as to create additional costs for pickup, additional container size, more frequency of pickup, or special handling, Landlord, at its option, may from time to time impose a trash service charge on Tenant or increase said charge if previously applicable, said amount being charged as additional rent for the applicable months involved. 11.4 Should Landlord charge Tenant for additional water, sewer, or trash service, Tenant shall remit the amount to Landlord within ten days of receipt of invoice or pay same as additional rental installments thereafter, whichever is elected by Landlord. 11.5 Tenant shall pay for all telephone services or for any and all other services provided in or upon the Leased Premises as Tenant shall elect to contract for. 11.6 Landlord shall not be liable to Tenant for any compensation, damages, or reduction in rent by reason of inconvenience or losses arising from failure or reduction of electric service, water or sewer service, telephone service, trash removal service, or other utility services. 11.7 If applicable in the jurisdiction where the Leased Premises are situated, Tenant shall pay and be liable for all taxes and assessments on Tenant's personal property in addition to all rental, sales, and use taxes or other similar taxes, if any, levied or imposed on Tenant by any city, county, state, federal, or other governmental body. 12. LIABILITY INSURANCE AND INDEMNIFICATION BY TENANT. 12.1 Tenant, at its own expense, shall provide and keep in force with companies acceptable to Landlord public liability insurance for the benefit of Landlord and Tenant jointly against liability for bodily injury and property damage in the amount of not less than $1,000,000 in respect to injuries to or death of any one person in any one occurrence, not less than $3,000,000 in respect of any one occurrence or accident, and an amount of not less than $500,000 per occurrence in respect to damage to property, such limits to be for any greater amounts as may be reasonably indicated by circumstances from time to time existing. Tenant shall furnish Landlord with a certificate of such policy prior to occupancy under this Lease and, within five days of Landlord's request therefor, shall satisfy Landlord that such policy is in full force and effect. Such policy shall name Landlord and any mortgagee as an additional insured and shall provide that it shall not be cancelled or altered without 30 days prior notice to Landlord. Each policy required by this Lease shall further contain a provision permitting Tenant to waive all rights of recovery and claims by way of subrogation, substantially in the following form: "This insurance policy shall not be cancelled should the insured waive in writing prior to any loss any or all right of recovery against any party for loss covered by this policy." 12.2 If Landlord is adjudged a coinsurer by its insurance carrier on account of the failure of Tenant to comply with any provision of this article 12, then any loss or damage Landlord shall sustain by reason thereof shall be borne by Tenant and shall be immediately paid by Tenant upon receipt of an invoice therefore and evidence of such loss. Landlord makes no representation that the limits of liability specified to be carried by Tenant under the terms of this Lease are adequate to protect Tenant and, in the event Tenant believes that any such insurance coverage provided for under this Lease is insufficient, Tenant shall obtain at its own expense such additional insurance as Tenant deems adequate. In the event Tenant fails to provide Landlord with evidence of insurance as required by this article 12, Landlord shall have the right but not the obligation to procure such insurance on behalf of Tenant, charging all costs and expenses to Tenant as additional rent hereunder. 12.3 Tenant waives for itself, its respective insurance companies, and its officers, employees, and agents any and all rights of recovery and claims by way of subrogation against Landlord, its officers, employees, or agents for the full amount of any loss to the extent covered by any insurance. 12.4 Tenant shall indemnify and hold harmless Landlord against and from any and all claims arising from (i) Tenant's use of the Leased Premises or the conduct of its business or from any activity, work, or thing done, permitted, or suffered by Tenant in or about the Leased Premises, (ii) any act, neglect, fault, or omission of Tenant or its agents or employees, and (iii) all costs, attorney fees, expenses, and liabilities incurred in or about such claim or any action or proceeding brought thereof. In case any action or proceeding be brought against Landlord by reason of any such claim, Tenant upon notice from Landlord shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of and hereby waives all claims in respect to damage to property or injury to persons in or about the Leased Premises, the Building, and the Property from any cause whatsoever except that which is caused by the failure of Landlord to observe any of the terms and conditions of this Lease and such failure has persisted for an unreasonable period of time after notice by Tenant of such failure. The obligations of Tenant under this article 12 arising by reason of any occurrence taking place during the term of this Lease shall survive any termination of this Lease. 13. LIMITATION OF LIABILITY. 13.1 The term Landlord as used in this Lease shall be limited to mean and include only HCF Realty, Inc. and its successors and assigns and in no event shall such term or any covenant be construed to impose a personal obligation upon the leasing broker or property manager, each of which is an independent contractor authorized by the owner of the Leased Premises to secure (but not execute) leases and to manage the Property and the Building. Nothing herein shall be construed to imply or impose a general agency relationship upon either the leasing broker or property manager. 13.2 In the event of any transfer of title to the Property, the Building, or the Leased Premises, Landlord shall be automatically freed and relieved from all personal liability with respect to performance of any covenant or obligation on the part of Landlord, it being intended hereby that the covenants and obligations contained in this Lease on the part of Landlord shall be binding on Landlord and its successors and assigns only during their respective successive periods of ownership. 13.3 Notwithstanding anything to the contrary contained in this Lease, it is agreed and understood that Tenant shall look solely to the Property for the enforcement of any judgment (or other judicial decree) requiring the payment of money by Landlord to Tenant by reason of any default or breach by Landlord in the performance of its obligations under this Lease, it being intended hereby that no other assets of Landlord shall be subject to levy, execution, attachment, or other such legal process for the enforcement or satisfaction of the remedies pursued by Tenant in the event of such default or breach. 14. SUBORDINATION. 14.1 This Lease shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation for security now or hereafter placed upon the Property and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements, and extensions thereof. Notwithstanding such subordination, neither Tenant's obligations hereunder shall be affected nor Tenant's right to quiet possession of the Leased Premises shall be disturbed if Tenant is not in default and as long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease, unless and until this Lease is otherwise terminated. 14.2 At Landlord's request, Tenant shall promptly execute any and all documents required to effectuate subordination as required under this article. Tenant hereby irrevocably appoints and constitutes Landlord as Tenant's attorney in fact to do so in Tenant's name, place, and stead. 14.3 Nothing herein shall prevent Landlord from selling or in any way affect Landlord's right or ability to sell to one or more purchasers all or any part of the Building or the Property. If any such sale includes the Leased Premises, Tenant shall pay all rents and other amounts due hereunder to the purchaser upon receipt of notice of such sale, including the name and address of the purchaser, from Landlord. 14.4 Landlord shall have the right at any time to change the name, designation, and/or address of the Building without the consent of or liability to Tenant. 14.5 In the event of any default on the part of Landlord (i.e., Landlord's actual failure or refusal to observe or perform any term, covenant, or condition provided under this Lease), Tenant shall give to Landlord notice specifying the type and nature of such default(s). Thereafter, Landlord shall have a reasonable period of time (a minimum of 30 days) in which to cure such default(s). If any such specified default shall not be cured within a reasonable period, Tenant shall give notice thereof to any beneficiary of a deed of trust or mortgagee of a mortgage covering the Leased Premises, provided that Tenant has been given notice of such beneficiary's or mortgagee's name and address, and shall offer such beneficiary or mortgagee a reasonable opportunity to cure the default, including the time to obtain possession of the Leased Premises by power of sale or by judicial foreclosure if such should prove necessary to effect a cure. 14.6 Landlord and Tenant mutually agree that, should any then present or prospective lender, mortgagee, or holder of any deed of trust of the Property or the Building require any changes in this Lease, which change shall not materially affect the rights and obligations of Landlord and Tenant under this Lease, they will cooperate with each other in good faith to make the language of this lease document acceptable to such lender, mortgagee, or holder. Tenant shall execute any subordination, nondisturbance, and attornment agreements as may be required by (i) any such lender, mortgagee, or holder of any deed of trust or (ii) any purchaser under proceedings brought for foreclosure or pursuant to an exercise of a power of sale by any such lender, mortgagee, or holder of any deed of trust. 14.7 Within ten days after request by Landlord, Tenant shall deliver to Landlord or any other person specified by Landlord a duly executed and acknowledged written instrument certifying all of the following: (a) That the Lease is unmodified and is in full force and effect or, if there has been any modification, that same is in full force and effect as so modified and identifying such modification(s), (b) Whether or not within the knowledge of Tenant (i) there are then existing any setoffs or defenses in favor of Tenant against the enforcement of any of the terms, covenants, and conditions of this Lease by Landlord and, if so, specifying the same and (ii) Landlord has observed and performed all of the terms, covenants, and conditions on the part of Landlord to be observed and performed and, if not, specifying the same, and (c) The dates to which Base Rent together with all other additional rent payments and all other charges hereunder have been paid, and Tenant does hereby irrevocably appoint Landlord as Tenant's attorney in fact to do so in Tenant's name, place, and stead. 15. CONDEMNATION. 15.1 If any part of the Leased Premises shall be taken or condemned for public or quasi public use (other than for temporary use or occupancy) and a part thereof remains which is susceptible of occupation hereunder, this Lease shall terminate as to the part so taken as of the date possession shall be taken by the condemnor (hereafter called the "Condemnation Date") and the rent subsequently payable shall be adjusted so that Tenant shall be required to pay for the remainder of the Term only such portion of such rent as is representative of the number of Rentable Square Feet in the part remaining after the Condemnation Date in relation to the number of Rentable Square Feet in the entire Leased Premises immediately prior to the Condemnation Date, except that, in such event, Landlord shall have the option by notice to Tenant on or before the Condemnation Date to terminate this Lease effective as of the Condemnation Date, in which case Landlord shall refund to Tenant any prepaid rent which, as of the Condemnation Date, is attributable to the condemned Leased Premises. Notwithstanding the above, if 20% or more of the Leased Premises shall be taken, Tenant shall have the option by notice to Landlord on or before the Condemnation Date to terminate this Lease effective as of the Condemnation Date. 15.2 If all of the Leased Premises shall be taken or condemned for public or quasi public use (other than for temporary use or occupancy) or such part thereof be taken or condemned so that there does not remain a portion susceptible for occupation hereunder, this Lease shall terminate effective as of the Condemnation Date and Landlord shall refund to Tenant any prepaid rent which, as of the Condemnation Date, is attributable to the condemned Leased Premises. 15.3 Landlord shall be entitled to receive the entire award for any and all condemnations, including any award made for the value of the estate vested by this Lease in Tenant. For this purpose, Tenant hereby expressly assigns to Landlord any and all right, title, and interest of Tenant in the Leased Premises now or hereafter arising except that, notwithstanding the foregoing, Tenant shall be entitled to any award for the loss or taking of its fixtures and for its relocation expenses. 16. DESTRUCTION. 16.1 If for any reason other than Tenant's act, use, or occupation (i) a partial destruction of the Leased Premises or the Building occurs during the Lease Term which requires repairs to either the Leased Premises or the Building or (ii) the Leased Premises or the Building are declared unsafe or unfit for occupancy by any public authority which declaration requires repairs to either the Leased Premises or the Building, Landlord shall forthwith make such repairs, provided such repairs can be completed within 120 days (during normal working hours and without incurring overtime costs or expenses) under then currently applicable laws and regulations. In no event shall partial destruction (including any destruction necessary in order to make repairs required by any declaration) annul or void this Lease, except that Tenant shall be entitled to a proportionate reduction of rent while such repairs are being made to the extent to which the destruction and the making of repairs shall interfere with the business carried on by Tenant in the Leased Premises. If such repairs cannot be so completed within said 120 day period, Landlord may, at its option, make the same within a reasonable time, this lease continuing in full force and effect and the rent to be proportionately abated as provided in this section. In the event that Landlord does not so elect to make such repairs which cannot be so completed within said 120 day period or such repairs cannot be so completed under then currently applicable laws and regulations, this Lease may be terminated at the option of either party by giving notice thereof to the other party (the effective date of such notice being the effective date of termination of this Lease). 16.2 A total destruction (including any destruction required by any authorized public authority) of the Leased Premises shall terminate this Lease on notice thereof from Landlord to Tenant, the effective date of such notice being the effective date of such termination. 16.3 In the event of any dispute between Landlord and Tenant relative to the provisions of this article, each may select an arbitrator, the two arbitrators so selected shall select a third arbitrator, and the three arbitrators so selected shall hear and determine the controversy and their decisions thereon shall be final and binding on both Landlord and Tenant who shall bear the cost of such arbitration equally between them. Landlord shall not be required to repair or replace any property installed in the Leased Premises by Tenant. No damages, compensation, or claims shall be payable by Landlord for Tenant's inconvenience, loss of business, or annoyance arising from any repair of any portion of the Leased Premises or of the Building except for the proportionate reduction of rent as provided herein. Tenant hereby waives any right under applicable laws inconsistent with the terms of this section. 16.4 Notwithstanding anything to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the premises requires that the insurance proceeds with respect to any partial destruction of the Leased Premises or the Building be applied to such indebtedness, Landlord shall have the right to terminate this Lease without liability to Tenant by notice of termination to Tenant, the effective date of such notice being the effective date of such termination. 17. ASSIGNMENT AND SUBLETTING. 17.1 Tenant shall not nor attempt to assign, sublet, mortgage, or hypothecate this Lease or any interest in this Lease or permit the use of the Leased Premises by any person or persons other than Tenant. For purposes of this Lease, an assignment shall constitute: (a) Any transfer of this Lease from Tenant, including transfer by merger, consolidation, or liquidation, (b) If Tenant is a corporation, any sale, issuance, or transfer of any stock of Tenant other than by public trading, by operation of law or otherwise, by which an aggregate of more than 50% of Tenant's stock shall be owned by those who were not stockholders as of the date hereof, or (c) If Tenant is a partnership, any admission or withdrawal of a partner or change of the capital interest or profits/losses interest in such partnership by which an aggregate of more than 50% of Tenant's capital interest or profits/losses interest shall be owned by those who were not partners as of the date hereof. Any stock and/or partnership capital interest or profits/losses interest of Tenant owned by or for a corporation, partnership, estate, or trust shall be considered as owned proportionately by its shareholders, partners, or beneficiaries. 17.2 If Tenant's interest in this Lease is assigned, whether or not in violation of the provisions of this article 17, Landlord may collect the rent from the assignee. If the Leased Premises or any part thereof are sublet to, occupied by, or used by any person other than Tenant, whether or not in violation of this article 17, Landlord may collect the rent from the subtenant, user, or occupant after default by Tenant under this Lease. In either case, Landlord shall apply the net amount collected to the rent reserved in this Lease, but neither any such assignment, subletting, occupancy, or use nor any such collection or application shall be deemed either a wavier of any term, covenant, or condition of this Lease or an acceptance by Landlord of such assignee, subtenant, occupant, or user as tenant. 17.3 Notwithstanding the prohibitions set forth in sections 17.1 and 17.2 above, Landlord may in its sole and uncontrolled discretion consent to an assignment, sublease, mortgage, hypothecation, occupation, or use but such consent shall not release Tenant from its primary liability under the Lease nor shall it be deemed a consent to any other assignment, sublease, mortgage, hypothecation, occupation, or use by or to any other party. 18. LANDLORD'S LIEN. 18.1 As security for Tenant's payment of rent, damages, and all other payments required to be made by this Lease, Tenant hereby grants to Landlord a lien upon all property of Tenant now or subsequently located upon the Leased Premises. If Tenant is in default in the payment of any rent, damage, or other payments required to be made by this Lease, Landlord may take any action it deems necessary that may be available to it under applicable law. Except in the case of abandoned personal property as provided in section 5.6 above, the proceeds of the sale of the personal property shall be applied by Landlord first toward the costs and expenses of removal and sale and then toward the payment of all sums then due or to become due by Tenant to Landlord under the terms of this Lease. 18.2 To the extent, if any, this Lease grants Landlord any lien or lien rights greater than provided by the laws of the State of Florida pertaining to "Landlord's Liens", this Lease is intended as and constitutes a security agreement within the meaning of Florida's Uniform Commercial Code ("UCC"). In addition to the rights prescribed in this Lease, Landlord shall have a lien upon and interest in Tenant's property now or hereafter located upon the Leased Premises which grants Landlord a security interest (as that term is defined under the UCC) to secure the payment to Landlord of the various amounts provided in this Lease. Tenant agrees to and shall execute and deliver to Landlord such UCC financing statements and such further notices as Landlord may at any time consider necessary to create, perfect, and preserve the lien provided in this article 18, which shall include a lien upon all additions, substitutions, replacements and accessions thereto, and all proceeds of its or their sale or other disposition. At the expense of Tenant, Landlord may cause such UCC financing statements and notices to be recorded and rerecorded, filed and refiled, and renewed or continued at such times and places as may be required or permitted by law to create, perfect, and preserve such liens. Tenant does hereby irrevocably appoint Landlord as Tenant's attorney in fact to execute such UCC financing statements and notices and any such execution by Landlord pursuant to this Lease shall be effective and binding upon Tenant as though executed originally by Tenant. 19. TERMINATION OF LEASE. 19.1 In the event that this Lease: (a) Is terminated under any of the provisions of this Lease or by written agreement of Landlord and Tenant specifying the effective date of termination or (b) Is deemed terminated by operation of law, the Lease Term and Tenant's right to possession shall be deemed to have expired as of the effective date of such termination. 19.2 If Tenant shall not have surrendered possession of the Leased Premises after this Lease is terminated, Tenant's failure to surrender possession of the Leased Premises as of the effective date of termination shall constitute an Event of Default as described in article 20 below and until Tenant does surrender possession: (a) All of Tenant's obligations under this Lease, including the obligation to pay rent at the rate specified in section 2.5 above, shall continue undiminished by such termination and (b) Landlord may exercise all rights and remedies under this Lease and under applicable law to regain possession of the Leased Premises, to collect amounts due, and to obtain damages for any and all defaults (all as provided in articles 21 and 22 below). 19.3 After Tenant has surrendered possession of the Leased Premises after this Lease is terminated, all of Tenant's obligations and Landlord's rights under this Lease and under applicable law shall continue undiminished by such termination to the extent of Landlord's right to collect amounts due, if any, and to obtain damages for defaults, if any, all as provided in articles 21 and 22 below. 20. DEFAULTS. 20.1 The occurrence at any time (whether prior or subsequent to the Commencement Date) of any of the following events shall constitute an "Event of Default" by Tenant under this Lease: (a) Tenant's failure, regardless of the cause, to make payment when due of any rent (whether Base Rent or additional rent of any kind) if such failure shall continue for a period of five days after notice by Landlord to Tenant of such failure, (b) Tenant's failure to observe or perform any term, covenant, or condition of this Lease on Tenant's part to be observed or performed (other than covenants for the payment of rent) if Tenant shall fail to remedy such breach within 15 days after notice by Landlord to Tenant of such breach (or, if such breach is of such a nature that it cannot be completely remedied within said period of 15 days, Tenant shall not commence within said period of 15 days, or shall not thereafter diligently prosecute to completion, all steps necessary to remedy such breach), (c) Tenant's: (1) Filing of a voluntary petition in bankruptcy or insolvency, (2) Adjudication as being bankrupt or insolvent, (3) Filing of any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under the present or any future federal bankruptcy act or under any other present or future applicable federal, state, or other statute or law, (4) Execution of an assignment for the benefit of creditors, or (5) Consent to, acquiesce in, or otherwise seeking of the appointment of any trustee, receiver, or liquidator of Tenant or of all or any part of the property of Tenant, (d) The: (1) Commencement of any proceeding against Tenant (whether by the filing of a petition or otherwise) seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under the present or any future federal bankruptcy act or under any other present or future applicable federal, state, or other statute or law which proceeding shall not have been dismissed within 30 days after the commencement thereof, (2) Appointment of any trustee, receiver, or liquidator of Tenant (or of all or any part of the property of Tenant) without the consent or acquiescence of Tenant if such appointment shall not have been vacated or otherwise discharged within 30 days of such appointment, or (3) Taking, occupying, or attempted taking or occupying of any part or all of the Leased Premises pursuant to any execution or attachment issued against Tenant or any of the property of Tenant, (e) Tenant's failure to observe or perform any term, covenant, or condition on Tenant's part to be observed or performed under any other lease with Landlord of space in the Building if such failure shall continue beyond any grace period set forth in such other lease for the remedying of such failure, (f) The Leased Premises shall become vacant, deserted, or abandoned, (g) Tenant's interest in this Lease shall, in whole or in part, devolve upon or pass to any other person, whether by operation of law or otherwise, except as expressly permitted under article 17 above, or (h) Tenant's failure to surrender possession of the Leased Premises after termination of this Lease (as provided in article 19 above). 20.2 If, at any time: (a) Tenant shall be comprised of two or more persons (whether as partners or cotenants of any kind), (b) Tenant's obligations under this Lease shall have been guaranteed by or are the responsibility of any person other than Tenant, or (c) Tenant's interest in this Lease shall have been assigned, all references to "Tenant" in clauses (c) and (d) of section 20.1 above shall be deemed to mean any one or more of the persons primarily or secondarily liable for Tenant's obligations under this Lease. Any monies received by Landlord from or on behalf of Tenant during the pendency of any proceeding of the types referred to in such clauses (c) and (d) of section 20.1 above shall be deemed paid as compensation for the use and occupation of the Leased Premises and the acceptance of any such compensation by Landlord shall not be deemed an acceptance of rent or a waiver on the part of Landlord of any Event of Default under section 20.1 above. 20.3 If Tenant shall default in the performance of its obligations under this Lease, Landlord, at any time thereafter and without notice, may remedy such default for Tenant's account and at Tenant's expense, without thereby waiving any other rights or remedies of Landlord with respect to such default. 21. REMEDIES. 21.1 If any Event of Default (as defined in article 20 above) shall occur, then Landlord shall have the following remedies in addition to any other remedies provided elsewhere in this Lease and by law - (a) At any time after such Event of Default, at Landlord's option, Landlord may give to Tenant five days notice of termination of this Lease and, in the event such notice is given, this Lease shall be terminated (whether prior or subsequent to the Commencement Date) as of the expiration of such five days. (b) Either with or without termination of this Lease, Landlord may immediately and without notice (or at any later time after the occurrence of such Event of Default) reenter the Leased Premises or any part thereof either by summary proceedings or by any other applicable action or proceeding or by force or otherwise (without being liable to indictment, prosecution, or damages therefor), and may repossess the Leased Premises and remove any and all of Tenant's property and effects from the Leased Premises. (c) Either with or without termination of this Lease, Landlord may relet the whole or any parts of the Leased Premises from time to time, either in the name of Landlord or otherwise, to such tenant(s) for such term(s) ending before, on, or after the original Expiration Date at such rental(s) and upon such other conditions (which may include concessions and free rent periods) as Landlord, in its sole discretion, may determine. In the event of any such reletting, Landlord (i) shall not be liable for the failure to collect any rent due upon any such reletting and no such failure shall operate to relieve Tenant of any liability under this Lease or otherwise to affect any such liability and (ii) may make such repairs, replacements, alterations, additions, improvements, decorations, and other physical changes in and to the Leased Premises as Landlord, in its sole discretion, considers advisable or necessary in connection with any such reletting or proposed reletting, without relieving Tenant of any liability under this Lease or otherwise affecting such liability. (d) Either with or without termination of this Lease, Landlord may recover from Tenant: (1) All past due amounts and (2) All damages Landlord may incur by reason of such default and/or breach, all as described in article 22 below. 21.2 Tenant, on its own behalf and on behalf of all persons claiming through or under Tenant (including all creditors), does hereby further waive any and all rights which Tenant and all such persons might otherwise have under present or future law to redeem the Leased Premises, to reenter, or repossess the Leased Premises, or to restore the operation of this Lease, after: (a) Tenant shall have been dispossessed by a judgment or by warrant of any court or judge, (b) Reentry by Landlord, or (c) Termination of this Lease, whether such dispossession, reentry, or termination shall be by operation of law or pursuant to the provisions of this Lease. The words "reenter", "reentry", and "reentered" as used in this Lease shall not be deemed to be restricted to their technical legal meanings. 21.3 In the event of a breach or threatened breach by Tenant (or any persons claiming through or under Tenant) of any term, covenant, or condition of this Lease on Tenant's part to be observed or performed, Landlord shall also have the right to enjoin such breach or threatened breach and the right to invoke any other right and/or remedy allowed by law or in equity as if reentry, summary proceedings, and other special remedies were not provided in this Lease for such breach. 21.4 The remedies hereinbefore set forth are cumulative and shall not preclude Landlord from invoking any other remedy allowed at law or in equity, nor shall the election of any remedy specifically provided herein be deemed an election of remedies as to preclude the invoking of any other remedy provided herein. 21.5 The waiver by Landlord of (including any express or implied consent to) any breach of any term, covenant, or condition herein contained shall not be deemed to be a wavier of such term, covenant, or condition or of any subsequent breach of the same or any other term, covenant, or condition herein contained. Failure on the part of Landlord to (i) complain of any act or failure to act of Tenant, (ii) continue to complain or to pursue complaints with respect to any act or failure to act of Tenant, or (iii) declare Tenant in default, irrespective of how long such failure(s) continue(s), shall not constitute a waiver by Landlord of any rights and remedies with respect thereto under this Lease or otherwise at law or in equity (subject, however, to any grace period provided in this Lease). The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant, or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 22. DAMAGES. 22.1 If, as a result of the occurrence of any Event of Default (and as provided in section 21.1 above), this Lease is terminated or Landlord shall reenter the Leased Premises, then: (a) Tenant shall pay to Landlord all rent (including Base Rent and additional rent of all kinds) and other charges (including late charges and interest, if any, as provided in section 3.7 above) payable under this Lease by Tenant to Landlord to the date upon which (i) this Lease shall have terminated or (ii) Landlord shall have reentered the Leased Premises, whichever shall have first occurred, and (b) Tenant shall pay to Landlord any deficiency (hereafter called the "Deficiency") between the rent (including Base Rent and additional rent of all kinds) reserved in this Lease for the period which otherwise would have constituted the remainder of the Term after the date referred to in paragraph (a) above and the net amount, if any, of rents collected under any reletting effected pursuant to the provisions of section 21.1(c) above for any part of such period (first deducting from the rents collected under any such reletting all of Landlord's expenses in connection with the termination of this Lease and/or Landlord's reentry upon the Leased Premises, all repossession costs, brokerage commissions, legal expenses, attorney fees, alteration costs, and other expenses of preparing the Leased Premises for such reletting). (1) Any such Deficiency shall be paid in monthly installments by Tenant on the days specified in this Lease for payment of installments of rent and Landlord shall be entitled to recover from Tenant each monthly Deficiency as the same shall arise (including late charges and interest, if any, as provided in section 3.7 above), and no suit to collect such amounts for any month shall prejudice Landlord's right to collect the Deficiency for any subsequent month by a similar proceeding. (2) Whether or not Landlord shall have collected any monthly Deficiency as aforesaid, in lieu of subsequent Deficiency installments Tenant shall pay to Landlord on demand, as and for liquidated and agreed final damages, a sum equal to the amount by which the rent (including Base Rent and additional rent of all kinds) reserved in this Lease for the period which, at the time of such demand, otherwise would have constituted the unexpired portion of the Term exceeds the then fair and reasonable rental value of the Leased Premises for the same period. If, before presentation of proof of such liquidated damages to any court, commission, or tribunal, the Leased Premises, or any part thereof, shall have been relet by Landlord for the period which otherwise would have constituted the unexpired portion of the Term, or any part thereof, the amount of rent reserved upon such reletting shall be deemed, prima facie, to be the fair and reasonable rental value for the part or the whole of the Leased Premises so relet during the term of the reletting. Solely for the purposes of this section 22.1(b)(2), the term "rent" as used in such section shall mean the rent in effect immediately prior to the date upon which demand under this section 22.1(b)(2) is made. 22.2 If the Leased Premises, or any part thereof, shall be relet together with other space in the Building, the rents collected or reserved under any such reletting and the expenses of any such reletting shall be equitably apportioned for the purposes of this article 22. Tenant shall in no event be entitled to any rents collected or payable under any reletting, whether or not such rents shall exceed the rent provided under this Lease. 22.3 Nothing contained in articles 20, 21, or this article shall be deemed to limit or preclude (i) the application to damages of the Security Deposit provided in section 4.1 above or (ii) the recovery by Landlord from Tenant of the maximum amount allowed to be obtained as damages under applicable law or of any sums or damages to which Landlord may be entitled in addition to the damages set forth in section 22.1 above. 23. RADON GAS. 23.1 Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. 23.2 Additional information regarding radon and radon testing may be obtained from your county public health unit. 24. MISCELLANEOUS PROVISIONS. 24.1 Whenever the singular number is used in this Lease and when required by the context, the same shall include the plural and the masculine gender shall include the feminine and neuter genders. The word "person" shall include individuals (i.e., natural persons), corporations, partnerships, associations, trusts, and all other entities of any nature whatsoever. If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be joint and several. For all purposes throughout this Lease, the term "including" shall mean "including (without limitation) and by way of illustration" and the phrase "at any time" shall have the same meaning as the phrase "at any time or times". 24.2 The descriptive headings or titles of articles of this Lease are for convenience only and shall have no effect upon the construction or interpretation of any part of this Lease. 24.3 This instrument contains all of the agreements and conditions made between the parties of this Lease concerning its subject matter, superseding any and all agreements made between them (or between some of them) relative to the Leased Premises (all such prior agreements being hereby expressly revoked), and this instrument and the Lease it represents may not be modified orally or in any manner other than by agreement in writing signed by all parties to this Lease. The attachments to this Lease are all incorporated into this Lease by this reference as if their respective contents were set forth in full in this Lease. Anyone may rely upon a copy of this Lease verified by a notary public to be a true copy of this Lease (and of the writing, if any, endorsed thereon or attached hereto) to the same effect as if such copy were an original. 24.4 Time is of the essence of each term and provision of this Lease. Except as otherwise expressly provided, days include Saturdays, Sundays, and holidays of all kinds. 24.5 Except as otherwise expressly stated, each payment required to be made by Tenant shall be in addition to and not in substitution for other payments to be made by Tenant. 24.6 Subject to section 1.2 and article 17, the terms and provisions of this Lease shall be binding upon and operate for the benefit of Landlord and Tenant and their respective heirs, personal representatives, executors, administrators, guardians, successors, and assigns. 24.7 All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of rent. 24.8 Where the consent of Tenant is required, such consent shall not be unreasonably withheld or delayed. 24.9 This Lease shall create the relationship of Lessor and Lessee between Landlord and Tenant as to which no estate shall pass out of Landlord, Tenant's interest and rights under this Lease not being subject to levy, sale, or assignment by Tenant. 24.10 This agreement and the rights and obligations of the parties under this agreement shall be interpreted, construed, and enforced in accordance with the laws of the State of Florida. 24.11 If any term or provision of this Lease or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Lease, including all of its other terms and provisions, and the application of all of the Lease's terms or provisions to persons and circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby and such other terms and provisions of this Lease shall be valid and be enforced to the fullest extent permitted by law. If any late charge and/or interest due hereunder violate any federal or state usury or similar law applicable to the terms of this Lease, such late charge and/or interest due hereunder shall be reduced to the maximum amount then permissible under such law. 24.12 The voluntary or other surrender of this Lease by Tenant or a mutual cancellation thereof shall not work a merger and shall, at the option of Landlord, terminate all or any existing subleases and/or subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subleases or subtenancies. 24.13 In the event of any legal action or proceeding (including all appellate proceedings) between the parties hereto, reasonable attorney fees and expenses of the prevailing party in any such action or proceeding may be added to the judgment therein. Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including all reasonable attorney fees. 24.14 All notices, statements, objections, demands, requests, acceptances, consents, approvals, authorizations, offers, agreements, appointments, directions, designations, or other instruments required or permitted to be given, made, or sent under this Lease by either party to the other shall be in writing duly executed by or in behalf of the party giving or making the same and shall be sufficiently mailed or delivered to the other party when sent as follows - To Tenant at (i) the Leased Premises or, until Tenant shall have commenced occupancy of the Leased Premises, the following or (ii) such other place as Tenant may from time to time designate by notice to Landlord: China Peregrine Food Corporation Phillips Point, West Tower 777 South Flagler Drive, Suite 1113 West Palm Beach, FL 33401 To Landlord at the following or such other place as Landlord may from time to time designate by notice to Tenant: Walters/Gottlieb Partners, Inc. Phillips Point, East Tower 777 South Flagler Drive, Suite 221 West Palm Beach, FL 33401 and Robert B. Joslyn 200 Maple Park Boulevard - Suite 201 St. Clair Shores, MI 48081 Except insofar as the instrument may specify a later effective date, the date of its actual delivery, tender of delivery, or refusal of delivery, whichever shall first occur, shall be the effective date of the notice or other legal act or information represented by such instrument and such instrument shall be effective for all purposes from such date. 24.15 Each power of attorney granted by Tenant to Landlord herein shall (i) continue irrevocably as long as this Lease, with or without modification, remains in effect, (ii) not be affected by the disability or incapacity of Tenant subsequent to the execution of this Lease, and (iii) be coupled with an interest. 25. AUTHORIZED LEASE EXECUTION AND BROKERAGE REPRESENTATION. 25.1 Each individual executing this Lease as a director, officer, or agent of a corporation or association represents and warrants that such individual is duly authorized to execute and deliver this Lease on behalf of such corporation or association in accordance with its bylaws or in accordance with the terms of a duly adopted resolution of the Board of Directors of said corporation or association. Each individual executing this Lease on behalf of a partnership warrants that such individual is a general partner therein and is duly authorized to execute and deliver this Lease on behalf of said partnership. 25.2 Tenant acknowledges that Walters/Gottlieb Partners, Inc. has exclusively represented Landlord as broker in the negotiation and consummation of this Lease and shall receive commission compensation therefore by Landlord. Tenant represents and warrants that (i) in connection with the negotiation and consummation of this Lease it is representing itself, (ii) there are no brokers who are acting in behalf of Tenant, and (iii) Landlord shall not be responsible or liable for the payment of any brokerage fee, commission, or other charge for brokerage or finder's services except as to Walters/Gottlieb Partners, Inc. Tenant shall indemnify and hold harmless Landlord for any and all claims for brokerage fees, commissions, or other charges for brokerage or finder's services except those from Walters/Gottlieb Partners, Inc. 25.3 This Lease shall be effective only after Tenant and Landlord has fully executed this Lease. 26. SPECIAL PROVISIONS. Special provisions of this Lease numbered 27 is attached hereto and made a part hereof. IN WITNESS WHEREOF, the parties hereto have executed or, when appropriate, have caused this instrument to be executed by duly authorized officers or agents, all as of and effective from and after the day and year first above written and described as the Date of this Lease. Witnesses: China Peregrine Food Corporation Tenant ____________________________ By _____________________________ January ___, 1999 Witnesses: HCF Realty, Inc. Landlord _______________________________ By______________________________ THE TOWERS OF PALM BEACH GARDENS, FLORIDA ___________________________ LEASE AGREEMENT - SPECIAL PROVISIONS 27. TEMPORARY SPACE. 27.1 Landlord grants to Tenant the right to use suite 207 of The Towers [as shown on Exhibit A attached hereto (hereafter referred to as the Temporary Space")] without payment of Base Rent or Operating Expense (or other rent) therefor for the period commencing January 31, 1999 and ending at 11:59 p.m. on the Commencement Date referred to in article 2 above. 27.2 All of the terms and provisions of this Lease shall be applicable to the Temporary Space except those relating to Tenant's payment of rent, Landlord's Work, and the Term provided, however, that Tenant shall pay for, indemnify, and hold Landlord harmless against any and all expenses, damages, and claims arising in connection with Tenant's use of the Temporary Space (including any and all costs of recarpeting, repainting, and/or redecorating which may be required in the sole discretion of Landlord after Tenant shall have vacated the Temporary Space). 27.3 Landlord and Tenant (i) acknowledge that the Temporary Space presently needs recarpeting and paint and (ii) agree that Tenant will not request recarpeting or painting of the Temporary Space and Tenant will not be charged for recarpeting or painting the Temporary Space after it is vacated. THE TOWERS OF PALM BEACH GARDENS, FLORIDA ___________________________ LEASE AGREEMENT - EXHIBIT B LEGAL DESCRIPTION A parcel of land in Section 4, Township 42 South, Range 43 East, Palm Beach County, Florida, being more particularly described as follows: Beginning at the intersection of the Easterly right-of-way line of State Road No. 5 (U.S. No. 1) with the South line of Government Lot 7 of said Section 4; run thence Northerly along the Easterly right-of-way line of State Road No. 5 (U.S. No. 1) a distance of 275.60 feet to a point; thence run South 86`52'35" East, parallel to the South line of said Government Lot 7, a distance of 282.38 feet to a point on the line between Government Lot 6 and 7, of said Section 4; thence run South 1`51'50" West along said Government Lot line a distance of 274.70 feet to a point in the South line of Government Lot 7 of said Section 4; thence run Westerly along the South line of Government Lot 7 of said Section 4, a distance of 268.66 feet to a point of intersection with the Easterly right-of-way line of State Road No. 5 (U.S. Highway No. 1), the same point being the point of beginning. THE TOWERS OF PALM BEACH GARDENS, FLORIDA ___________________________ LEASE AGREEMENT - EXHIBIT C IMPROVEMENTS TO LEASED PREMISES At its expense, Landlord shall construct the Leased Premises, in accordance with the space plan depicted below, by Fisher-Clark Construction Co.'s proposal dated 12/22/98 attached hereto. THE TOWERS OF PALM BEACH GARDENS, FLORIDA ___________________________ LEASE AGREEMENT - EXHIBIT D RULES AND REGULATIONS 1. OBSTRUCTIONS TO PASSAGES AND WINDOWS. a. Tenant shall not (i) block or obstruct any of the entries, passages, doors, elevators, elevator doors, hallways, or stairways of the Building or parking area, (ii) place, empty, or throw any rubbish, litter, trash, or material of any nature into such areas, or (iii) permit such areas to be used at any time except for ingress and egress of Tenant and its patrons, licensees, customers, visitors, or invitees. b. Glass panel doors that reflect or admit light into the passageways or into any place in the Building shall not be covered or obstructed by Tenant and Tenant shall not permit, erect, and/or place drapes, furniture, fixtures, shelving, display cases, tables, lights, signs, or advertising devices in front of or in proximity of interior and exterior windows, glass panels, or glass doors providing a view into the interior of the Leased Premises. 2. TENANT INSTALLATIONS. a. Tenant may hang on the walls of the Leased Premises framed photographs, paintings, and other artwork or decorations but Tenant will not otherwise do any painting or decorating in the Leased Premises nor mark, paint or cut into, drive nails or screw into nor in any way deface any part of the Leased Premises or Building. If Tenant desires signal, communication, alarm, or other utility or service connection installed or changed, such work shall be done at the expense of Tenant, with the approval and under the direction of Landlord. b. All contractors and/or technicians performing work for Tenant within the Leased Premises or Building shall be referred to Landlord for approval before performing such work. This shall apply to all work including, but not limited to, installation of telephones, telegraph equipment, electrical devices and attachments, and all installations affecting floors, walls, windows, doors, ceiling equipment, or any other physical feature of the Building or Leased Premises. None of this work shall be done by Tenant without Landlord's prior written approval. c. No showcases or other articles shall be put in front of or affixed to any part of the exterior of the Building nor placed in the halls, corridors, or vestibules. d. Except in accordance with such terms and conditions as may be specified by Landlord in such prior written approval as Landlord may grant (or withhold), Tenant shall not install any antenna or aerial wires, radio or television equipment, or any other type of equipment inside or outside of the Building. 3. SIGNS. a. No sign, door plaque, advertisement, or notice shall be displayed, painted, or affixed by Tenant, its contractors, patrons, licensees, customers, visitors, or invitees in or on any part of the outside or inside of the Building or Leased Premises without prior written consent of Landlord and then only of such color, size, character, style, and material and in such places as shall be approved and designated by Landlord. Signs on doors and entrances to the Leased Premises shall be placed thereon by a contractor designated by Landlord and paid for by Tenant. b. Landlord will maintain an alphabetical directory board in the ground floor lobby of the Building containing one name for each Tenant. 4. TENANT ACTIVITIES. a. Tenant shall not use the Leased Premises or Building for housing, lodging, or sleeping purposes or for the cooking or preparation of food. b. Tenant, together with its contractors, patrons, licensees, customers, visitors, and invitees, shall not bring into the Building or Leased Premises or keep on the Leased Premises any fish, fowl, reptile, insect, or animal (except for such seeing eye dogs and other animals directly utilized at such time to assist handicapped individuals) or any bicycle or other vehicle (wheelchairs and baby carriages excepted). c. Tenant shall not permit the operation of any musical or sound- producing instruments or devices which may be heard outside the Leased Premises or Building or which may emanate electrical waves which will impair radio or television broadcasting or reception from or in the Building. d. Before leaving the Leased Premises unattended, Tenant shall close and lock all doors and shut off all utilities (damage resulting from failure to do so shall be paid by Tenant). Before closing for the day and leaving the Leased Premises, Tenant shall draw all blinds and/or draperies. e. The plumbing facilities shall not be used for any other purpose than that for which they are constructed and no foreign substance of any kind shall be thrown therein. The expense of any breakage, stoppage, or damage resulting from a violation of this provision shall be borne by Tenant who (or whose contractors, patrons, customers, licensees, visitors, or invitees) shall have caused it. f. No space in the Building shall be used for manufacturing, public sales, the storage of merchandise, or the sale or auction of merchandise, goods, or property of any kind. g. Tenants employing laborers or others outside of the Building shall not have their employees paid in the Building but shall arrange to pay their payrolls elsewhere. h. Tenant shall not (i) use the name of the Building for any purpose other than that of the business address of Tenant or (ii) use any picture or likeness of the Building or the Building name in any letterheads, envelopes, circulars, notices, advertisements, containers, or wrapping material. i. Tenant, in addition to its patrons, customers, licensees, visitors, and invitees, shall not solicit business in the Building's parking facilities or common areas nor shall Tenant distribute any handbills or other advertising matter in automobiles parked in the Building's parking facilities. j. Tenant shall not permit its patrons, customers, licensees, visitors, or invitees to create any nuisance or interfere with, annoy, or disturb any other tenant or Landlord in its operation of the Building or commit waste to be committed in the Leased Premises or Building. 5. BUILDING HOURS AND VISITORS. a. Landlord reserves the right to close the Building from 7:00 p.m. to 8:00 a.m., subject, however, to Tenant's right to admittance in such manner prescribed by Landlord, and to require that persons entering the Building identify themselves and establish their right to enter or to leave the Building. b. Landlord shall have the right to exclude any person from the Building other than during customary business hours and any person in the Building will be subject to identification by the employees and agents of Landlord. All persons entering or in the Building shall be required to comply with the security policies of the Building. If Tenant desires any additional security service for the premises, Tenant shall have the right (with the advance written consent of Landlord) to obtain such additional service at Tenant's sole cost and expense. c. Canvassing, soliciting, and peddling in the Building is prohibited and each Tenant shall cooperate to prevent the same. In this respect, Tenant shall promptly report such activities to the Property Manager's office. 6. DELIVERIES AND HAND TRUCKS. a. The movement of furniture, equipment, machines, merchandise, or materials within, into, or out of the Leased Premises or Building shall be restricted to times, methods, and routings of movement as determined by Landlord upon request from Tenant and Tenant shall assume all liability and risk to (i) all persons and property and (ii) the Property, Leased Premises, and Building in such movement. Tenant shall not move furniture, equipment, machines, merchandise, or materials within, into, or out of Leased Premises or Building without having first obtained a written permit from Landlord at least 24 hours in advance. Safes, large files, electronic data processing equipment, and other heavy equipment or machines shall be moved into the Leased Premises or Building only with Landlord's written consent. b. There shall not be used in any space or in the public halls of the Building, either by any Tenant or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards. c. Any of Tenant's fixtures, furniture, and equipment to be brought into the Building shall be the size and weight that in whole or disassembled parts can be placed on the elevator and pass through the doors of the Leased Premises and Building. 7. CLEANING AND TRASH. a. The work of Landlord's janitors or cleaning personnel shall not be hindered by Tenant after 7:00 p.m. and such work may be done at any time when the offices are vacant. The windows, doors, and fixtures may be cleaned at any time. Tenant shall provide adequate waste and rubbish receptacles, cabinets, bookcases, map cases, etc. necessary to prevent unreasonable hardship to Landlord in discharging its obligation regarding cleaning service. In this regard, Tenant shall also empty all glasses, cups, and other containers holding any type of liquid whatsoever. b. In the event Tenant must dispose of crates, boxes, etc. which will not fit into office wastepaper baskets, it will be the responsibility of Tenant to dispose of same. In no event shall Tenant set such items in the public hallways or other areas of the Building (excepting Tenant's Leased Premises) for disposal. 8. RESPONSIBILITY FOR DAMAGES, THEFT, ETC. a. Tenant will be responsible for any damage to the Leased Premises, including carpeting and flooring, as a result of rust or corrosion of file cabinets, roller chairs, metal objects, or spills of any type of liquid. b. All plate and other glass now in the Leased Premises or Building which is broken through cause attributable to Tenant or its contractors, patrons, licensees, customers, visitors, or invitees shall be replaced by and at the expense of Tenant under the direction of Landlord. c. Landlord shall not be responsible for lost or stolen personal property, equipment, money, or any article taken from the Leased Premises or Building regardless of how or when loss occurs. 9. MISCELLANEOUS. a. Tenant shall give Landlord prompt notice of all accidents to or defects in air conditioning and heating equipment, plumbing, electric facilities, or any part or appurtenance of the Leased Premises. b. All references herein to Tenant shall include Tenant's officers, agents, servants, and employees. EX-10 10 chinex7s.txt EXHIBIT 7S EXHIBIT 7s Lease Offer Letter Date: June30, 1999 Attn.: Timothy Chen Dear Sirs Re: House No.102, Greenwich Drive/Path The Four Seasons, 983 Huamu Road Pudong New District Shanghai, China We are pleased to offer' you a tenancy of the above premises on the following conditions. 1. Landlord Baywater Developments (Shanghai) Limited Lots 2&3, West Huamu Neihuan Line Pudong New District, Shanghai China, 20204 2. Tenant Stephen & Nancy Langley China Peregrine' Food Corp- 11300 US Highway One, Suite 202, North Palm Beach, FL 33408 3. Premises House No 102 Greenwich, Drive/Path, 983 Huamu Road, Pudong New District Shanghai which for the purpose of identification only is shown outlined and colored pink on the attached plan. 4. Area Gross Floor Area 278.66 square meters approximately 5. Term. One (1) year commencing from September 1 1999 with an option for a 2nd year one (1) years fixed term commencing from September 1, 2000. However, the tenant shall have the right to terminate this tenancy after the expiration of the first fixed twelve (12) months by giving three (3) months' advance written notice to the Landlord. 6. Rental US$4,000 per month inclusive of management fee and monthly clubhouse membership fee of US$120 / month but not including all other expenses of tenant. 7. Management Fee US$278 per month and is subject to review from time to time. 8. Rent-free Period The tenant will be given a rent-free period of N/A days commencing from N/A. However, during the rent-free period, the tenant shall be responsible for payment of management fee and other expenses. 9. Option to Renew The tenant shall have an option to renew the tenancy for a further term of one (I) year upon expiration of this tenancy at US$4,000 per month. 10. Security Deposit US$8,000, which is equivalent to two months' rental and management fee. 11. Payment of Deposits Initial Deposit: US$4,000 upon confirmation of this letter of offer. Balance Deposit: US$4,000 upon signing of the Tenancy Agreement or upon' handing over of the Premises, whichever is the earlier. First-month Rental: Agreement or upon handing over of the Premises, whichever is the earlier 12. Usage Residential only. 13. Possession Vacant Possession of the Premises shall be delivered to the Tenant on the commencement date of this tenancy subject to execution of the Tenancy Agreement referred to hereunder. Property must be livable condition & acceptable to Tenant. Basement must not have any water problems and all electricity and utilities must be in working order. 14. Legal Costs Each party shall bear its own legal cost but the stamp duty on this Agreement, the Tenancy Agreement and its counterpart shall be borne by the parties in equal shares. 15. Landlord's Provision As per attachment. 16. Includes all appliances. (List Attached) 17. Includes woodwork and hardware to complete the walk-in closet on the third floor in the master bedroom. 18. Includes draperies and blinds. 19. Includes bunk beds and mattresses in the basement. After signing this Letter of Offer if the Tenant fails to comply with any of the provisions herein contained, this Letter of Offer shall be determined and the initial deposit paid hereunder shall be forfeited to the Landlord but without prejudice to the right of the Landlord to claim any further damages it may suffer over and above the said deposit. P1ease confirm your acceptance of the above by signing and returning to us the duplicate copy of this letter together with your cheque in the sum of US$$4,000 made payable to "Baywater Developments Limited" being the initial deposit on or before signing of this Offer Letter, otherwise, the above offer will be automatically withdrawn without further reference to you. The exchange rate for 135 Dollars to Renminbi shall be the average rate as announced by the People's Bank of China on the day on which payment is made for the security deposit, first-month's rental and management fee (if any) and shall be the average rate as announced by the People's Bank of China on the 2Oth day of the preceding month for the second and subsequent month's rental and management fee (if any). This Agreement is governed by the Laws or the People's Republic of China. Yours faithfully, For and on behalf or BAYWATER DEVELOPMENTS LIMITED Authorized Signature [chop] Confirmed and Accepted by: China Peregrine Food Corporation [chop] Date: July 1, 1999 EX-23 11 chinex23.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS China Premium Food Corporation 11300 US Highway 1, Suite 202 North Palm Beach, Florida 33408 We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated March 3, 2000, relating to the consolidated financial statements of China Premium Food Corporation, appearing in the Company's Annual Report on Form 10K for the year ended December 31, 1999. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO Seidman, LLP Los Angeles, California February 12, 2001 -----END PRIVACY-ENHANCED MESSAGE-----