U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-21423
CHICAGO PIZZA & BREWERY, INC.
(Name of small business issuer as specified in its charter)
CALIFORNIA 33-0485615
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
26131 MARGUERITE PARKWAY, SUITE A, MISSION VIEJO, CA 92692
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (949) 367-8616
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
twelve months ( or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No.
---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of equity, as of the latest practicable date: At October 26, 1998, 6,408,321
shares of the small business issuer's common stock were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
---
<PAGE>
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 1
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 1
Consolidated Statements of Operations -
Three Months Ended and Nine Months Ended
September 30, 1998 and September 30, 1997 2
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998
and September 30, 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Results of Operations 6
Liquidity and Capital Resources 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES
<PAGE>
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1998 1997
--------------- --------------
ASSETS
- ---------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 1,414,884 $ 1,705,349
Restricted cash . . . . . . . . . . . . . . . . . . 100,000 200,000
Accounts receivable . . . . . . . . . . . . . . . . 171,690 161,649
Inventory . . . . . . . . . . . . . . . . . . . . . 375,767 361,299
Prepaids and other current assets . . . . . . . . . 333,702 646,700
--------------- --------------
Total current assets. . . . . . . . . . . . . . . . 2,396,043 3,074,997
Property and equipment, net . . . . . . . . . . . . 8,776,620 8,673,831
Other assets. . . . . . . . . . . . . . . . . . . . 614,056 207,138
Restricted cash . . . . . . . . . . . . . . . . . . 369,123 369,123
Intangible assets, net. . . . . . . . . . . . . . . 5,486,283 5,516,662
--------------- --------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . $ 17,642,125 $ 17,841,751
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . $ 878,007 $ 1,042,856
Accrued expenses. . . . . . . . . . . . . . . . . . 1,194,104 1,101,177
Notes payable to related parties. . . . . . . . . . 313,277 336,306
Current portion of long-term debt . . . . . . . . . 210,367 265,079
Current portion of obligations under capital lease. 125,516 97,844
--------------- --------------
Total current liabilities . . . . . . . . . . . . . 2,721,271 2,843,262
Notes payable to related parties. . . . . . . . . . 1,832,098 2,058,681
Obligations under capital lease . . . . . . . . . . 216,712 199,265
Long-term debt. . . . . . . . . . . . . . . . . . . 412,922 585,751
Other liabilities . . . . . . . . . . . . . . . . . 125,335 135,067
--------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . 5,308,338 5,822,026
--------------- --------------
Minority interest in partnership. . . . . . . . . . 241,409 211,357
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, none
issued or outstanding
Common stock, no par value, 60,000,000 shares
authorized, 6,408,321 issued and outstanding 15,039,646 15,039,646
Capital surplus . . . . . . . . . . . . . . . . . . 1,196,029 1,196,029
Accumulated deficit . . . . . . . . . . . . . . . . (4,143,297) (4,427,307)
--------------- --------------
Total shareholders' equity. . . . . . . . . . . . . 12,092,378 11,808,368
--------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . $ 17,642,125 $ 17,841,751
=============== ==============
<FN>
See accompanying notes.
</TABLE>
1
<PAGE>
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . $8,157,975 $7,208,665 $22,871,430 $19,633,523
Cost of sales . . . . . . . . . . . . . . . 2,231,935 2,175,779 6,402,936 5,826,283
----------- ----------- ------------ ------------
Gross profit. . . . . . . . . . . . . . . . 5,926,040 5,032,886 16,468,494 13,807,240
----------- ----------- ------------ ------------
Cost and Expenses:
Labor and benefits. . . . . . . . . . . . . 2,882,977 2,462,211 8,175,663 6,692,401
Occupancy . . . . . . . . . . . . . . . . . 666,088 613,329 1,898,733 1,791,274
Operating expenses. . . . . . . . . . . . . 936,988 889,395 2,676,561 2,502,164
General and administrative. . . . . . . . . 661,084 665,219 1,867,828 2,016,388
Depreciation and amortization . . . . . . . 423,223 350,978 1,346,363 954,182
----------- ----------- ------------ ------------
Total cost and expenses . . . . . . . . . . 5,570,360 4,981,132 15,965,148 13,956,409
----------- ----------- ------------ ------------
Income (loss) from operations . . . . . . . 355,680 51,754 503,346 (149,169)
----------- ----------- ------------ ------------
Other Income (Expense):
Gain on involuntary conversion of assets. . 190,722
Interest expense, net . . . . . . . . . . . (50,064) (18,085) (157,890) (76,200)
Other income (expense), net . . . . . . . . 1,464 2,928 (4,317) 12,041
----------- ----------- ------------ ------------
Total other income (expense). . . . . . . . (48,600) (15,157) (162,207) 126,563
----------- ----------- ------------ ------------
Income (loss) before minority interest and
income taxes . . . . . . . . . . . . 307,080 36,597 341,139 (22,606)
Minority interest in partnership. . . . . . (21,929) (14,042) (55,527) (7,866)
----------- ----------- ------------ ------------
Income (loss) before income taxes . . . . . 285,151 22,555 285,612 (30,472)
Income tax expense. . . . . . . . . . . . . (1,600) (800)
----------- ----------- ------------ ------------
Net income (loss) . . . . . . . . . . . . . $ 285,151 $ 22,555 $ 284,012 $ (31,272)
=========== =========== ============ ============
Basic and dilutive net income (loss) per
common share . . . . . . . . . . . . $ 0.04 $ 0.00 $ 0.04 $ (0.00)
=========== =========== ============ ============
Basic weighted average number
of common shares outstanding. . . . 6,408,321 6,408,321 6,408,321 6,408,321
=========== =========== ============ ============
Dilutive weighted average number
of common shares outstanding. . . . 6,450,384 6,408,321 6,450,384 6,408,321
=========== =========== ============ ============
<FN>
See accompanying notes.
</TABLE>
2
<PAGE>
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
-------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . $ 284,012 ($31,272)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . 1,346,363 954,182
Gain on sale of restaurant . . . . . . . . . . . . . . . (17,015)
Minority interest in partnership . . . . . . . . . . . . 55,527 7,866
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . (10,041) (54,367)
Inventory . . . . . . . . . . . . . . . . . . . . . (14,468) (55,507)
Prepaids and other current assets . . . . . . . . . 90,347 (181,267)
Other assets. . . . . . . . . . . . . . . . . . . . (435,970) (125,866)
Accounts payable. . . . . . . . . . . . . . . . . . (164,850) 73,519
Accrued expenses. . . . . . . . . . . . . . . . . . 92,927 40,773
Other liabilities . . . . . . . . . . . . . . . . . (9,732) (9,462)
----------- ------------
Net cash provided by operating activities . 1,234,115 601,584
----------- ------------
Cash flows provided by (used in) investing activities:
Purchase of equipment. . . . . . . . . . . . . . . . . . (938,352) (2,713,318)
Proceeds from sale of restaurant equipment . . . . . . . 7,000 45,063
----------- ------------
Net cash used in investing activities . . . (931,352) (2,668,255)
----------- ------------
Cash flows used in financing activities:
Payments on related party debt . . . . . . . . . . . . . (249,612) (248,200)
Payments on long-term debt . . . . . . . . . . . . . . . (227,541) (198,023)
Capital lease payments . . . . . . . . . . . . . . . . . (90,599) (49,980)
Distribution to partners . . . . . . . . . . . . . . . . (25,476) (14,822)
----------- ------------
Net cash used in financing activities. . . (593,228) (511,025)
----------- ------------
Net decrease in cash and cash equivalents. (290,465) (2,577,696)
Cash and cash equivalents, beginning of period . . . . . 1,705,349 5,485,808
----------- ------------
Cash and cash equivalents, end of period . . . . . . . . $1,414,884 $ 2,908,112
=========== ============
<FN>
See accompanying notes.
</TABLE>
3
<PAGE>
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying consolidated financial statements of Chicago Pizza &
Brewery, Inc. and its subsidiaries (the "Company") for the three months and
nine months ended September 30, 1998 and 1997 have been prepared in accordance
with generally accepted accounting principles, and with the instructions to
Form 10-QSB and Item 310 (b) of Regulation S-B. These financial statements
have not been audited by independent accountants, but include all adjustments
(consisting of normal recurring adjustments) which are, in Management's
opinion, necessary for a fair presentation of the financial condition, results
of operations and cash flows for such periods. However, these results are not
necessarily indicative of results for any other interim period or for the full
year.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting
principles have been omitted pursuant to requirements of the Securities and
Exchange Commission (SEC). A description of the Company's accounting policies
and other financial information is included in the audited consolidated
financial statements as filed with the SEC on Form 10-KSB for the year ended
December 31, 1997. Management believes that the disclosures included in the
accompanying interim financial statements and footnotes are adequate to make
the information not misleading, but should be read in conjunction with the
consolidated financial statements and notes thereto included in the Form
10-KSB. The accompanying consolidated balance sheet as of December 31, 1997
has been derived from the audited financial statements.
2. ORGANIZATION:
The accompanying financial statements of the Company for the three months
and nine months ended September 30, 1998 and 1997 are presented on a
consolidated basis and include the accounts of the Company, Chicago Pizza
Northwest, Inc. and BJ's Lahaina, L.P. All significant intercompany
transactions and balances have been eliminated.
The Company owns and operates 26 restaurants located in Southern
California, Oregon, Washington, and Colorado and a partnership interest in one
restaurant in Lahaina, Maui. Four of the restaurants are operated as a BJ's
Pizza, Grill & Brewery; eleven restaurants are operated as a BJ's Pizza &
Grill; two restaurants are operated as a BJ's Pizza & Grill - OTC; and ten
restaurants are operated as a Pietro's Pizza. The seven BJ's concept
restaurants in Oregon are conversions from the original Pietro's Pizza
restaurants.
In February 1997, the Pietro's restaurant located in Aloha, Oregon was
heavily damaged by fire. The Company maintained insurance for such an event
and is evaluating rebuilding the restaurant and resuming operations at this
location. The Company received $260,691 during the second quarter of 1997 from
its insurance carrier for this involuntary conversion of assets. A business
interruption insurance policy substantially offset the loss of business during
1997.
3. LONG-LIVED ASSETS:
The Company periodically evaluates the carrying value of long-lived
assets (which primarily consist of goodwill and property and equipment)
including their related amortization periods. The Company determines whether
there has been impairment by comparing the anticipated undiscounted future
cash flows from operations with the carrying value of the specific assets.
4
<PAGE>
4. PER SHARE INFORMATION:
SFAS 128, "Earnings Per Share," was adopted in the fourth quarter of 1997
and supersedes previous standards for computing net income per share under
Accounting Principles Board ("APB") Opinion No. 15. The new standard requires
dual presentation of basic net income per common share and net income per
common share assuming dilution on the face of the income statement. Basic net
income per share is computed by dividing the net income attributable to common
stockholders by the weighted average number of common shares outstanding
during the period. Dilutive net income per share reflects the potential
dilution that could occur if warrants or stock options issued by the Company
to sell common stock at set prices were exercised.
5. INCOME TAXES:
As of December 31, 1997, the Company had net operating loss carryforwards
for federal and state purposes of approximately $4,225,000 and $2,194,000,
respectively. The utilization of net operating loss and credit carryforwards
may be limited under the provisions of the Internal Revenue Code Section 382
and similar state provisions due to the initial public offering in 1996. The
Company has not previously generated taxable income, and there is no
opportunity to carryback losses to prior periods. The Company therefore has
not recognized a net deferred tax asset as of September 30, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's financial statements and notes thereto included elsewhere in
this Form 10-QSB. Except for the historical information contained herein, the
discussion in this Form 10-QSB contains certain forward looking statements
that involve risks and uncertainties, such as statements of the Company's
plans, objectives, expectations and intentions. The cautionary statements made
in this Form 10-QSB should be read as being applicable to all related
forward-looking statements wherever they appear in this Form 10-QSB. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, without
limitation, those factors discussed herein and in the Company's prospectus
dated October 8, 1996 (the "Prospectus"), including, without limitation: (i)
the Company's ability to manage growth and conversions, (ii) construction
delays, (iii) marketing and other limitations as a result of the Company's
historic concentration in Southern California and current concentration in the
Northwest, (iv) restaurant and brewery industry competition, (v) impact of
certain brewery business considerations, including without limitation,
dependence upon suppliers and related hazards, (vi) increase in food costs and
wages, including without limitation the recent increase in minimum wage, (vii)
consumer trends, (viii) potential uninsured losses and liabilities, (ix)
trademark and servicemark risks, and (x) other general economic and regulatory
conditions and requirements.
GENERAL
The Company developed a restaurant and microbrewery in Boulder, Colorado
in February 1997 and converted five of the Pietro's restaurants to the BJ's
restaurant and/or brewery concept during April through December 1997. Two
additional Pietro's restaurants were converted to the BJ's restaurant concept
in the first quarter of 1998. Consequently, the results of operations for the
three-month and nine-month periods ended September 30, 1998 are not
necessarily comparable to the results of operations for the same period in
1997.
5
<PAGE>
The Company's revenues are derived primarily from food and beverage sales at
its restaurants. The Company's expenses consist primarily of food and
beverage costs, labor costs (consisting of wages and benefits), operating
expenses (consisting of marketing costs, repairs and maintenance, supplies,
utilities and other operating expenses), occupancy costs, general and
administrative expenses and depreciation and amortization expenses.
Certain pre-opening costs, including direct and incremental costs
associated with the opening of a new or converted restaurant, are amortized
over a period of one year from the opening date of such restaurant. These
costs include primarily those incurred to train a new restaurant management
team, food, beverage and supply costs incurred to test all equipment and
systems, and any rent or operating expenses incurred prior to opening.
Construction costs, including leasehold capital improvements are amortized
over the remaining useful life of the related asset, or, for leasehold
improvements, over the initial term, if less.
The Company utilizes a calendar year-end for financial reporting
purposes.
RESULTS OF OPERATIONS
Three-Month Period Ended September 30, 1998 Compared to Three-Month Period
Ended September 30, 1997.
Revenues. Total revenues for the three-month period ended September 30,
1998 increased to $8,158,000 from $7,209,000 for the three-month period ended
September 30, 1997, an increase of $949,000 or 13.1%. The increase is
primarily the result of:
An increase in same store sales at the BJ's restaurants (other than the
converted Northwest restaurants) open both periods of $721,000 or 17.4%.
Management believes this increase was due to (i) an increase in customer
counts, and (ii) an increase in check averages produced by a price increase
implemented in May 1998 and the implementation of more effective suggestive
selling techniques at the restaurants.
An increase in same store sales at the former Pietro's restaurants converted
and operated as BJ's restaurants for the entire three-month period ended
September 30, 1998 and operated as Pietro's for the comparable period in 1997
of $598,000 or 87.67%.
The increase in revenues resulting from the above-mentioned factors was
partially offset by:
A decrease in sales at the restaurants operated as Pietro's for the entire
comparable periods of $12,000 or .8%.
A decrease in sales at the Northwest restaurants converted and operated as
BJ's during the entire comparable periods of $146,000 or 21.92%. Management
believes that this decrease is primarily due to the initial "honeymoon"
periods these restaurants experienced during the 1997 period.
Cost of Sales. Cost of food, beverages and paper (cost of sales) for the
restaurants increased to $2,232,000 for the three-month period ended September
30, 1998 from $2,176,000 for the comparable period in 1997, an increase of
$56,000 or 2.6%. However, as a percentage of revenues, cost of sales
decreased to 27.4% during the 1998 period from 30.2% in the 1997 period. The
decrease in cost of sales as a percentage of revenues was primarily due to
efficiencies achieved at the BJ's restaurants in Southern California, Hawaii
and Colorado as well as a menu price increase implemented in May 1998. The
overall decrease in cost of sales was achieved despite an over 25.0% increase
in the cost of cheese (the Company's
primary raw material) from the third quarter of 1997 to the third quarter of
1998. The effect of the increase in the cost of cheese during the third
quarter 1998 was to increase cost of sales by approximately $50,000.
6
<PAGE>
Labor. Labor costs for the restaurants increased to $2,883,000 in the
three-month period ended September 30, 1998 from $2,462,000 for the comparable
period in 1997, an increase of $421,000 or 17.1%. As a percentage of
revenues, labor costs increased to 35.3% in the 1998 period from 34.2% in the
1997 period. The factors which contributed to the increase in labor costs as
a percentage of revenue were:
The federal, California and Oregon minimum wages increased substantially
between the third quarter 1997 and the third quarter 1998.
Increased staffing at the converted Pietro's restaurants relating to continued
inefficiencies at these relatively new restaurants. While a degree of
continued inefficiency was anticipated as a normal consequence of new
operations, the progress towards mature economics in most of the converted
restaurants has progressed more slowly than originally anticipated.
Management believes this is primarily due to relatively high employee turnover
in the Northwest. Management believes that as a more solid foundation of
stable management and staff is achieved in the region, employee turnover and
labor costs will decrease. Any such decreases will be negatively impacted by
an 8.3% minimum wage increase scheduled in Oregon for January 1999.
Occupancy. Occupancy costs increased to $666,000 during the three-month
period ended September 30, 1998 from $613,000 during the comparable period in
1997, an increase of $53,000 or 8.6%. As a percentage of revenues, occupancy
costs decreased to 8.2% in the 1998 period from 8.5% in the 1997 period. The
primary reason for the decrease in occupancy costs relative to revenues was
the increase in comparable store sales.
Operating Expenses. Operating expenses increased to $937,000 during the
three-month period ended September 30, 1998 from $889,000 during the
comparable period in 1997, an increase of $48,000 or 5.4%. However, as a
percentage of revenues, operating expenses decreased to 11.5% in the 1998
period from 12.3% in the 1997 period. The primary reason for the decrease in
operating expenses as a percentage of revenues was the increase in same store
sales. Operating expenses include restaurant-level operating costs, the major
components of which include marketing, repairs and maintenance, supplies and
utilities.
General and Administrative Expenses. General and administrative expenses
decreased to $661,000 during the three-month period ended September 30, 1998
from $665,000 during the comparable period in 1997, a decrease of $4,000 or
.6%.
Depreciation and Amortization. Depreciation and amortization increased
to $423,000 during the three-month period ended September 30, 1998 from
$351,000 during the comparable period in 1997, an increase of $72,000 or
20.5%. The increase was primarily due to (I) the amortization of pre-opening
costs associated with the converted Pietro's restaurants and (ii) the
depreciation associated with the renovation costs of the Pietro's converted to
BJ's.
Interest Expense. Interest expense, net of interest income, increased to
$50,000 during the three-month period ended September 30, 1998 from $18,000
during the comparable period in 1997, an increase of $32,000 or 177.8%. The
increase was primarily due to a reduction of interest income experienced as
the Company's invested cash was utilized in the renovation and conversion of
the Pietro's units.
Nine-Month Period Ended September 30, 1998 Compared to Nine-Month Period
Ended September 30, 1997
Revenues. Total revenues for the nine-month period ended September 30,
1998 increased to $22,871,000 from $19,633,000 for the nine-month period ended
September 30, 1997, an increase of $3,238,000 or 16.5%. The increase is
primarily the result of:
7
<PAGE>
The opening of the Boulder, Colorado restaurant in February, 1997.
An increase in same store sales at the BJ's restaurants open both periods of
$1,539,000 or 16%. Management believes this increase was due to (i) an
increase in customer counts, and (ii) an increase in check averages produced
by a price increase implemented in late May 1998 and the implementation of
more effective suggestive selling techniques at the restaurants.
An increase in same store sales at the former Pietro's restaurants converted
and operated as BJ's restaurants during 1997 or 1998 of $2,000,000 or 58.1%.
The increase in revenues resulting from the above-mentioned factors was
partially offset by (i) a decrease in sales at the restaurants operated as
Pietro's for the entire comparable periods of $63,000 or 1.5% and (ii) the
sale of the Pietro's restaurant in North Bend, Oregon in June 1997.
Cost of Sales. Cost of food, beverages and paper (cost of sales) for the
restaurants increased to $6,403,000 for the nine-month period ended September
30, 1998 from $5,826,000 for the comparable period in 1997, an increase of
$577,000 or 9.9%. However, as a percentage of revenues, cost of sales
decreased to 28.0% during the 1998 period from 29.7% in the 1997 period. The
decrease in cost of sales as a percentage of revenues was primarily due to
efficiencies achieved at the BJ's restaurants in Southern California, Hawaii
and Colorado as well as a menu price increase implemented in late May 1998.
Labor. Labor costs for the restaurants increased to $8,176,000 in the
nine-month period ended September 30, 1998 from $6,692,000 for the comparable
period in 1997, an increase of $1,484,000 or 22.2%. As a percentage of
revenues, labor costs increased to 35.7% in the 1998 period from 34.1% in the
1997 period. The factors which contributed to the increase in labor costs as
a percentage of revenue were:
The federal, California and Oregon minimum wages increased substantially
between the second quarter 1997 and the second quarter 1998.
Planned increased staffing at the newly-converted Pietro's restaurants in
order to provide our guests with the best possible dining experience despite a
relatively inexperienced staff. Although the initial inefficiencies have
impacted labor cost for longer than anticipated, management believes that
staffing levels at these restaurants will be reduced as they continue to
mature.
Occupancy. Occupancy costs increased to $1,899,000 during the nine-month
period ended September 30, 1998 from $1,791,000 during the comparable period
in 1997, an increase of $108,000 or 6.0%. As a percentage of revenues,
occupancy costs decreased to 8.3% in the 1998 period from 9.1% in the 1997
period. The primary reason for the decrease in occupancy costs relative to
revenues was the increase in comparable store sales.
Operating Expenses. Operating expenses increased to $2,677,000 during
the nine-month period ended September 30, 1998 from $2,502,000 during the
comparable period in 1997, an increase of
$175,000 or 7.0%. However, as a percentage of revenues, operating expenses
decreased to 11.7% in the 1998 period from 12.7% in the 1997 period. The
primary reasons for the decrease in operating expenses as a percentage of
revenues were (i) the increase in same store sales, and (ii) an increased
focus on operating the restaurants more efficiently as well as the
implementation of improved expense monitoring systems at the BJ's restaurants
in Southern California. Operating expenses include restaurant-level operating
costs, the major components of which include marketing, repairs and
maintenance, supplies and utilities.
General and Administrative Expenses. General and administrative expenses
decreased to $1,868,000 during the nine-month period ended September 30, 1998
from $2,016,000 during the comparable period in 1997, a decrease of $148,000
or 7.3%. The decrease in general and administrative expenses was primarily
due to additional legal and accounting fees incurred during 1997 associated
with the Company's first year of being a public company.
8
<PAGE>
Depreciation and Amortization. Depreciation and amortization increased
to $1,346,000 during the nine-month period ended September 30, 1998 from
$954,000 during the comparable period in 1997, an increase of $392,000 or
41.1%. The increase was primarily due to (i) the opening of the Boulder,
Colorado restaurant in February 1997, (ii)the amortization of pre-opening
costs associated with the converted Pietro's restaurants, and (iii) the
depreciation associated with the renovation costs of the Pietro's converted to
BJ's.
Interest Expense. Interest expense, net of interest income, increased to
$158,000 during the nine-month period ended September 30, 1998 from $76,000
during the comparable period in 1997, an increase of $82,000 or 107.9%. The
increase was primarily due to a reduction of interest income experienced as
the Company's invested cash was utilized in the renovation and conversion of
the Pietro's units.
LIQUIDITY AND CAPITAL RESOURCES
Since the completion of the Company's initial public offering in October
of 1996, the Company has invested in restaurant development and reduced debt.
Net cash provided by operating activities for the nine-month periods ended
September 30, 1998 and September 30, 1997 were $1,234,000 and $602,000,
respectively. Capital expenditures for the nine-month periods ended September
30, 1998 and September 30, 1997 were $938,000 and $2,713,000, respectively.
Total capital expenditures for the nine-month periods ended September 30, 1998
and 1997 were for the acquisition of restaurant and brewery equipment and
leasehold improvements to develop or convert the acquired restaurants. In
addition, at September 30, 1998 the Company had $400,000 in escrow for the
purchase of a leasehold interest associated with the location in Woodland
Hills, California now being developed as a BJ's Pizza, Grill & Brewery.
Debt reduction for the nine-month periods ended September 30, 1998 and
September 30, 1997 totaled $568,000 and $496,000, respectively.
The Company currently intends to utilize cash and cash equivalents
primarily for the development of three additional California restaurants
located in Arcadia, Woodland Hills and Valencia, as well as for working
capital purposes. Management currently anticipates a total of $2,500,000 in
additional capital expenditure requirements relating to the development of
these three sites.
Management believes that cash and cash equivalents available at September
30, 1998 and future operating cash flow will be sufficient for the Company to
fund its operations and continue to meet its business plan over the next nine
months. Additionally, the Company has recently received several financing
proposals from lenders to assist in maintaining an adequate cash reserve.
However, no assurance can be given that Management can successfully implement
such objectives. Further, there can be no assurance that future events,
including problems, delays, additional expenses and difficulties encountered
in expansion and conversion of restaurants, will not require additional
financing, or that such financing will be available if necessary.
SEASONALITY AND ADVERSE WEATHER
The Company's results of operations have historically been impacted by
seasonality, which directly impacts tourism at the Company's coastal
locations. The summer months (June through August) have traditionally been
higher volume periods than other periods of the year.
YEAR 2000 COMPLIANCE
The Company has completed a review of its computerized information
systems to identify the systems and applications that could be affected by
Year 2000 issues. The Company primarily utilizes software and hardware offered
by major developers, and periodically purchases upgrades directly from those
developers or authorized resellers. The Company's policy since the beginning
of the current year is to seek and purchase upgrades that include from the
developer a Year 2000 compliance warranty. During
9
<PAGE>
1998 the Company has purchased Year 2000 upgrades for most of its computerized
information systems, and management feels that its main data processing
systems are now Year 2000 compliant. This policy of replacement in the normal
course of information system maintenance will continue; it is anticipated that
an additional $15,000 will be spent to make all of the Company's systems Year
2000 compliant. If the third parties upon which the Company relies are unable
to address this issue in a timely manner, it could result in a material
financial risk to the Company.
The point of sale system used to facilitate the collection of operational
data in the Company's restaurants is not yet warranted to be Year 2000
compliant. The Company is working with the developer of this system and plans
to support the developer's efforts with all resources necessary to resolve any
significant year 2000 issues in a timely manner. If the developer is unable to
provide Year 2000 assurances within a reasonable period of time, management
intends to put manual procedures in place to collect and transmit this
customer and order data, as was done in the past. The cost of this contingency
plan would be in the form of additional labor expense, and would not be
expected to have a material impact on the Company's financial position.
The Company also plans to contact its major product vendors and request
statements as to their preparedness for the potential impact of Year 2000
issues. Their responses will be evaluated, and, based on the information
provided, decisions will be made as to their ability to continue to meet the
Company's need for product into Year 2000. Alternative sources for product
will be identified in cases where the Company feels there are major questions
as to the vendor's ability to conduct its normal business due to potential
Year 2000 implications.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued two statements - SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which are effective for the Company in
the current fiscal year. In addition, in February 1998, the FASB issued SFAS
No. 132, "Employers Disclosure About Pensions and Other Retirement Benefits"
which will also be effective for the Company in the current fiscal year.
Presently, those standards have no impact on the Company's consolidated
financial statements.
As has been the practice of many restaurant entities, the Company defers
its restaurant preopening costs and amortizes them over the twelve-month
period following the opening of each respective new restaurant. In April 1998,
the Accounting Standards Executive Committee of the American Institute of
Certified Public Accounts issued Statement of Position 98-5 (SOP 98-5),
Accounting for the Costs of Start-Up Activities. SOP 98-5 requires all costs
of start-up activities that are not otherwise capitalizable as long-lived
assets to be expensed as incurred, and is effective for financial statements
for fiscal years beginning after December 15, 1998. Adoption of the new
accounting standard will require the Company to write off all capitalized
preopening costs as a cumulative effect of a change in accounting principal as
a one-time charge against earnings. Initial application is required as of the
beginning of the fiscal year in which
SOP 89-5 is first adopted. The Company's total deferred preopening costs were
$162,000 at September 30, 1998.
Other recently issued standards of the FASB are not expected to affect
the Company, as conditions to which those standards apply are absent.
10
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule
10.1 Real Estate Lease, dated August 17, 1998, between
Chicago Pizza & Brewery, Inc. and Ronald R. Sahm for
a BJ's Pizza, Grill & Brewery restaurant.
10.2 Real Estate Sublease, dated September 1, 1998,
between Chicago Pizza & Brewery, Inc. and Steak and
Ale of California, Inc. for a BJ's Pizza & Grill
restaurant.
(b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHICAGO PIZZA & BREWERY, INC.
(Registrant)
November 11, 1998 By: /s/ PAUL A. MOTENKO
--------------------
Paul A. Motenko
Chief Executive Officer, Vice
President, Secretary and Chairman
of the Board of Directors
By: /s/ JEREMIAH J. HENNESSY
-------------------------
Jeremiah J. Hennessy
President, Chief Operating Officer,
Chief Financial Officer and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Chicago
Pizza & Brewery, Inc.'s consolidated financial statements for the three month
and nine month periods ended September 30, 1998 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 1,415 1,415
<SECURITIES> 0 0
<RECEIVABLES> 172 172
<ALLOWANCES> 0 0
<INVENTORY> 376 376
<CURRENT-ASSETS> 2,396 2,396
<PP&E> 11,482 11,482
<DEPRECIATION> 2,705 2,705
<TOTAL-ASSETS> 17,642 17,642
<CURRENT-LIABILITIES> 2,721 2,721
<BONDS> 0 0
0 0
0 0
<COMMON> 15,040 15,040
<OTHER-SE> 1,196 1,196
<TOTAL-LIABILITY-AND-EQUITY> 17,642 17,642
<SALES> 8,158 22,871
<TOTAL-REVENUES> 8,158 22,871
<CGS> 2,232 6,403
<TOTAL-COSTS> 7,802 32,434
<OTHER-EXPENSES> 0 4,317
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 50 158
<INCOME-PRETAX> 285 286
<INCOME-TAX> 0 2
<INCOME-CONTINUING> 285 284
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 285 284
<EPS-PRIMARY> 0.04 0.04
<EPS-DILUTED> 0.04 0.04
</TABLE>
LEASE
Between
ROLAND R. SAHM,
LANDLORD
and
CHICAGO PIZZA & BREWERY, INC.
Dated as of August 17, 1998
<PAGE>
iii
TABLE OF CONTENTS
1. Leased Property 1
2. Nonexclusive Easement 1
3. Quiet Enjoyment 1
4. Landlord's Access 1
5. Commencement Date 1
6. Primary Term 1
7. Options 2
8. Lease Year; Lease Period 2
9. Rent 2
10. Gross Sales 3
11. Use 4
12. Compliance with Laws 4
13. Conduct of Business 5
14. Alterations 5
15. Tenant's Fixturization 5
16. Signs 5
17. Maintenance Obligations 5
18. Landlord's Right to Make Repairs 6
19. Utilities and Services 6
20. Personal Property Taxes and Assessments 6
21. Real Property Taxes and Assessments 6
22. No Apportionment 7
23. Right to Contest 7
24. Landlord Exculpation 7
25. Tenant's Indemnity 8
26. Tenant's Insurance 8
27. Certificates 8
28. Assignment or Subletting 9
29. Collection 9
30. Obligation to Repair 9
31. Eminent Domain 9
32. Events of Default 11
33. Landlord's Remedies 12
34. Default by Landlord 13
35. Mitigation 14
36. Interest Charges 14
37. Late Charges 14
38. Attornment 14
39. Tenant's Encumbrance of Leasehold 14
40. Arbitration 14
41. Sale of Premises 15
42. Surrender of Premises 15
43. Holding Over 15
44. Entire Agreement 16
45. Amendment 16
46. Notices 16
47. Governing Law 16
48. Plain Meaning 16
49. Other Construction 17
50. Time of Essence 17
51. Severability 17
52. Effect of Waiver 17
53. Counterparts 17
54. Broker Commission 17
55. Attorney's Fees 18
56. Force Majeure 18
57. Consent 18
58. Relationship of Parties 18
59. Successors 18
60. No Merger 18
Exhibits
A. Land Legal Description
B. HVAC Repairs Schedule
<PAGE>
LEASE
This lease (LEASE), dated August 17, 1998 for reference purposes, is
made by and between ROLAND R. SAHM, an individual as landlord (LANDLORD), and
CHICAGO PIZZA & BREWERY, INC., a California corporation, as tenant (TENANT),
who agree as follows:
1. Leased Property. Landlord leases to Tenant and Tenant leases
---------------
from Landlord the following property at 6424 Canoga Avenue, Woodland Hills,
California (the PREMISES):
a. The tract of land (the LAND) consisting of approximately
six acres described in Exhibit A hereto.
b. The freestanding building consisting of approxi-mately 17,000
square feet of floor area (the BUILDING).
c. The appurtenances, easements, and rights of way now or
subsequently pertaining to the foregoing.
2. Nonexclusive Easement. Landlord grants to Tenant a nonexclusive
---------------------
easement for ingress and egress by pedestrian and vehicular traffic for
vehicle parking generally made available for such purposes.
3. Quiet Enjoyment. So long as Tenant is not in default under the
---------------
terms of this Lease, Tenant will have full, quiet, and peaceful possession of
the Premises and all rights granted in this Lease without interference or
interruption.
4. Landlord's Access. Landlord will have the right to enter upon
-----------------
the Premises for the purpose of inspection or any other lawful purpose.
Landlord will exercise such right reasonably, upon reasonable notice, during
ordinary business hours, and in such manner as not to interfere unreasonably
with the business of Tenant.
5. Commencement Date. This Lease will be effective upon its
------------------
execution by both parties and Tenant's delivery to Landlord of a $15,833.33
security deposit. This Commencement Date shall be no later than October 1,
1998.
6. Primary Term. The base duration (PRIMARY TERM) of this Lease
------------
will be for a period of five (5) years beginning October 1, 1998. If the
Commencement Date is prior to October 1, 1998, the Primary Term will be
extended for the number of days between the Commencement Date and October 1,
1998.
7. Options.
-------
a. Exercise of Option. Tenant will have options to extend the
-------------------
duration of the Lease beyond the Primary Term for three consecutive, five-year
periods (OPTION PERIODS) on the same terms and conditions and provisions
contained in this Lease, by giving Landlord notice of the exercise of the
option at least 180 days prior to the expiration of the Primary Term or
then-current Option Period (NOTICE PERIODS). Tenant's exercise of an option
is conditioned upon the Lease being in effect without existing default during
the appli-cable Notice Period. Tenant cannot exercise a later option unless
each prior option to extend this Lease has been so exercised.
8. Lease Year; Lease Period.
---------------------------
a. The term LEASE YEAR means a period of 12 consecutive full
calendar months beginning October 1. The first Lease Year will commence on
October 1, 1998.
b. The term LEASE PERIOD means a period of 30 consecutive full
calendar months beginning October 1. The first Lease Period will commence on
October 1, 1998.
9. Rent. Tenant will pay to Landlord, without deduction, setoff, or
----
prior notice or demand, except as otherwise provided in Section 14.c. herein,
Base Rent during the initial Lease Year and the greater of Base Rent or
Percentage Rent in subsequent Lease Years, as further set forth in this
Section 9.
a. Base Rent. The Base Rent during the initial Lease Period is
---------
the equivalent of $190,000 annually, payable in monthly install-ments of
$15,833.33, each, in advance, on or before the first day of each and every
calendar month.
b. Base Rent Adjustments. Beginning the first day of the first
---------------------
month of the Lease Period first subsequent to the initial Lease Period, the
Base Rent shall increase by the then-current Los Angeles-Anaheim-Riverside
Urban Wage Earners and Clerical Workers Consumer Price Index factor in effect
the last month of the initial Lease Period, and become the Lease Period Base
Rent. Notwithstanding the foregoing sentence, the increase shall be no less
than three percent (3%) and no greater than five percent (5%) of the prior
Lease Period Base Rent dollar amount. The Base Rent will increase from the
then-current Lease Period Base Rent in this manner at the beginning of each
subsequent Lease Period thereafter.
c. Percentage Rent. The Percentage Rent is six percent (6%) of
---------------
Tenant's annual Gross Sales (as defined in Section 10 herein) for the
immediately expired Lease Year. The Percentage Rent is payable monthly in
twelve (12) equal installments, in advance, on or before the first day of each
and every calendar month.
d. Percentage Rent Adjustment Period. Notwith-standing Section
---------------------------------
9.c. above, Tenant shall have a maximum of thirty (30) calendar days after the
end of the immediately expired Lease Year in which to calculate the next Lease
Year Percentage Rent amount and pay to Landlord the difference, if any,
between the current Lease Year Percentage Rent and the next Lease Year
Percentage Rent due the first day of the first calendar month of the next
Lease Year.
10. Gross Sales.
------------
a. Definition. The term GROSS SALES means the gross selling price
----------
of all food, beverages, goods and services sold in or from the Premises by
Tenant, its permitted subtenants, licensees, or concessionaires, whether for
cash or on credit (whether collected or not), including the gross amount
received by reason of orders taken on the Premises although filled elsewhere,
and whether made by employees or vending machines. Gross Sales do not include
the following: (a) cash or credit refunds to customers; (b) goods returned to
sources; (c) refundable deposits and gift certificates or similar vouchers
except as converted into by a sale by redemption; (d) sales of fixtures,
machinery, equipment, or other property which are not for sale or trade in the
ordinary course of Tenant's business; (e) sums or credits received in
settlement of claims for loss or damage to Tenant's goods; (f) the value of
meals furnished to Tenant's employees; (g) allowances, complimentary meals,
coupons and discounts in the ordinary course of business to the extent there
is no payment therefor; (h) the value of food or services donated or sold, at
an amount not exceeding the approximate cost, for charitable purposes or
community functions, (i) sales of nonedible, self-liquidating promotional
items; (j) gratuities or service charges in lieu thereof given to Tenant's
employees; (k) taxes of whatever nature imposed on the sale of goods or
services; (l) Tenant's intercompany transfer of beer produced at the Premises.
b. Statement of Gross Sales. Tenant will furnish to Landlord
------------------------
statements of Gross Sales within 30 days after the close of each calendar
quarterly period during the Primary Term and the Option Period, and an annual
statement within 30 days after the close of each Lease Year.
c. Records. Tenant will keep full and accurate books, records,
-------
and other pertinent data which would normally be examined by an independent
accountant pursuant to generally accepted auditing standards in performing an
audit of Tenant's Gross Sales. All such books, records, and data will be
retained
and preserved for at lest 36 months after the end of the Lease Year to which
they relate.
d. Audit. Landlord is entitled, once during each Lease Year and
-----
once after expiration or termination of this Lease, to an independent audit by
an auditor designated by Landlord of Tenant's books, records and other
pertinent data to determine Tenant's Gross Sales. The audit may be at any
reasonable time upon at least 10 days' prior written notice to Tenant, will be
limited to the determination of Gross Sales, and will be conducted during
normal business hours at a mutually agreeable location. Tenant will promptly
pay to Landlord any deficiency or Landlord will promptly refund to Tenant any
overpayment, as the case may be, which is established by the audit. The costs
of the audit will be borne by Landlord unless the audit shows that Tenant
understated Gross Sales by more than 5% for the period examined, in which case
the costs will be borne by Tenant. Any previous understatements which have
been disclosed and paid by Tenant will be credited and thereby eliminated from
a subsequent determination of understatement.
11. Use. The Premises may be used for the operation of a
---
restaurant/micro-brewery and any purposes incidental to such purpose, subject
to conditional use restrictions, if any, imposed by the City of Los Angeles
Office of Zoning Administration. Tenant will not use or permit the Premises
to be used for any other purpose without Landlord's consent.
12. Compliance with Laws.
----------------------
a. Landlord represents and warrants to Tenant that, to its
knowledge, on the date of delivery of possession of the Premises to Tenant,
the Premises will be in compliance with all laws then applicable, including
environmental laws and regulations, concerning the use, condition, and
occu-pancy of the Premises. Tenant will have no liability for compliance with
laws relating to hazardous materials or waste in, under, or about the Premises
unless the presence of the hazardous materials or waste was caused by Tenant
or Tenant's representa-tives, and Landlord will have the obligation to comply
with such laws at its cost and expense. Tenant will comply with all laws
concerning its use and the related condition and occupancy of the Premises
during the term within its reasonable control as a tenant, including but not
limited to conditions and or restrictions imposed by the City of Los Angeles
Office of Zoning Administration, and laws related to hazardous materials or
waste in, under, or about the Premises caused by Tenant or Tenant's
representatives.
b. Landlord and Tenant agree that either may, without cost or
expense to the other, and by appropriate proceedings diligently conducted in
good faith, contest the validity or application of any law or instrument of
record affecting the Premises, provided neither the other party nor the
Premises would be in any danger of civil or criminal liability or the filing
and fore-closure of any lien for noncompliance.
13. Conduct of Business. Tenant will conduct its business upon the
-------------------
Premises in accordance with its discretion as to the normal and customary
operation of its business and prudent business judgment. Tenant will not use
the Premises in any manner that will constitute waste, nuisance, or
unreasonable annoyance.
14. Alterations.
-----------
a. Tenant will not make any alterations, additions, or
improvements (collectively, ALTERATIONS) to the Premises without the prior
written consent of Landlord, except that Tenant, at Tenant's sole cost and
expense, may make any nonstructural Alterations to the Premises which do not
diminish the then fair market value of the Premises without the prior, written
consent of Landlord if such Alterations are within the Premises and do not
materially alter, modify, or affect the outside aesthetics of the Building.
Upon termination of this Lease, all Alterations, whether temporary or
permanent in character, made in or upon the Premises by either Tenant or
Landlord shall become the property of Landlord.
b. Landlord will repair the heating/ventilation/air conditioning
system in accordance with Exhibit B hereto no later than October 1, 1998.
Tenant may enter the Premises before the Commencement Date to inspect the
system and the system repairs.
c. Landlord will contribute $25,000.00, in the form of an Rent
abatement of abatement of $2,083.33 per month during the initial Lease Year,
toward Tenant's Alterations and repairs to the restroom areas of the Premises.
15. Tenant's Fixturization. Tenant may, at Tenant's sole cost and
----------------------
expense, install in and affix to the Premises such furnishings, fixtures, and
equipment as Tenant deems desirable.
16. Signs. Tenant will have the right to erect and maintain upon the
-----
Premises any signs Tenant deems appropriate to the normal conduct of its
business, subject to compliance with applicable laws, including approvals
required by such laws. Landlord makes no representation with respect to the
availability of such approvals.
17. Maintenance Obligations. Subject to the pro-visions of this
-----------------------
Lease concerning destruction and condemnation, Tenant will make all necessary
repairs and replacements causal to Tenant's use of, or conduct of business at,
the Premises to main-tain the Premises, including the heating/ventilation/air
conditioning system and the fire suppression system, in good order, condition,
and repair, reasonable wear and tear excepted. Landlord will make all
necessary repairs and replacements to main-tain the structural integrity of
the Premises, including the roof, electrical system, plumbing system, interior
sprinkler system and parking area.
18. Landlord's Right to Make Repairs. If Tenant fails to perform its
--------------------------------
maintenance obligations within 30 days after written notice from Landlord,
Landlord may perform such maintenance and Tenant will promptly reimburse
Landlord for its reasonable expenses after delivery of a statement reasonably
detailing such expenses. In the event of any life- or property-threatening
emergency, Landlord will have the immediate right to enter the Premises to
effect emergency repairs upon notice, reasonable under the circumstances, to
Tenant.
19. Utilities and Services. Tenant will pay the appro-priate
------------------------
suppliers for all water, electricity, gas, telephone, cable TV, and other
utility and communication services used by Tenant on the Premises during the
term. All such services will be separately metered and billed to Tenant.
20. Personal Property Taxes and Assessments. Tenant will pay all
---------------------------------------
taxes levied and assessed against furnishings, fixtures, equipment, and other
personal property of Tenant kept upon the premises that become payable during
the term. The parties will seek to cause Tenant's personal property to be
assessed and billed separately from Landlord's real property. If Tenant's
personal property is assessed and taxed with Landlord's real property, Tenant
will pay Landlord the portion of such taxes attributable to Tenant's personal
property not later than 15 days prior to the date of delinquency or 30 days
after receipt of the billing from Landlord, whichever is later.
21. Real Property Taxes and Assessments.
---------------------------------------
a. Obligation. Tenant will pay all Real Property Taxes (defined
----------
in (b) below) levied and assessed against the Premises not later than 15 days
prior to the December date of delinquency of the first installment or, if tax
bills are not sent directly to Tenant from the tax collector, 30 days after
receipt of the bill from Landlord, whichever is later.
b. Definition. The term REAL PROPERTY TAXES includes any form
----------
of real estate taxes, general or special assessments, and any license fee,
commercial rental tax, improvement bonds, levy, or tax imposed on the Premises
by any authority having the direct power to tax, including any city, county,
state or federal government or any school, fire, street, or other improvement
or assessment district of the governmental authority, as against (i) the legal
or equitable interest of Landlord in the Premises, (ii) Landlord's right to
rent or other income from the Premises, (iii) the act of entering into this
Lease, or (iv) the occupancy of the Premises by Tenant. If at any time during
the term the laws concerning Real Property Taxes are changed such that any
other governmental imposition, however described, including a so-called
value-added tax, is imposed on the Premises or Landlord as a direct
substitution, in whole or in part, for, or in addition to, any Real Property
Taxes, Tenant will pay such imposition in the same manner and Tenant's
allocation of liability for any such imposition will be substantially the same
as Tenant's allocation liability for Real Property Taxes as provided in this
Lease.
c. Exclusions. Notwithstanding (b) above, Tenant will have no
----------
obligation to pay (i) for penalties and interest other than those attributable
to Tenant's failure to comply timely with its payment obligations pursuant to
this Lease, or (ii) any tax which may be levied upon net income, profits, or
business of Landlord or any personal property taxes, gift, franchise,
inheritance, estate, succession, capital levy, or transfer taxes which may be
levied against any estate or interest of Landlord.
22. No Apportionment. There shall be no apportionment or prorating
----------------
of any personal property taxes or Real Property Taxes according to the number
of days in the fiscal tax year which were included in the Lease term or
according to any other apportionment or prorating plan.
23. Right to Contest. Tenant, at its own expense, may contest by
----------------
appropriate proceedings the amount of such taxes required to be paid by Tenant
pursuant to this Article and Tenant may endeavor at any time or times by
appropriate proceedings to obtain a reduction in the assessed valuation of the
Premises for tax purposes, and in any such event Landlord agrees, at the
request of Tenant, to join with Tenant, at Tenant's expense, in the
proceedings and Landlord agrees to sign and deliver such papers and
instruments as may be necessary to prosecute such proceedings. Tenant will
have the right to contest the amount of any such tax and Tenant will have the
right to withhold payment of the tax if the statute under which Tenant is
contesting the tax so permits. In the event of any such contest, Tenant will
indemnify and hold Landlord harmless with respect to any cost, damage, or
expense, including attorneys fees, in connection with any such proceedings.
Tenant, upon final determination of such contest, will immediately pay and
discharge any judgment rendered against it, together with all costs and
incidental charges.
24. Landlord Exculpation. Landlord will not be liable to Tenant for
--------------------
any damage to Tenant or Tenant's property from any cause, and Tenant waives
all claims against Landlord for damage to person or property arising from any
reason, except Landlord's
negligence, willful misconduct, or any breach or default on Landlord's part
under this Lease.
25. Tenant's Indemnity. Tenant will defend, indemnify, and hold
------------------
Landlord and its representatives harmless from and against any and all costs,
expenses (including attorney's fees and court costs), losses, liabilities,
damages, claims and demands of every kind or nature (collectively, LOSSES),
arising in any way from (a) alteration, use, or occupancy of the Building by
Tenant or any person claiming under Tenant, (b) the conduct of Tenant's
business and any activity, work, or thing done or permitted by Tenant in or
about the Building, (c) negligence or willful mis-conduct of Tenant or its
representatives, or (d) any breach or default on Tenant's part under this
Lease. Tenant's foregoing indemnity obligation will, however, exclude Losses
arising in any way from (a) the negligence or willful misconduct of Landlord
or its representatives, or (b) any breach or default on Landlord's part under
this Lease.
26. Tenant's Insurance. Tenant will, at all times after the delivery
------------------
of the Premises to Tenant, carry at its expense:
a. Liability Insurance. Comprehensive general liability
--------------------
insurance providing bodily injury and property damage including
restaurant/liquor liability coverage in the amount of at least $1,000,000
combined single limit insuring against all legal liability (subject to usual
policy exclusions, terms and conditions) of Tenant and its representatives
arising out of the use, occupancy, or condition of the Premises. Such
insurance will name Landlord as an additional insured for the specified
amount. Tenant will have the right to effect all or any part of such
insurance by endorsement on any general liability insurance maintained by or
on behalf of Tenant or by a separate policy or policies of insurance.
b. Property Insurance. Insurance providing against loss or
------------------
damage to Tenant's personal property, improvements, and Alterations in, on, or
about the Premises by (i) fire, (ii) perils included in the Extended Coverage
endorse-ment in common use for commercial structures, (iii) vandalism and
malicious mischief, and (iv) sprinkler leakage coverage, in an amount not less
than the full replacement value. The insurance policy will cover Tenant,
Landlord, and their lenders, as their interests may appear.
c. Worker's Compensation. Worker's compensation insurance as
---------------------
required by law.
27. Certificates. Tenant will deliver to Landlord, prior to delivery
------------
of possession of the Premises to Tenant, a certificate or certificates of
insurance evidencing the types of coverage, carriers, limits, self-insured
retentions, and effective dates of coverage. Each policy will provide not
less than 10 days' prior notice to Landlord of cancellation, non-renewal, or
material adverse modification of that insurance. Throughout the term of
this lease, Tenant will provide to Landlord current certificates or other
satisfactory evidence of renewal.
28. Assignment or Subletting. Tenant will not assign or sublet all
------------------------
or any portion of the Premises or Tenant's interest in this Lease without
Landlord's prior written consent, which Landlord shall not unreasonably
withhold. Except as Landlord may agree otherwise, Landlord's consent to any
assignment or sublease will neither waive the requirement of Landlord's
consent to any subsequent assignment or sublease nor release Tenant from
Tenant's payment and performance obligations in this Lease. Any assignment or
sublease requiring but lacking Landlord's prior, written consent will be void
at Landlord's option.
29. Collection. Any rental payments or other sums received by
----------
Landlord from Tenant or any other person in connection with Tenant's
obligations under this Lease will be conclusively presumed to have been paid
by Tenant or on Tenant's behalf.
30. Obligation to Repair. In the event of (a) the partial damage or
--------------------
destruction of the Building or (b) the Building being declared unfit or unsafe
for occupancy by any authorized public authority, and the event has a causal
relationship to Tenant's occupation and/or use of the Premises, Tenant will,
at its sole cost and expense, promptly commence and diligently prosecute to
completion such repairs as are necessary to permit the safe use and occupancy
of the Building; and Tenant will continue the operation of its business during
the period of repairs to the extent reasonably practicable. If the event has
no causal relationship to Tenant's occupation and/or use of the Premises,
Landlord will, at its sole cost and expense, promptly commence and diligently
prosecute to completion such repairs as are necessary to permit the safe use
and occupancy of the Building; and rent will be equitably reduced by Landlord,
based on the extent to which the damage or destruction interferes with
Tenant's use of the Premises, between the date of the damage or destruction
and the date of complete restoration; and Tenant will continue the operation
of its business during the period of repairs to the extent reasonably
practicable.
31. Eminent Domain.
---------------
a. Definitions. The term TAKING includes (i) the acquisition of
-----------
property through the exercise of any governmental power, by legal proceedings
or otherwise, by any public or quasi-public authority or private corporation
or individual in the exercise of eminent domain and (ii) the voluntary sale or
transfer under the threat of exercise of eminent domain. The term DATE OF
TAKING means the earlier of the date of taking of actual physical possession
by the condemning authority or the date of the condemning authority gives
notice that it is deemed to have taken possession. The term TOTAL TAKING
means a taking of so much of the Premises as, in Tenant's reasonable opinion,
to render the Premises to be unsuitable for Tenant's continued use. Reduction
in parking will not constitute a basis for a claim of total taking so long as
at least the minimum number of parking spaces for the Premises as required by
local building officials, counting standard and handicap spaces only, is
within reasonable proximity to the Premises and made available for Tenant's
use. The term PARTIAL TAKING means a taking of the Premises which does not
constitute a total taking. The term TEMPORARY TAKING means a taking for less
than 180 days.
b. Total Taking. If there is a total taking, this Lease will
------------
terminate on the date of taking. Unless within 60 days after the date the
nature and extent of the taking are finally determined Tenant notifies
Landlord that Tenant considers a taking of less than the entire Premises to be
a total taking, the taking will be deemed to be a partial taking.
c. Partial Taking. If there is a partial taking, this Lease
--------------
will terminate as to the portion of the Premises taken and continue in full
force and effect as to the remainder of the Premises. Any rent paid prior to
the date of taking and attributable to a period after the date of taking with
respect to the portion of the Premises taken will be promptly returned to
Tenant by Landlord. Rent after a partial taking will be equitably reduced by
Landlord based on the extent to which the taking, including restoration
activity, interferes with Tenant's business on the Premises. Landlord will
promptly, after Tenant's loss of use of any of the Premises, make all
necessary repairs or alterations to make the remaining Premises a complete
architectural element.
d. Temporary Taking. If there is a temporary taking, this Lease
----------------
will not terminate but rent will be equitably reduced by Landlord based on the
extent to which the taking interferes with Tenant's business in the Premises.
e. Award. In the event of any taking, Landlord and Tenant may
-----
separately pursue their claims against the condemning authority. Tenant will
be entitled to receive, and Landlord will have no right to pursue for itself,
any award for claims based on (i) the adjusted book value (deemed to be the
amortized or depre-ciated value for book purposes) of construction of the
Alterations to the extent not reimbursed by Landlord, (ii) loss of or damage
to Tenant's personal property, (iii) loss to Tenant because of interruption of
business, (iv) Tenant's loss of good-will, (v) Tenant's cost of removal and
relocation, and (vi) the value attributable to any leasehold value for the
difference between the market value of the Premises (exclusive of items for
which Tenant is compensated under this Section) for the remainder of the term
above the value, at the date of taking, of the rent payable for the remainder
of the term. Tenant will have no right to pursue a claim based upon the
residual value of the Land after expiration of the term or pursue claims or
retain any award to which Landlord is entitled so as inequitably to diminish
Landlord's award.
f. Notice to Tenant. After Landlord has knowledge of the
------------------
intention of any authority to effect a taking, Landlord will promptly give
notice of such to Tenant.
32. Events of Default. The occurrence of any of the following will
-----------------
constitute a default by Tenant:
a. Nonpayment of Rent. Failure by Tenant to pay rent when due
------------------
if the failure continues for 10 days after notice has been given to Tenant
that the rent is delinquent.
b. Other Obligations. Failure by Tenant to perform any
------------------
provision of this Lease required of it other than (a) above if the failure is
not cured within 30 days after notice has been given to Tenant. If the
failure cannot reasonably be cured within the cure period, Tenant will not be
in default of this Lease if Tenant commences to cure the failure within the
cure period and diligently and in good faith continues to cure the failure.
c. General Assignment. A general assignment for the benefit of
------------------
creditors by Tenant.
d. Bankruptcy. Petition to have Tenant adjudicated a bankrupt,
----------
or a petition for reorganization or arrangement under the federal bankruptcy
laws is filed by Tenant or against Tenant and is not dismissed within 60 days
from the date of such filing.
e. Receivership. The assumption of the assets of Tenant or of
------------
the business conducted by Tenant on the Premises by a trustee, receiver, or
other person where possession is not restored to Tenant within 30 days.
f. Attachment. The attachment, execution, or other judicial
----------
seizure of substantially all of Tenant's assets located at the Premises or
Tenant's interest in the Lease, where such seizure is not discharged within 30
days.
g. Insolvency. The written admission by Tenant of its inability
----------
to pay is debts as they become due.
Notices given under this Section will (i) specify the alleged breach
and the applicable Lease provisions and (ii) demand that Tenant perform the
provisions of this Lease or pay the rent that is delinquent, as the case may
be, within the applicable period of time or quit the Premises. No such notice
will be deemed a forfeiture or a termination of this Lease unless Landlord so
elects in the notice. The purpose of the notice requirements in this Section
is to extend the notice requirements of the unlawful detainer statutes. Such
notice will, however, be in lieu of, and not in addition to, any notice
required under the unlawful detainer statutes.
33. Landlord's Remedies. Landlord will have the following remedies
-------------------
if Tenant commits a default. These remedies are not exclusive; they are
cumulative in addition to any remedies now or later allowed by law.
a. Recover Possession. Landlord can terminate Tenant's right to
------------------
possession of the Premises at any time as provided in unlawful detainer
statutes. No act by Landlord other than giving notice to Tenant will
terminate this Lease. Acts of maintenance, efforts to relet the Premises, or
the appointment of a receiver on Landlord's initiative to protect Landlord's
interest under this Lease will not constitute a termination of Tenant's right
to possession. On termination, Landlord has the right to recover from Tenant:
(i) The worth, at the time of the award, of the unpaid rent
that had been earned at the time of termination of this Lease.
(ii) The worth, at the time of the award, of the amount by
which the unpaid rent that would have been earned after the date of
termination of this Lease until the time of award exceeds the amount of the
loss of rent that Tenant proves could have been reasonably avoided.
(iii) The worth, at the time of the award, of the amount by
which unpaid rent for the balance of the term after the time of award exceeds
the amount of the loss of rent that Tenant proves could have been reasonably
avoided.
(iv) Any other amount, including court costs, necessary to
compensate Landlord for all detriment proximately caused by Tenant's default.
The phrase WORTH AT THE TIME OF THE AWARD as used in (i) and
(ii) above is to be computed by allowing interest at the prime commercial rate
plus 2% per annum, but not to exceed the then legal rate of interest. The
same phrase used in (iii) above is to be computed by discounting the amount at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
the award, plus 1%.
b. Continuation of Lease. Landlord can continue this Lease in
---------------------
full force and effect, and the Lease will continue in effect as long as
Landlord does not terminate Tenant's right to possession, and Landlord will
have the right to collect rent when due. During the periods Tenant is in
default, Landlord can enter the Premises and relet them, or any part of them,
to third parties for Tenant's account. Tenant will be liable immediately to
Landlord for all costs reasonably incurred by Landlord in reletting the
Premises, including brokers' commissions, expenses of repairing the Premises
required by the reletting, and like costs. Reletting can be for a period
shorter or longer than the remaining term of the Lease. Tenant will pay to
Landlord the rent due under this Lease on the dates the rent is due, less the
rent Landlord receives from any reletting. No act by Landlord allowed by this
Section will terminate this Lease unless Landlord notifies Tenant that
Landlord elects to terminate this Lease. After Tenant's default and for as
long as Landlord does not terminate Tenant's right to possession of the
Premises, if Tenant obtains Landlord's consent, which Landlord will not
unreasonably withhold, Tenant will have the right to assign or sublet its
interest in this Lease, but Tenant will not be released from liability. If
Landlord elects to relet the premises as provided in this Section, rent that
Landlord received from reletting will be applied to the payment of first, any
indebtedness from Tenant to Landlord other than rent due from Tenant; second,
all costs, including for maintenance other than reasonable wear and tear,
incurred by Landlord in reletting; and third, rent due and unpaid under the
Lease. After deducting the payments referred to in this Section, any sum
remaining from the rent Landlord receives from reletting will be held by
Landlord and applied in payment of future rent as rent becomes due under this
Lease. In no event will Tenant be entitled to any excess rent received by
Landlord. If, on the date rent is due under this Lease, the rent received
from the reletting is less than the rent due on that date, Tenant will pay to
Landlord, in addition to the remaining rent due, all costs, including for
maintenance other than reasonable wear and tear, Landlord incurred in
reletting which remain unpaid after applying the rent received from the
reletting.
c. Right to Remedy. Landlord may, after expiration of Tenant's
---------------
cure period in Section 32(b) unless there is an emergency, correct or remedy
any failure of Tenant not timely cured. The reasonable cost paid by Landlord
to correct or remedy any such default will immediately become due and payable
to Landlord as additional rent.
34. Default by Landlord. Landlord will commit a default if Landlord
-------------------
fails to perform any provision of this Lease required of it and the failure is
not cured within a reasonable time not to exceed 30 days after notice has been
given to Landlord. If, however, the failure cannot reasonably be cured within
the cure period, Landlord will not be in default of this Lease if Landlord
commences to cure the failure within the cure period and diligently and in
good faith continues to cure the failure. Notices given under this Section
will specify the alleged breach and the applicable Lease provisions. Tenant
may, after expiration of the cure period unless there is an emergency, correct
or remedy any failure of Landlord not timely cured and the reasonable cost
paid by Tenant will immediately become due and payable to Tenant by Landlord.
35. Mitigation. Landlord and Tenant will each exercise best efforts
----------
to mitigate the damages caused by the other party's breach of this Lease.
Efforts to mitigate damages will not be construed as a waiver of the
nonbreaching party's right to recover damages.
36. Interest Charges. Any amount not paid by one party to the other
----------------
when due to the other party will bear interest from the date due at the lesser
of (a) the prime commercial rate in effect on the date due plus 2% per annum
or (b) the maximum rate permitted by law.
37. Late Charges. If either party fails to pay any amount due to the
------------
other within 10 days after notice that the amount is delinquent, the
delinquent party will pay to the other party as a late charge and in
consideration of the additional costs and record keeping incurred or required
by the other, a sum equal to 1% of the amount due.
38. Attornment. Tenant will attorn to the successor in interest of
----------
Landlord following any transfer of such interest, either voluntarily or by
operation of law, and recognize such successor as Landlord under this Lease.
Tenant will execute any documents reasonably required to accomplish the
purpose of this Section.
39. Tenant's Encumbrance of Leasehold. Tenant may at any time
----------------------------------
encumber its leasehold interest without the consent of Landlord, but no such
encumbrance will constitute a lien on Landlord's estate.
40. Arbitration.
-----------
a. Submission to Arbitration. Any disputes which arise between
-------------------------
Landlord and Tenant under this Lease with respect to prorations and adjustment
of Rent in Sections 30, 31(c), and 31(d) will be subject to final binding
arbitration upon written request by either party in accordance with this
Section 40.
b. Procedure. The dispute will be submitted before the
---------
American Arbitration Association (AAA) within 30 days after the requesting
notice in accordance with the Commercial Rules of the AAA as modified by this
Section; a decision will be issued within 30 days after the close of the
record; and judgment upon the award may be entered in any court having
jurisdiction over the judgment. The substantive law of the State of
California will be applied by the arbitrator, and this requirement will be
deemed jurisdictional. This arbitration provision will be deemed
self-executing. If either party fails to appear at any properly noticed
arbitration proceeding, an award may be entered against such party
notwithstanding such failure to appear. If either party makes demand upon the
other for arbitration, the arbi-tration will be conducted by an arbitrator
mutually agreed upon by the parties at the AAA offices nearest to the Premises
or at another location mutually agreeable to the parties. The expenses,
wages, and other compensation of any witnesses called before the arbitrator
will be borne by the party calling the witnesses. Other expenses incurred,
including wages of partici-pants and preparation of briefs and data to be
presented to the arbitrator, will be borne separately by the respective
parties. The fee for the arbitration, the arbitrator's fees and expenses, the
cost of any hearing room, and the cost of transcript recording and production
will be borne equally by Landlord and Tenant.
41. Sale of Premises. If Landlord sells or otherwise transfers all
----------------
of its interest in the Premises, excluding a transfer for security purposes
only, Landlord will be relieved of all liability accruing after the
consummation of the transfer under the Lease on the part of Landlord for acts,
occurrences, or omissions which occur after the consummation of the transfer
if the transferee has assumed Landlord's obligations under the Lease.
Landlord grants Tenant right of first refusal if Landlord sells or otherwise
transfers all of its interest in the Premises.
42. Surrender of Premises. Upon termination of this Lease, Tenant
---------------------
will surrender the Premises to Landlord in good and clean condition, ordinary
wear and tear and damage not required to be repaired excepted. All
alterations, additions, structural fixtures and improvements, whether
temporary or permanent in character, made in or upon the Premises by either
Tenant or Landlord shall become the property of Landlord. Tenant will remove
its personal property and may remove or reasonably alter or obliterate
evidence of its trademarks and distinctive trade dress. Tenant will
immediately correct any damage arising from its removal activity.
43. Holding Over. Any holding over after the expiration of this
------------
Lease without Landlord's consent will be construed as a month-to-month tenancy
at the Rent specified in this Lease plus 10% of the Rent and otherwise upon
the terms and con-ditions specified in this Lease, so far as applicable.
Nothing in this Section will be construed as Landlord's consent for Tenant to
hold over.
44. Entire Agreement. This Lease constitutes the entire agreement
----------------
between the parties on the subject matter of this Lease and supersedes any
prior negotiation, understanding, representa-tion, or agreement.
45. Amendment. This Lease may be amended only by a written
---------
instrument signed by both parties.
46. Notices. Any notice required or permitted by this Lease will be
-------
in writing and will be deemed given if delivered personally, by registered or
certified mail, delivery service or facsimile, if confirmed by the recipient,
addressed as follows:
To Landlord: Roland R. Sahm
c/o David C. Whitt
Elixir Industries
17925 S. Broadway
Gardena, CA 90248
FAX: 310-767-3411
To Tenant: Chicago Pizza & Brewery, Inc.
Attn: Paul A. Motenko or
Jerry J. Hennessy
26131 Marguerite Parkway, Suite A
Mission Viejo, CA 92692
FAX: _____________________
Either party, by written notice, may change the place for future notices.
Each recipient must have a street address for notice purposes.
47. Governing Law. This Lease is to be construed in accordance with
-------------
the laws of the State of California.
48. Plain Meaning. Unless defined otherwise, the words used in this
-------------
Lease will be construed according to their plain meaning in the English
language. The word WILL is used as a command. The word INCLUDING is used in
a nonexclusive sense. The word LAW includes federal, state and local
constitutions, statutes, orders, writs, injunction, decrees, ordinances,
requirements, laws, rules, and regulations. The word TERMINATION is used in
an all-inclusive sense to include the concepts of the expiration of this
Lease by lapse of time, recision and ending by reason of default. The word
TRANSFER is used in an all-inclusive sense to include each and every manner of
disposing of any interest in or rights, privileges or obligations under any
part of this Lease, including any sale, gift or assignment. The word NOTICE
means notices, demands, and other similar communi-cations. The term RENT
means rent and all other sums required to be paid by Tenant pursuant to the
terms of this Lease. The term REPRESENTATIVE means officers, directors,
partners, employees, agents, and authorized contractors of a party when acting
in such capacity. If any provision of this Lease is capable of two
constructions, one of which would render the provision void and the other of
which would render the provision valid, then the provision will have the
meaning that renders it valid.
49. Other Construction. The titles of the various sections of this
------------------
Lease are inserted for convenience and will not be deemed to affect the
meaning or construction of this Lease. The singular includes the plural and
vice-versa, and the masculine includes the feminine and neuter, whenever the
context so requires.
50. Time of Essence. Time is of the essence for each provision of
---------------
this Lease.
51. Severability. Nothing in this Lease will be construed as
------------
requiring the commission of any act contrary to law. If there is any conflict
between any provision of this Lease and any present or future law, such
provision will be limited only to the extent necessary to bring it within the
requirement of the law. If any part of this Lease is held to be indefinite,
invalid, or otherwise unenforceable, the balance of this Lease will continue
in full force and effect. If any arbitrator or court of competent
jurisdiction finds any provision of this Lease unreasonable, the arbitrator or
court may declare a reasonable modification of the provision. This Lease will
be valid and enforceable and the parties agree to be bound by and perform it.
52. Effect of Waiver. The failure of either party to exercise any
----------------
power reserved to it by this Lease or to insist on strict compliance by the
other party with any obligation or con-dition under the Lease, and no custom
or practice of the parties at variance with the terms of the Lease, will
constitute a waiver of the party's right to demand exact compliance thereafter
with each term of this Lease. Waiver by either party of any default by the
other will not affect or impair the waiving party's rights with respect to any
other default of a like, similar, or dif-ferent nature. Any delay,
forbearance, or omission of a party to exercise any power or right arising out
of any default by the other of any provision of this Lease will not affect or
impair the party's rights to declare any subsequent default and to terminate
this Lease.
53. Counterparts. This Lease may be executed in any number of
------------
counterparts, each of which will be deemed to be an original and all of which
together will be deemed to be one and the same instrument.
54. Broker Commission. In consideration of the exclusive efforts and
-----------------
services rendered by Ira Spilkey & Associates (BROKER) in connection with
this Lease, Landlord will pay Broker a commission of $9,500 on the
Commencement Date. Additionally, Landlord will pay a commission of $9,500 on
each of the next four successive Commencement Date anniversary dates, unless
at any time during the first four years of this Lease Tenant defaults under
Section 32 of this Lease and fails to cure the default within its time
constraints under Section 32 herein, in which case Broker forfeits any unpaid
commission otherwise due Broker by Landlord.
55. Attorney's Fees. If any action or proceeding is necessary to
---------------
enforce the provisions of this Lease, including any claim or demand or
declaratory relief action to interpret this Lease, the prevailing party will
be entitled to reasonable attorney's fees, costs, and necessary disbursements,
as may be fixed by the court having jurisdiction over the matter, in addition
to any other relief to which it may otherwise be entitled.
56. Force Majeure. Except for payment obligations imposed pursuant
-------------
to this Lease, if there is any prevention, delay, or stoppage of an act
required of a party pursuant to this Lease because of strikes, lockouts, other
labor disputes, material shortages, embargoes, civil unrest, governmental
regulations, governmental controls, enemy or hostile governmental action,
judicial order, public emergency, fire, earthquake, other Acts of God, and
other causes beyond the reasonable control of the party obligated to perform,
performance of the act will be excused for the period of the delay.
57. Consent. Whenever the consent or approval of either party is
-------
required pursuant to this Lease, such consent or approval will not be
unreasonably withheld or delayed.
58. Relationship of Parties. This Lease is not intended to create
-----------------------
any relation-ship of partnership, joint venture, principal-and-agent, or
otherwise than the relationship of landlord and tenant.
59. Successors. This Lease will be binding on and inure to the
----------
benefit of the parties and their successors and assigns, subject to the
restrictions as to assignment pursuant to this Lease.
60. No Merger. The surrender of this Lease by Tenant, the mutual
---------
cancellation of this Lease by agreement, or the termination of this Lease on
account of Tenant's default, will not work a merger and will, at Landlord's
option, terminate any sub-tenancies or operate as an assignment of any such
subtenancies to Landlord.
The undersigned parties have caused this Lease to be signed on the
respective dates set forth below.
LANDLORD: ROLAND R. SAHM
\s\ Ronald R. Sahm
-----------------------------------
Roland R. Sahm
Date: 9/8/98
---------------------------
TENANT: CHICAGO PIZZA & BREWERY, INC.
By: \s\ Paul A. Motenko
---------------------------
Its: CEO
-----------------------
Date: 9/14/98
-------
LMPROJ02/LEASERRS.981/980807/LM/TWG
<PAGE>
EXHIBIT A
LAND LEGAL DESCRIPTION
PARCEL A, in the City of Los Angeles, in the County of Los Angeles, State of
California, as shown on Parcel Map L.A. No. 2920, filed in Book 58, Page 23 of
Parcel Maps, in the office of the County Recorder of said County.
<PAGE>
EXHIBIT B
HVAC REPAIRS SCHEDULE
July 29,1998
Elixir
Gardena, CA
Dear Lori:
Following is a breakdown on repair costs at 1'rcs'LdeLite:
a. North Dining Room
Rcplace One (1) compressor - leak check one (1) circuit and repair. Replace
belts, clean cyap and change filters. Cleaii fumar;c. Approximately
$7,200.00.
South Dining Room
el
Lcak chcck both circuits and repair. Rcplaoc filters. Clean evap aiid
furnace. Approximately $975.00.
Bar Do
Replace one (1) compressor and two (2) condenser fan motors. Replace filters
and belts. Clean evap coil and furnace. Approximately $8,200-00.
b. Upstairs Dining Room
Must find access to unit for @er inspection.
Bar Swamp Cooler
Clean out cooler and inspect furnacc. Change pads on cooler, $425.00.
Kitchen Exhausts
Change belts, $200.00.
I-Kitchen Makeup Air
II-Clean out coolcts. Change pads and belts, S550.00.
Sincerely.
Brad QuackenbiLch
Service Manger
BQ/am
1
MXF SFDOCS\88790 2 58794 0002 08/31/98
Bennigan's Unit No. 0525
Arcadia, CA
SUBLEASE
--------
THIS SUBLEASE ("Sublease") is made and entered into as of September 1,
1998, by and between STEAK AND ALE OF CALIFORNIA, INC., a Nevada corporation
(the "Sublessor"), and B.J.'S CHICAGO PIZZA & BREWERY, INC., a California
corporation (the "Subtenant"), with respect to the following facts:
RECITALS:
A. Under a certain Lease Agreement dated as of June 17, 1987 (the
"Lease"), a true, correct, complete and legible copy of which is attached
hereto as Exhibit A, Sublessor leased from ARCADIA GATEWAY CENTRE ASSOCIATES,
LTD., a California Limited Partnership ("Master Landlord"), certain improved
commercial real estate commonly known as 400 East Huntington Avenue, Arcadia,
California 91006-3748 (the "Premises"). Initially capitalized terms not
otherwise defined herein shall have the meanings ascribed to such terms in the
Lease.
B. Sublessor desires to sublease the Premises to Subtenant and to
sell to Subtenant its leasehold interest (in the form of a sublease), property
improvements (which are not considered part of the leasehold), furniture
fixtures and equipment (collectively, "FF&E") and the Type 47 alcoholic
beverage license (the "LIQUOR LICENSE") relating to the Premises, and
Subtenant desires to sublease the Premises from Sublessor and to purchase from
Sublessor its leasehold interest (in the form of a sublease), FF&E and Liquor
License relating to the Premises, upon the terms and conditions set forth
herein.
NOW, THEREFORE, for and in consideration of the preceding Recitals, which
are intended by the parties to constitute a portion of this Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
1. SUBLEASE GRANT. Effective as of the "Commencement Date" (as defined in
Paragraph 4. below), Sublessor does hereby sublease the entire Premises to
Subtenant, and Subtenant does hereby sublease the Premises from Sublessor, for
the "Term" (as defined below in Paragraph 3) and upon the conditions
hereinafter set forth.
2. ESCROW. Not later than 10 days after the date of this Sublease, the
parties shall open an escrow with Commerce Escrow in Los Angeles, California
(the "ESCROW COMPANY") to facilitate the consummation of the Liquor License
transfer to Subtenant. Both parties shall cooperate in good faith to execute
and deliver to Escrow Company escrow instructions consistent with this
Sublease. Concurrently with the opening of the escrow with the Escrow
Company, Subtenant shall remit to Escrow Company the sum of $12,000 (the
"Purchase Price") to be applied against the "Purchase Price" (as hereinafter
defined). Each party shall bear one-half of the cost of the escrow. Not
later than five (5) days following (i) the approval of the California Alcohol
Beverage Commission (the "ABC") of the transfer of the Liquor License to
Subtenant, and (ii) the issuance by the California Employment Development
Department of a clean certificate showing no amounts due by Sublessor, (iii)
the issuance by the California Board of Equalization of a clean certificate
showing no amounts due by Sublessor, Escrow Company shall transfer the Liquor
License to Subtenant and remit the Purchase Price (less Sublessor's share of
Escrow Company's expenses) to Sublessor.
3. TERM AND POSSESSION. The term of this Sublease (the "TERM") will
commence on the "Commencement Date", and shall end on the date June 30, 2008
("EXPIRATION DATE"), or on such earlier date upon which the Term may expire or
be terminated pursuant to any of the conditions or limitations or other
provisions of the Lease, this Sublease or pursuant to applicable law. Nothing
contained herein shall obligate Sublessor to exercise any Term renewal options
granted in the Lease, and under no circumstances shall Sublessor have any
liability whatsoever under the Lease or this Sublease for any extension of the
Term based on the exercise of a renewal option by Subtenant. In the event
Subtenant and Master Landlord agree that Subtenant may lease the Premises
from and after the Expiration Date, then such renewal agreement shall be
deemed to be a novation of the Lease with Subtenant as the tenant thereunder,
and accordingly Sublessor shall have no further liability under the Lease.
Subtenant assumes all responsibility and liability for the right to and terms
of, the renewal option(s) and the exercise of such option(s).
4. COMMENCEMENT DATE. As used herein, the term "COMMENCEMENT DATE" shall
mean the date on which each of the following shall have occurred: (I) the
Master Landlord shall have approved this Sublease, the Subtenant and the
Subtenant's financial statements in accordance with the terms and requirements
of the Lease, (II) Subtenant shall have qualified for, at its own expense
using all necessary due diligence, a building permit from the City of Arcadia,
California, for the proposed renovations of the Premises (the "BUILDING
PERMIT") in accordance with plans and specifications approved by both Master
Landlord and Sublessor, and (III) Sublessor shall have tendered possession of
the Premises to Subtenant. Subtenant shall immediately notify Sublessor when
a Building Permit is ready to be issued to Subtenant for the Premises. If for
any reason the Commencement Date has not occurred on or before the 60th day
following the date of this Sublease, then, unless the parties have agreed in
writing prior thereto to extend the term of this Sublease, this Sublease shall
automatically terminate and be of no further force or effect, and all amounts
held in escrow pursuant to the escrow established under paragraph 2 above and
any documents deposited in escrow shall be returned to the party making such
deposit(s).
a. Prior to the Commencement Date, Subtenant and its contractors,
consultants and agents may visit the Premises by giving reasonable advance
notice to and coordinating such visits with, Marguerite W. Brindock, the
Director of Real Estate for Sublessor. Subtenant hereby holds harmless and
indemnifies Sublessor from and against any and all claims, suits, actions and
mechanic's lien claims arising out of or in any way related to the entry by
Subtenant, its contractors , consultants or agents onto the Premises for any
purpose prior to the Commencement Date.
b. On the Commencement Date, Subtenant shall wire transfer to Sublessor an
amount equal to Sixty-Three Thousand Dollars ($63,000.00) in full payment for
the FF&E, and upon receipt of such funds, Sublessor shall deliver to Subtenant
a Bill of Sale for the FF&E in the form of Exhibit B attached hereto and
incorporated herein by this reference.
c. Commencing on the Commencement Date and continuing at all times
thereafter during the Term hereof, Subtenant shall pay to Sublessor all real
estate taxes and assessments assessed against the Premises, all insurance
charges, all common area costs relating to the Premises, and any other charges
and costs payable by Subtenant under the terms of the Lease (collectively, the
"EXPENSE PAYMENTS"). Such Expense Payments shall be made to Subtenant on the
first day of the calendar month following the Commencement Date and shall
continue on the first day of each month thereafter in arrears. If the
Commencement Date of the Term begins or ends on a day other than the first or
last day of a month, the Expense Payments (and Base Monthly Rent as provided
below) for the partial month shall be prorated at the rate of one-thirtieth
(l/30th) of the Base Monthly Rent for each day of such partial month. The
current Expense Payments are approximately $34,612.00 per year.
d. As used herein, the term "ADDITIONAL RENT" shall collectively mean any
payment obligation on the part of Subtenant to Sublessor, including without
limitation the Percentage Rent and any other such payment denominated as
"additional rent." All payments due hereunder to Sublessor herein reserved or
payable shall be paid to Sublessor at 6500 International Parkway, Plano, Texas
75093, Attention: Lease Administrator, or at such other place as Sublessor may
designate from time to time in writing, in lawful money of the United States
of America.
e. Subtenant agrees to pay, as additional rent, all common area
maintenance, utilities and all other common area charges payable under the
Lease and when the same are due and payable. It is the expressed intention of
Sublessor and the Subtenant that Sublessor shall not have to pay or incur any
further amounts under the Lease and that Subtenant shall pay and perform all
of Sublessor's obligations thereunder.
5. BASE MONTHLY RENT AND PERCENTAGE RENT. As used herein, the term "RENT
COMMENCEMENT DATE" means the 91st day following the Commencement Date. On the
Rent Commencement Date, "Base Monthly Rent" and "Percentage Rent" shall
commence.
a. As used herein, "BASE MONTHLY RENT" means the following monthly and
annual base monthly rent:
Monthly Base Rental Annual Base Rental
--------------------- ------------------
Rent Commencement
Date - June 30, 2003 $9,950.00 $119,400.00
July 1, 2003 -
June 30, 2008 $11,535.00 $138,420.00
Accordingly, commencing on the first day of the calendar month which occurs
after the Rent Commencement Date and continuing on the first day of each month
thereafter, Subtenant shall pay to Sublessor, as base monthly rent, in
advance, without deduction, setoff, abatement, notice, or demand, the sums
shown above.
b. As used herein, "PERCENTAGE RENT" means the following for each calendar
period, prorated on a monthly basis for any period of less than a full
calendar year:
Percentage Rent
----------------
Commencement Date
- -June 30, 2003 3% in excess of $3,400,000.00 of "Gross Receipts" as
defined in the Lease.
July 1, 2003
- -June 30, 2008 3% in excess of $3,600,000.00 of "Gross Receipts" as
defined in the Lease.
On a calendar quarterly basis, the Subtenant shall pay Percentage Rent to
Sublessor, as additional rent under this Sublease, in the amounts shown above
measured from the Commencement Date for each quarter-annual period thereafter
during the Term. The parties recognize that the formula for the payment of
Percentage Rent hereunder differs from the formula contained in the Lease.
The Percentage Rent shall be due and payable as provided in the Lease, except
that the Percentage Rent shall be paid solely to Sublessor. In addition to
the Master Landlord, Sublessor shall have all of the rights accorded to the
Master Landlord under the Lease and Subtenant shall have all of the
obligations of the Tenant thereunder, with respect to the Percentage Rent. In
addition, the Subtenant shall deliver to Sublessor all of the statements and
reports required to be maintained and provided by Sublessor under the Lease,
and Subtenant hereby grants its irrevocable continuing permission to Sublessor
to copy and deliver Subtenant's statements and reports to the Master Landlord.
6. PURCHASE OF PROPERTY IMPROVEMENTS AND FF&E. Subtenant hereby agrees to
purchase from Sublessor all of the FF&E currently located on the Premises,
except the following items:
EXCLUDED FROM PURCHASE:
1. All trademarked and proprietary items, including china.
2. The point of sale system, including all hardware and software.
3. Any liquor inventory.
a. The purchase of the Property Improvements shall occur on the
Commencement Date. The purchase price shall be $63,000 for the FF&E. THE
SALE OF SUCH FF&E SHALL BE MADE BY Sublessor to Subtenant ON AN "AS-IS,
WHERE-IS" BASIS WITHOUT RECOURSE OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR OTHERWISE, ALL SUCH WARRANTIES BEING EXPRESSLY EXCLUDED.
On the Commencement Date, Sublessor shall deliver to Subtenant a bill of sale
for the FF&E.
b. The Subtenant acknowledges that the elements remaining within the
Premises from the standard Bennigan's artifact package must be used by the
Subtenant in a manner so as to "de-identify" the Premises from the distinctive
Bennigan's "look," "feel," "total image" and "trade dress."'
7. SALE OF ALCOHOLIC BEVERAGE LICENSE. Subject to the approval of the
California Alcohol Beverage Control (the "ABC"), Subtenant hereby agrees to
purchase from Sublessor the Type 47 Alcoholic beverage license for the
Premises (the "ALCOHOLIC BEVERAGE LICENSE") for a purchase price of
$12,000.00. Upon the execution and delivery of this Sublease, both Sublessor
and Subtenant agree to fully cooperate with each other and to promptly and
diligently all steps respectively required to be taken to effectuate the
transfer of the Liquor License, including the opening of an escrow with the
Escrow Company
8. LEASE PROVISIONS. Subtenant acknowledges that it has reviewed the
Lease and is familiar with the contents thereof, and that this Sublease is
subordinate and subject to the Lease. As between Sublessor and Subtenant,
Subtenant assumes and agrees to be primarily liable for the performance of all
of the obligations (affirmative, negative, monetary and/or non-monetary) which
are imposed upon Sublessor under the Lease, except to the extent that such
obligations have been expressly modified by this Sublease; provided, however,
that the obligation to pay Base Monthly Rent, Percentage Rent, additional
rent, operating costs and other amounts payable to the Master Landlord under
the Lease will be considered performed by the Subtenant to the extent and in
the amount Base Monthly Rent, Percentage Rent, additional rent, operating
costs and such other amounts payable under the Sublease are actually paid by
Subtenant to Sublessor in good funds in accordance with Sections 3 and 4 of
this Sublease.
a. Subtenant shall not commit or suffer any act or omission that will
violate or breach any provision of the Lease. If the Lease gives Sublessor
any right to terminate the Lease with respect to the Premises in the event of
the partial or total damage, destruction, or condemnation of the Premises or
the building in which the Premises are located, the exercise of such right
shall not constitute a default or breach hereunder. In no event shall
Sublessor be obligated to cure any default under the Lease caused by
Subtenant; provided, however, that Sublessor shall have the right in its sole
discretion, but not the obligation to effectuate any such cure without
inquiring in to the validity of the Master Landlord's demand or claims. In
the event Sublessor does so, then the amount so paid by Sublessor shall be due
and payable by Subtenant on demand of Sublessor and shall bear interest at the
Applicable Interest Rate" from the date expended by Sublessor until the date
repaid in full by Subtenant. As used herein the term "APPLICABLE INTEREST
RATE" means the rate per annum equal to the greater of (a) five percent (5%)
per annum plus the then federal discount rate on advances to member banks in
effect at the Federal Reserve Bank of San Francisco on the 25th day of the
month preceding the date of this Sublease, or (b) ten percent (10%). However,
in no event will the Applicable Interest Rate exceed the maximum interest rate
permitted by law that may be charged under these circumstances. The payment
of interest at the Applicable Interest Rate shall be considered as Additional
Rent hereunder.
9. MAINTENANCE AND REPAIRS.
a. This Sublease is intended to be a "triple net" sublease; and ,
therefore, as between Sublessor and the Subtenant, the Subtenant assumes and
agrees to perform, observe and comply with all of the obligations
(affirmative, negative, monetary and/or non-monetary) which are imposed upon
Sublessor under the Lease, except to the extent that such obligations have
been expressly modified by this Sublease.
b. Unless otherwise required to be maintained by the Master Landlord, the
Subtenant shall maintain in good order and operating condition and make all
necessary repairs to all improvements, fixtures and equipment comprising the
entire Premises, including the interior and exterior walls, the roof, the roof
membrane, the foundation, all mechanical and electrical equipment, HVAC
systems and equipment, and all other structural aspects of the Premises and
the parking areas attached thereto. Subtenant agrees to keep in effect an
HVAC maintenance contract during the entire Term which requires at least two
inspections during each Lease Year. Subtenant agrees to deliver a copy of
such maintenance contract upon request by Sublessor. THE SUBLEASE OF THE
PREMISES IS BEING MADE BY SUBLESSOR TO SUBTENANT ON AN "AS-IS, WHERE-IS" BASIS
WITHOUT RECOURSE OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY
EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR OTHERWISE, ALL SUCH WARRANTIES BEING EXPRESSLY EXCLUDED. Sublessor
shall have no responsibility to make any repairs, improvements or capital
expenditures during the term of this Sublease. SUBTENANT HEREBY ASSUMES THE
RESPONSIBILITY FOR COMPLIANCE OF THE PREMISES WITH THE AMERICANS WITH
DISABILITIES ACT OF 1990 (42 United States Code Sections 12101-12213).
c. To the actual knowledge of Sublessor, Sublessor has not received any
notices from any governmental authority alleging any violation of any federal,
state or local ordinance, law or regulation, which violation, if any, has not
been fully cured.
d. Subtenant hereby assumes all continuing responsibility for repairs,
maintenance and upkeep (structural and non-structural) whether now or in the
future required by the Lease, any federal, state or local governmental
ordinance, law or regulation (including, as examples, compliance with ADA or
seismic retrofitting ordinances and regulations).
10. USE. The Premises will be used and occupied only for the operation
and maintenance of a full service sit-down restaurant serving food and
alcoholic beverages, all in accordance with applicable law and required
governmental permits. Under no circumstances shall the Premises be used for
any other purpose without the prior written consent of Sublessor (and Master
Landlord if required by the Lease), which, in the case of Sublessor, may be
given or withheld in its sole discretion.
11. ALTERATIONS. Subtenant shall not make any alteration improvement,
trade dress, signage, decoration, or installation (which includes any removal
or addition or partitions or walls, whether weight-bearing or not)
(hereinafter collectively called "ALTERATIONS"), including Alterations
required by federal, state or local governmental ordinances or regulations, in
or to the Premises, without in each instance obtaining the prior written
consent of the Master Landlord and Sublessor, which consent, in the case of
Sublessor shall not be unreasonably withheld. If any Alterations are made
without the Master Landlord's (when required) and Sublessor's prior written
consent, the Master Landlord or Sublessor may remove the same, and may
correct, repair and restore the Premises and any damage arising from such
removal, and Subtenant shall be liable for all costs and expenses incurred by
the Master Landlord or Sublessor in the performance of this work.
a. Subtenant may have any properly approved Alterations performed by
contractors of Subtenant's own choice, at Subtenant's expense, provided that
Subtenant shall have obtained written approval of the contractor by the
Landlord and Sublessor, which approval will be based upon the contractor's
being properly licensed and having adequate financial resources and experience
(or providing suitable bonds). Subtenant agrees to indemnify and hold
harmless Sublessor and the Master Landlord from any claims or demands arising
from Alterations to the Premises.
b. IN NO EVENT SHALL SUBTENANT COMMENCE ANY CONSTRUCTION AFFECTING THE
PREMISES UNLESS AND UNTIL IT HAS GIVEN MASTER LANDLORD AND SUBLESSOR NOT LESS
THAN 5 DAYS PRIOR WRITTEN NOTICE AND POSTED A NOTICE OF NON-RESPONSIBILITY ON
THE PREMISES AND TAKEN SUCH OTHER ACTION AS THE MASTER LANDLORD AND SUBLESSOR
SHALL REASONABLY REQUEST TO PROTECT THEIR RESPECTIVE INTERESTS. THE FAILURE
TO COMPLY WITH THIS PROVISION SHALL CONSTITUTE AN IMMEDIATE EVENT OF DEFAULT
UNDER THIS SUBLEASE FOR WHICH THERE SHALL BE NO GRACE NOR CURE PERIOD.
c. The Master Landlord and Sublessor shall at all times during normal
business hours have the right to inspect the work performed by any contractor
selected by Subtenant. Upon termination or expiration of this Sublease,
Subtenant shall, upon request of the Master Landlord or Sublessor, remove all
or some of all or any portion of the Alterations, repair all damage resulting
from such removal and restore the Premises to the condition as of the date
possession was delivered to Subtenant. If Subtenant fails or refuses to
remove such Alterations, or fails to correct, repair and restore the Premises,
the Master Landlord or Sublessor may cause the same to be removed, and repairs
and restoration to be made, in which event Subtenant shall reimburse to the
party who caused the Alterations to be removed and repairs made, the cost of
such removal, repairs and restoration, together with any and all damages which
the Master Landlord or Sublessor may suffer and sustain by reason of
Subtenant's failure or refusal to remove the Alterations, and interest on all
such sums at the Applicable Interest Rate from the date(s) paid until
reimbursed in full by Subtenant.
d. Sublessor shall have no obligation to provide any Alterations or to
contribute money to Alterations, redecorating or trade dress of, or signage
for, the Premises.
e. Subtenant shall comply with all rules and regulations promulgated by
the Master Landlord pursuant to the Lease and applicable to the Premises
and/or the building and/or project in which the Premises are located.
f. In addition to any Alterations which Sublessor or Master Landlord
requires Subtenant to remove, at the end of the Term or earlier termination of
this Sublease, Subtenant shall remove all of its fixtures, furniture and
equipment, other personal property, and all trade dress and signage, and shall
repair all damage resulting from such removal or their tenancy of the
Premises, and surrender the Premises in good condition (reasonable wear and
tear excepted, but not waste). The obligations of the Subtenant as herein
provided shall survive the termination of this Sublease.
12. ASSIGNMENT AND SUBLETTING. Under no circumstances shall Subtenant
assign this Sublease or further sublet all or any part of the Premises without
the prior written consent of Sublessor (and Master Landlord if required by the
Lease), which, in the case of Sublessor, may be given or withheld in its sole
discretion. In connection with any assignment or sublet request, Subtenant
shall pay to Sublessor the sum of $2,500 to cover Sublessor's expenses in
reviewing such request, and Sublessor's reasonable attorney's fees in
connection with such request, plus any charges and fees which the Master
Landlord is permitted to charge Sublessor under the Lease. In addition,
Subtenant shall pay to Master Landlord any fees and charges which Sublessor
may be obligated to pay to Master Landlord in connection with any such
assignment or sublet request.
13. WARRANTY BY SUBLESSOR. Sublessor warrants to Subtenant that (a) the
Lease has not been amended or modified except as expressly set forth in this
Sublease; (b) Sublessor is not now in default or breach of any of the
provisions of the Lease; and (c) that Sublessor has no knowledge of any claim
by Master Landlord that Sublessor is in default or breach of any of the
provisions of the Lease. Subtenant has inspected the Premises and has
satisfied itself as to the condition of the Premises. THIS SUBLEASE IS BEING
MADE ON AN "AS-IS, WHERE-IS" BASIS WITH RESPECT TO THE CONDITION OF THE
PREMISES, WITHOUT RECOURSE OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR OTHERWISE, ALL SUCH WARRANTIES BEING EXPRESSLY EXCLUDED.
14. WARRANTY BY SUBTENANT. Subtenant hereby represents and warrants to
Sublessor that (a) Subtenant has taken all steps necessary to duly authorize
the execution, delivery and performance of the Sublease, (b) that the
person(s) executing the Sublease on behalf of Subtenant have been duly
authorized by Subtenant, and (c) Subtenant is a corporation duly formed and
existing under the laws of the State of California and is currently in good
standing.
15. BROKER PARTICIPATION. Sublessor and Subtenant warrant and represent
that they have dealt with no real estate broker in connection with this
Sublease other than Al Anz of The Anz Company and Ira Spilky & Associates, the
broker for the Subtenant (the "BROKERS"), and that no other broker is entitled
to a commission on account of this Sublease. The parties agree that on the
Commencement Date, Sublessor shall pay $25,000.00 to The Anz company and
$25,000.00 to Ira Spilky & Associates.
16. ENTRY. Sublessor reserves the right to enter the Premises on
reasonable notice to Subtenant to inspect the Premises or the performance by
Subtenant of the terms and conditions of this Sublease.
17. INSURANCE. Prior to taking possession of the Premises, Subtenant
shall procure and maintain such casualty and other forms of insurance as are
required by the Lease, and shall name Sublessor and the Master Landlord as an
additional insureds or loss payee, as applicable, as their interests may
appear, thereunder. In the event the Lease does not specify the quality or
amount of the required insurance, then such insurance shall be issued by
insurance carrier's having a Best's rating reasonably acceptable to Sublessor
and Master Landlord, shall be in such amounts as Sublessor shall reasonably
determine, and shall otherwise be in compliance with the Lease. All such
insurance certificates shall have ACCORD 27 form endorsements and otherwise be
in form and substance acceptable to Sublessor.
18. DEFAULT.
a. The occurrence or existence of any of the following events shall
constitute an Event of Default hereunder:
i. The occurrence or existence of a default or existence of a default or
event of default under the Master Lease, and the expiration of any applicable
cure or grace period; or
ii. The occurrence or existence of any breach of any payment or
performance obligation by Subtenant hereunder.
iii. The revocation or suspension of Subtenant's Liquor License for any
reason.
b. Upon an Event of Default hereunder, in addition to the remedies
contained in the Master Lease, Sublessor shall have the following rights and
remedies and any other rights and remedies accorded by applicable law. All
such rights and remedies shall be cumulative and none exclusive.
i. Sublessor can continue this Sublease in full force and effect, and the
Sublease will continue in effect as long as Sublessor does not terminate
Subtenant's right to possession, and Sublessor shall have the right to collect
rent when due. During the period Subtenant is in default, Sublessor can enter
the Premises and relet them, or any part of them, to third parties for
Subtenant' account. Subtenant shall be liable immediately to Sublessor for
all costs Sublessor incurs in reletting the premises, including, without
limitation, brokers' commissions, expenses of removing Subtenant's fixtures,
trade fixtures, trade dress, signage and equipment, remodeling the Premises
required by the reletting, and any other costs and fees paid or incurred by
Sublessor as a result or arising from Subtenant's default. Reletting can be
for a period shorter or longer than the remaining term of this Sublease.
Subtenant shall pay to Sublessor the Base Monthly Rent, Percentage Rent, and
any Additional Rent due under this Sublease on the dates such is due, less the
rent Sublessor receives from any reletting. No act by Sublessor allowed by
this paragraph shall terminate this Sublease unless Sublessor notifies
Subtenant in writing that Sublessor elects to terminate this Sublease. After
Subtenant's default and for as long as Sublessor does not terminate
Subtenant's right to possession of the Premises, if Subtenant obtains
Sublessor's consent, Subtenant shall have the right to assign or sublet its
interest in this Sublease, but Subtenant shall not be released from liability.
Sublessor's consent to a proposed assignment or subletting shall not be
unreasonably withheld, but only under this paragraph.
(1) If Sublessor elects to relet the Premises as provided in this
paragraph, rent that Sublessor receives from reletting shall be applied to the
payment of:
First, any indebtedness from Subtenant to Sublessor other than Base Monthly
Rent, Percentage Rent, and any Additional Rent due from Subtenant;
Second, all costs, including for maintenance and repairs, and attorney's fees
and expenses, court costs, and broker's fees, paid or incurred by Sublessor in
reletting;
Third, Base Monthly Rent, Percentage Rent and Additional Rent due and unpaid
under this Sublease. After deducting the payments referred to in this
paragraph, any sum remaining from the Base Monthly Rent, Percentage Rent, and
Additional Rent Sublessor receives from reletting shall be held by Sublessor
and applied in payment of future Base Monthly Rent, Percentage Rent, and
Additional Rent as Base Monthly Rent, Percentage Rent and Additional Rent
become due under this Sublease. In no event shall Subtenant be entitled to
any excess rent received by Sublessor. If, on the date Base Monthly Rent,
Percentage Rent and Additional Rent are due under this Sublease, the Base
Monthly Rent, Percentage Rent and Additional Rent received from the reletting
is less than the Base Monthly Rent, Percentage Rent and Additional Rent due
on that date, Subtenant shall pay to Sublessor, in addition to the remaining
Base Monthly Rent, Percentage Rent and Additional Rent due, all costs,
including for maintenance and repair, Sublessor incurred in reletting that
remain after applying the Base Monthly Rent, Percentage Rent and Additional
Rent received from the reletting as provided in this paragraph.
ii. Sublessor can terminate Subtenant's right to possession of the
Premises at any time. No act by Sublessor other than giving notice in writing
to Subtenant shall terminate this Sublease. Acts of maintenance, and efforts
to relet the Premises shall not constitute a termination of Subtenant's right
to possession. On termination, Sublessor has the right to recover from
Subtenant:
(1) The worth, at the time of the award, of the unpaid Base Monthly Rent,
Percentage Rent and Additional Rent that had been earned at the time of
termination of this lease;
(2) The worth, at the time of the award, of the amount by which the unpaid
Base Monthly Rent, Percentage Rent and Additional Rent that would have been
earned after the date of termination of this Sublease until the time of award
exceeds the amount of the loss of rent that Subtenant proves could have been
reasonably avoided;
(3) The worth, at the time of the award, of the amount by which the unpaid
Base Monthly Rent, Percentage Rent and Additional Rent for the balance of the
term after the time of award exceeds the amount of the loss of rent that
Subtenant proves could have been reasonably avoided; and
(4) Any other amount, and court costs, necessary to compensate Sublessor for
all detriment proximately caused by Subtenant's default.
"The worth, at the time of the award," as used in subparagraphs i and ii of
this paragraph is to be computed by allowing interest at the maximum rate an
individual is permitted by law to charge. "The worth, at the time of the
award," as referred to in iii of this paragraph, is to be computed by
discounting the amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of the award, plus 1%.
iii. Notice of Election to Terminate. If Sublessor obtains possession of
the Premises as a result of Subtenant's abandonment of same or by a decree
from a court of competent jurisdiction, this shall not be construed as an
election to terminate this Sublease unless Sublessor provides Subtenant with a
written notice of this election.
iv. In the event Sublessor takes any actions to enforce an Event of
Default under this Sublease, including the commencement of an unlawful
detainer action, and Subtenant either is permitted to cure such Event of
Default as a matter of law or Sublessor waives such Event of Default,
Sublessor, may in its sole discretion, upon written notice to Subtenant,
require that all rent thereafter payable under this Sublease be paid quarterly
in advance.
v. Notwithstanding anything to the contrary contained herein, it is
intended that, in the event of a breach or a default by Subtenant hereunder,
Subtenant shall have all of the rights and remedies available under applicable
law, including Section 1954 et seq. of the California Civil Code, as amended,
-- ---
and under the Master Lease and this Sublease. All such rights and remedies
shall be cumulative, and none exclusive, to the extent permitted by applicable
law.
19. ATTORNMENT. If the Lease terminates for any reason, Subtenant
will, if requested by Master Landlord, recognize Master Landlord as Sublessor
under this Sublease. However, Subtenant's obligation to attorn to Master
Landlord will be conditioned on Subtenant's receipt of a nondisturbance
agreement.
20. LATE CHARGE AND INTEREST. The late payment of any Base Monthly Rent
or other payment due to Sublessor hereunder will cause Sublessor to incur
additional costs, including the cost to maintain in full force the Master
Lease, administration and collection costs, and processing and accounting
expenses. If Sublessor has not received any installment of Base Monthly Rent
or other payment within 5 days after that amount is due, Subtenant will pay
five percent (5%) of the delinquent amount, which is agreed to represent a
reasonable estimate of the costs incurred by Sublessor. In addition, all
delinquent amounts will bear interest from the date the amount was due until
paid in full at the Applicable interest Rate. Sublessor and Subtenant
recognize that the damage Sublessor will suffer in the event of Subtenant's
failure to pay this amount is difficult to ascertain and that the late charge
and interest are the best estimate of the damage that Sublessor will suffer.
a. If a late charge becomes payable for any 2 installments of Base Monthly
Rent or other charge payable hereunder within any 12 month period, then all
Base Monthly Rent shall automatically become payable quarterly in advance.
b. In the event Sublessor pays or incurs any sums in order to pay or
perform any obligation of Subtenant hereunder, then such amount shall bear
interest at the Applicable Interest Rate until repaid in full.
c. The late charge payable hereunder shall be in addition to any other
late charges payable by Sublessor to Master Landlord under the Lease. In the
event Sublessor is required to pay a late charge to Master Landlord because of
the late payment by Subtenant to Sublessor, Subtenant shall reimburse
Sublessor therefor on demand.
21. WAIVERS. The failure of Sublessor to insist in any instance upon
the strict keeping, observance or performance of any co-tenant, agreement,
term, provision or condition of this Sublease or to exercise any election
herein contained shall not be construed as a waiver or relinquishment for the
future of such covenant agreement, term, provision, condition or election, but
the same shall continue and remain in full force and effect. No surrender of
possession of the Premises or of any part thereof or of any remainder of the
term of this Sublease shall release Subtenant from any of their obligations
hereunder unless accepted by Sublessor in writing. The receipt and retention
by Sublessor of rent from anyone other than Subtenant shall not be deemed a
waiver of the breach by Subtenant of any covenant, agreement, term or
provision of this Sublease, or as the acceptance of such other person as a
Subtenant, or as a release of Subtenant from the further keeping, observance
or performance by Subtenant of the covenants, agreements, terms, provisions
and conditions herein contained. The receipt and retention by Sublessor of
rent with knowledge of the breach of any covenant, agreement, term, provision
or condition herein contained shall not be deemed a waiver of such breach.
22. SUCCESSORS AND ASSIGNS. This Sublease shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors
and assigns, or heirs and personal representatives, as applicable.
23. NOTICES. Any and all communications delivered hereunder shall be sent
by first-class mail, or commercial overnight express carrier (e.g. Federal
Express, DHL, etc): if to Sublessor, at 6500 International Parkway, Plano,
Texas 75093 (Attention: Vice President - Real Estate, with a copy to the
General Counsel); and if to Subtenant at BJ's Chicago Pizza & Brewery, Inc.,
26131 Marguerite Parkway, Suite A, Mission Viejo, CA 92692 (Attention: Paul
Motenko) or to such other address and attention as Sublessor or Subtenant
shall notify the other in writing. A copy of all such notices shall also be
sent to Martin M. Fleisher, Esq., Jeffer, Mangels, Butler & Marmaro LLP, One
Sansome Street, 12th Floor, San Francisco, California 94104.
24. ENTIRE AGREEMENT. This Sublease contains all of the covenants,
agreements, term, provisions, conditions, warranties and understandings
relating to the leasing of the Premises and Sublessor's obligations in
connection therewith, and neither Sublessor nor any agent or representative of
Sublessor has made or is making, and Subtenant in executing and delivering
this Sublease are not relying upon, any warranties, representations, promises
or statements whatsoever, except to the extent expressly set forth in this
Sublease. All understandings and agreements, if any, heretofore had between
the parties are merged into this Sublease, which alone fully and completely
expresses the agreement of the parties.
25. ATTORNEYS' FEES. If Sublessor or Subtenant or any Broker shall
commence an action against any one or both of the others arising out of or in
connection with this Sublease, including any bankruptcy proceeding, the
prevailing party shall be entitled to recover its costs of suit and reasonable
attorneys' fees and court costs from the opposing party in such action.
26. INDEMNIFICATION. Subtenant shall and hereby does indemnify and hold
the Master Landlord and Sublessor harmless from and against any and all
actions, claims, demands, damages, liabilities and expenses (including without
limitation, reasonable attorneys' fees and expenses) asserted against, imposed
upon or incurred by Sublessor or the Master Landlord by reason of (a) any
violation by Subtenant, its agents, servants, employees or invitees, of any of
the terms, covenants or conditions of the Master Lease or this Sublease, (b)
any damage or injury to persons or Premises occurring upon or in connection
with the use or occupancy of the Premises, except as a result of the gross
negligence of the Master Landlord or Sublessor, or their respective agents,
employees or invitees, and (c) the presence of any Hazardous Materials and
Hazardous Substances unrelated to the operation of the Premises on, under, in
or about the Premises, and the Costs associated with the clean-up of any such
Materials and Substances, or (d) any violation of any Environmental Laws on,
under, in, about, to or from the Premises. Sublessor has no actual knowledge
of any Hazardous Materials or Substances under, in or about the Premises
except for normal cooking and cleaning chemicals. As used herein, the
following terms shall have the following meanings:
a. "ENVIRONMENTAL LAWS" shall mean the Comprehensive Environmental
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Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 USC 9601 et seq., the Solid
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act
of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42
USC 6901 et seq., The Federal Water Pollution Control Act, as amended by the
Federal Clean Water Act of 1977, 33 USC 1251 et seq., the Toxic Substance
Control Act of 1976, 15 USC 2601 et seq., the Emergency Planning and
Community Right to Know Act of 1986, 42 USC 11001 et seq., the Clean Air Act
as amended, 42 USC 7401 et seq., the National Environmental Policy Act of
1969, 42 USC 4321, the Rivers and Harbors Act of 1899, 33 USC 401 et seq.,
the Endangered Species Act of 1973, as amended, 29 USC 1531 et seq., the
Occupational Health and Safety Act of 1970, as amended, 29 USC 651 et seq.,
the Safe Drinking Water Act of 1974, as amended, 42 USC 300(f) et seq., the
California Environmental Quality Act, California Public Resources Code 21000
et seq., California Safe Drinking Water and Toxic Enforcement Act,
(Proposition 65) California Health and Safety Code 25249.5-25249.12,
California Clean Air Act, California Health and Safety Code 39000 et seq.,
Porter-Cologne Water Quality Control Act, California Water Code 13000 et
seq., California Endangered Species Act, California Fish and Game Code 2050
et seq., California Hazardous Waste Control Laws, California Health and Safety
Code 25100 et seq., California Hazardous Substance Act, California Health
and Safety Code 28740 et seq., and all amendments, rules, regulations and
guidance documents promulgated or published thereunder. In addition, the
term "Environmental Laws" also includes all future laws, rules, regulations,
and guidance documents relating to public health, safety or the environment,
including, without limitation, 1) Releases to air, water, groundwater, or
land; 2) withdrawal or use of groundwater; 3) the use, handling, or disposal
of polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde; 4) the
treatment, storage, disposal, or management of Hazardous Substances (including
without limitation, petroleum, its derivatives, by-products or other
hydrocarbons), and any other solid, liquid, or gaseous substance, exposure to
which is prohibited, limited or regulated, or which may or could pose a hazard
to the health and safety of the occupants of the Premises or the Premises
adjacent to or surrounding the Premises; and 5) the exposure of persons to
toxic, hazardous, or other controlled, prohibited or regulated substances, and
any regulation, order, injunction, judgment, declaration, notice or demand
issued thereunder.
b. "HAZARDOUS SUBSTANCE" shall have the meaning given to it under Section
-------------------
101(14) of the Comprehensive Environmental Recovery Compensation & Liability
Act, as amended, 42 U.S.C. 9601(14). It shall also include, but not be
limited to, any substance: (i) the presence of which requires investigation
or remediation under any federal, state, or local statute, action, policy or
common law; or (ii) which is or becomes defined as a 'Hazardous Waste,'
'Hazardous Substance,' pollutant or contaminate under any federal, state or
local statute, regulation, rule or ordinance or amendment thereto including
without limitation the Resource Conservation & Recovery Act (42 U.S.C. 6901
et seq.); teratogenic or otherwise hazardous and is or becomes regulated by
any governmental authority, agency, department, commission, board, agency or
instrumentality of the United States, the State of Arizona or any political
subdivision thereof; or (iii) which contains, without limitation, gasoline,
diesel fuel, petroleum hydrocarbons, polychlorinated biphenyls (PCBs),
asbestos, formaldehyde, foam insulation, or radon gas.
c. "HAZARDOUS MATERIAL" shall mean any material which is listed in the
------------------
Department of Transportation Hazardous Materials Table, 49 CFR 172.101 or
which is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic, teratogenic or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission,
board, agency or instrumentality of the United States, the State of California
or any political subdivision thereof.
d. "COSTS" shall include, but is not limited to, attorneys' fees,
-----
paralegal fees, court costs, consultants fees, expert witness fees, litigation
expenses, third party claims for personal injury or real or personal property,
damages, actions, administrative proceedings (including, without limitation,
informal proceedings), judgments, damages, penalties, costs, expenses,
liabilities of any kind or nature (including, without limitation, sums paid in
settlements of claims or losses).
e. "RELEASE" shall mean any spilling, leaking, pumping, pouring, emitting,
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emptying, discharging, injecting, escaping, leaching, dumping, or disposing
into the environment, unless permitted or authorized by a regulatory agency.
27. TIMELY PERFORMANCE. Time is of the essence of all of Subtenant's
obligations and liabilities hereunder.
28. APPLICABLE LAW. This Sublease shall be governed by the internal laws
and decisions of the State of California, without regard to its conflict of
laws principles.
29. COUNTERPARTS. This Sublease may be executed in one or more
counterparts, each of which will be deemed an original, but all of which, when
taken together, will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Sublease as of
the date first above written.
"Sublessor"
STEAK AND ALE OF CALIFORNIA, INC.,
a Nevada corporation
By: ________________________________
Name: ________________________________
Title: ________________________________
"Subtenant"
B.J.'S CHICAGO PIZZA & BREWERY, INC.,
a California corporation
By: ________________________________
Name: ________________________________
Title: ________________________________
<PAGE>
MXF SFDOCS\88790 2 58794 0002 08/31/98
EXHIBIT A
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COPY OF LEASE
---------------
[Attached]
<PAGE>
EXHIBIT B
----------
FORM OF BILL OF SALE
------------------------
[ATTACHED]
<PAGE>
MXF SFDOCS\88790 2 58794 0002 08/31/98
EXHIBIT B
BILL OF SALE
--------------
THIS BILL OF SALE is made as of September 1, 1998, by STEAK AND ALE OF
CALIFORNIA, INC., a Nevada corporation ("Seller"), in favor of B.J.'S CHICAGO
PIZZA & BREWERY, INC., a California corporation ("Buyer"). In consideration
of the receipt of the sum of Sixty-Three Thousand Dollars ($63,000.00), Seller
agrees as follows:
Seller hereby sells, assigns and transfers to Buyer, all of Seller's
right, title and interest in and to all of the property improvements (which
are not considered part of the leasehold), furniture fixtures and equipment
(collectively, the "FF&E") located as of the date hereof at certain premises
commonly known as 400 East Huntington Avenue, Arcadia, California 91006-3748
(the "Premises"), excluding, however, Seller's interest in (i) all of
"Bennigan's trademarked and proprietary items, including china, (ii) the point
of sale system, including all hardware and software, and (iii) any liquor
inventory.
THE SALE OF FF&E IS MADE BY SELLER TO BUYER ON AN "AS-IS, WHERE-IS" BASIS
WITHOUT RECOURSE OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY
EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR OTHERWISE, ALL SUCH WARRANTIES BEING EXPRESSLY EXCLUDED.
IN WITNESS WHEREOF, Seller has executed and delivered this Bill of Sale
as of the date first shown above.
STEAK AND ALE OF CALIFORNIA, INC.,
a Nevada corporation
By: ________________________________
.Name: ________________________________
Title: ________________________________
ACCEPTED AND AGREED TO as of the date first shown above:
"Subtenant"
B.J.'S CHICAGO PIZZA & BREWERY, INC.,
a California corporation
By: ________________________________
Name: ________________________________
Title: ________________________________
