<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1996
REGISTRATION NO. 333-9009
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
AMENDMENT NO. 1
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
KATMANDU ENTERTAINMENT CORP.
(Exact Name of Registrant as Specified in Its Charter)
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<CAPTION>
<S> <C> <C>
Delaware 5812 23-2851964
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
415 N. COLUMBUS BLVD.
PHILADELPHIA, PENNSYLVANIA 19123
(215) 629-7400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S EXECUTIVE OFFICES)
------
S. LANCE SILVER AND STUART N. HARTING
CO-CHAIRMEN AND CO-PRESIDENTS
KATMANDU ENTERTAINMENT CORP.
415 N. COLUMBUS BLVD.
PHILADELPHIA, PA 19123
(215) 629-7400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF AGENT FOR SERVICE)
with a copy to:
STEPHEN A. ZELNICK, Esq. LAWRENCE B. FISHER, Esq.
Morse, Zelnick, Rose & Lander, LLP Orrick, Herrington & Sutcliffe LLP
450 Park Avenue 666 Fifth Avenue - 18th Floor
New York, New York 10022 New York, New York 10103
(212) 838-8040 (212) 506-5000
(212) 838-9190 (FAX) (212) 506-5151 (FAX)
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Registration Statement becomes effective.
------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, as amended (the "Securities Act"), check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
===============================================================================
<PAGE>
<TABLE>
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CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
Amount Proposed Maximum Proposed Maximum Amount of
Title of Each Class Being Offering Price Aggregate Registration
of Securities to Be Registered Registered Per Share(1) Offering Price(1) Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share (2)......... 3,136,666 $6.00 $18,819,996 $6,489.65
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants to purchase
Common Stock (3)(5) ......... 2,875,000 $.10 $287,500 $99.14
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of Redeemable Common
Stock Purchase Warrants (3) . 2,875,000 $7.20 $20,700,000 $7,137.93
- -----------------------------------------------------------------------------------------------------------------------------------
Representative's Warrants .... 250,000 $.0001 $25 (4)
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of Representative's
Warrants (5) ................ 250,000 $7.20 $1,800,000 $620.69
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants issuable
upon exercise of
Representative's Warrants ... 250,000 $.12 $30,000 $10.34
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of Redeemable Common
Stock Purchase Warrants
issuable upon exercise of
Representative's Warrants (5). 250,000 $7.20 $1,800,000 $620.69
- -----------------------------------------------------------------------------------------------------------------------------------
Total Registration Fee ....................................................................................... $14,978.44
===================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee
pursuant to Rule 457 under the Securities Act.
(2) Includes (a) 375,000 shares of Common Stock issuable upon exercise of the
Representative's Over-Allotment Option and (b) 261,666 shares of Common
Stock which may be offered for sale by selling stockholders pursuant to
the attached selling stockholder Prospectus.
(3) Includes 375,000 Redeemable Common Stock Purchase Warrants issuable upon
exercise of the Representative's Over-Allotment Option.
(4) No registration fee required pursuant to Rule 457 under the Securities
Act.
(5) Pursuant to Rule 416 of the Securities Act, there are also being
registered hereby such additional indeterminate number of Common Shares
as may become issuable pursuant to the anti-dilution provisions of the
Redeemable Common Stock Purchase Warrants and the Representative's
Warrants.
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CROSS-REFERENCE SHEET
(SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS 1 THROUGH 23, PART I OF FORM SB-2)
<TABLE>
<CAPTION>
Item and Caption in Form SB-2 Location in Prospectus
-------------------------------------------------- -------------------------------------------------------
<S> <C> <C>
1. Front of SB-2 Registration Statement and Outside
Cover Page of Prospectus.......................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page; Outside Back Cover Page
3. Summary Information and Risk Factors............... Prospectus Summary; Risk Factors
4. Use of Proceeds.................................... Prospectus Summary; Use of Proceeds; Management's Discussion
and Analysis of Financial Condition and Plan of Operations
5. Determination of Offering Price.................... Outside Front Cover Page of Prospectus;
Risk Factors; Underwriting
6. Dilution .......................................... Risk Factors; Dilution
7. Selling Security-Holders .......................... Not Applicable
8. Plan of Distribution............................... Outside Front Cover Page; Inside Front Cover Page;
Underwriting
9. Legal Proceedings.................................. Business
10. Directors, Executive Officers, Promoters and
Control Persons................................... Risk Factors; Management
11. Security Ownership of Certain Beneficial Owners
and Management.................................... Risk Factors; Management; Principal Stockholders
12. Description of Securities.......................... Description of Securities; Underwriting
13. Interest of Named Experts and Counsel ............. Legal Matters
14. Disclosure of Commission Position of
Indemnification for Securities Act Liabilities ... Risk Factors; Management
15. Organization within Last Five Years................ The Company; Reorganization and Final Partnership
and S Corporation Distributions; Certain
Transactions
16. Description of Business............................ Summary; Management's Discussion and Analysis of Financial
Condition and Plan of Operations; Business
17. Management's Discussion and Analysis and
Plan of Operation ................................ Management's Discussion and Analysis of
Financial Condition and Plan of Operations
18. Description of Property............................ Prospectus Summary; Management's Discussion
and Analysis of Financial Condition and Plan of
Operations; Business
19. Certain Relationships and Related Party
Transactions ..................................... The Company; Reorganization and Final Partnership
and S Corporation Distributions; Certain
Transactions
20. Market for Common Equity and Related
Stockholder Matters .............................. Outside Front Cover Page; Prospectus Summary;
Risk Factors; Dividend Policy; Underwriting
21. Executive Compensation............................. Management
22. Financial Statements .............................. Financial Statements
23. Changes and Disagreements with Accountants on
Accounting and Financial Disclosure............... Not Applicable
</TABLE>
<PAGE>
EXPLANATORY NOTE
This registration statement (the "Registration Statement") contains two
prospectuses: one relating to this Offering of 2,500,000 shares of Common
Stock and 2,500,000 Redeemable Common Stock Purchase Warrants by KatManDu
Entertainment Corp. (the "Company"), plus 375,000 shares of Common Stock and
375,000 Redeemable Common Stock Purchase Warrants to cover over-allotments,
if any (the "Prospectus"), and one relating to the Offering of 261,666 shares
of Common Stock (the "Selling Securityholder Shares"), of which 141,666 were
issued to those certain securityholders of the Company who purchased an
aggregate of $1.1 million principal amount of the Company's 10% Notes in
connection with the June 1996 Financing (as hereinafter defined) (the
"Selling Securityholder Prospectus"). Following the Prospectus are certain
substitute pages of the Selling Securityholder Prospectus, including
alternate front outside and back cover pages, an alternate "The Offering"
section of the "Prospectus Summary" and sections entitled "Concurrent
Offering" and "Plan of Distribution." Each of the alternate pages for the
Selling Securityholder Prospectus included herein is labeled "Alternate Page
for Selling Securityholder Prospectus." All other sections of the Prospectus,
other than "Underwriting", are to be used in the Selling Securityholder
Prospectus. In addition, cross-references in the Prospectus will be adjusted
in the Selling Securityholder Prospectus to refer to the appropriate
sections.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1996
PROSPECTUS
LOGO
2,500,000 SHARES OF COMMON STOCK AND
2,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
------
This Prospectus relates to the offering (the "Offering") of 2,500,000
shares (the "Shares") of common stock, $0.001 par value per share (the
"Common Stock"), and 2,500,000 Redeemable Common Stock Purchase Warrants (the
"Warrants") of KatManDu Entertainment Corp., a Delaware corporation (the
"Company"). The Shares and Warrants are sometimes hereinafter collectively
referred to as the "Securities." Until the completion of this Offering, the
Shares and Warrants may only be purchased together on the basis of one Share
and one Warrant. Each Warrant entitles the registered holder thereof to
purchase one share of Common Stock at an initial exercise price equal to 120%
of the initial public offering price per Share at any time during the period
commencing the date of this Prospectus and terminating five (5) years
thereafter. The Warrant exercise price is subject to adjustment under certain
circumstances. Commencing eighteen (18) months after the date of this
Prospectus, the Company may redeem all, but not less than all, of the
Warrants at $0.10 per Warrant on thirty (30) days prior written notice to the
warrantholders if the per share closing bid price of the Common Stock as
reported on the American Stock Exchange ("AMEX") equals or exceeds 200% of
the initial public offering price per Share for any twenty (20) trading days
within a period of thirty (30) consecutive trading days ending on the fifth
trading day prior to the notice of redemption.
Each Share of Common Stock carries one-third the voting power of each
share of Class A Common Stock, par value $.001 per share (the "Class A
Stock"). See "Description of Securities."
Prior to this Offering, there has been no public market for the Common Stock
or the Warrants, and there can be no assurance that such a market will develop
after completion of this Offering or, if developed, that it will be sustained.
It is presently anticipated that the initial public offering prices per Share
and per Warrant will be $6.00 and $0.10, respectively. For information regarding
the factors considered in determining the initial public offering prices of the
Shares and Warrants and the terms of the Warrants, see "Risk Factors" and
"Underwriting." Application will be made to list the Shares and Warrants on AMEX
under the symbols KAT and KAT WS, respectively. The Shares and Warrants will
trade separately immediately after the Offering.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 8 AND "DILUTION."
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
===============================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- -------------------------------------------------------------------------------
Per Share ...... $ $ $
- -------------------------------------------------------------------------------
Per Warrant ... $ $ $
- -------------------------------------------------------------------------------
Total(3) ...... $ $ $
===============================================================================
<PAGE>
(1) Does not include additional compensation payable to National Securities
Corporation, the representative (the "Representative") of the several
Underwriters (as defined herein), in the form of a non-accountable
expense allowance. In addition, see "Underwriting" for information
concerning indemnification and contribution arrangements with the
Underwriters and other compensation payable to the Representative.
(2) Before deducting estimated expenses of $500,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option exercisable within
45 days after the date of this Prospectus to purchase up to an aggregate
of 375,000 additional shares of Common Stock and/or 375,000 additional
Warrants upon the same terms and conditions as set forth above, solely to
cover over-allotments, if any. If such over-allotment option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
The Securities are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to approval of certain legal matters by their counsel and subject to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify this Offering and to reject any order in whole or in part.
It is expected that delivery of the Securities offered hereby will be made
against payment at the offices of National Securities Corporation, Seattle,
Washington on or about , 1996.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1996
<PAGE>
[PHOTOGRAPHS AND CAPTIONS]
[This page contains five graphics and a caption for the entire page. The
largest graphic is a photograph of the entrance to KatManDu-Philadelphia: a
wooden walkway covered by a yellow awning with a large "KatManDu" sign above
it written in the style of the KatManDu logo. There is a motorcycle parked in
the front and foliage around the entrance. The picture covers approximately
two-thirds of the page. A second graphic is a picture of a three man musical
group: one is playing the bass, one is playing the kettle drums and one is
playing the guitar. The other graphics consist of pictures of a flower and a
pineapple superimposed in the bottom left corner and along the lower left
border of the page and a picture of coconuts in the lower right corner. The
caption for the page reads as follows: "Welcome to the Mythical Island of
KatManDu!"]
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent certified public
accountants.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE BOSTON STOCK EXCHANGE,
NASDAQ, THE OVER-THE- COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
[This page contains six graphics, four of which have their own individual
captions, and a caption for the entire page. The caption for the entire page,
which appears at the top center/right, reads "Think globally..." In the upper
left corner and along the top half of the left border a picture of a flower
and a pineapple are superimposed. In the bottom left corner is a picture of a
turbaned dancer wearing a skirt, beaded necklaces, an armband, ankle
bracelets and carrying a flaming torch. In the bottom right corner is a
picture of KatManDu promotional merchandise bearing the KatManDu logo and a
salesperson. The caption under the picture reads: "Promotional merchandise
and accessories." Above that picture, along the right border, is a picture of
a five person musical group performing on a stage with a sign that reads
"Live KatManDu". "KatManDu" is written in the style of the KatManDu logo. The
stage is decorated with flowers and foliage. The picture has a caption which
reads "Musical Entertainment". Immediately to the left of that picture, in
the top portion of the center of the page is a picture of a crowd on the
dance floor of KatManDu with the stage in the background. The picture was
shot during the daytime hours. The caption reads "Let the sun shine..."
Immediately beneath that picture is another picture showing the inside of the
entrance to KatManDu with its wood decking and tropical foliage. People are
shown walking into the restaurant. The caption reads "Kat Alley...your
adventure begins!"]
<PAGE>
[This page contains six graphics, three of which have their own individual
captions, and a caption for the entire page. The top half of the page
contains a photograph of a crowd scene on the dance floor with a band playing
on the stage. Superimposed in the upper right corner is a smaller picture of
a five-person band and immediately to the left of that picture is a picture
of a four man singing group. Underneath the left corner of the larger picture
is a caption that reads "An evening at KatManDu..." In the bottom right
corner is a picture of a crowd on the dance floor with the KatManDu stage in
the background. The caption under this picture reads "Party on the Pier
Deck..." To the left of that picture is a picture of a crowd scene at the
Main Bar. It has a caption which reads "At the Main Bar..." Attached to the
bottom left corner of this picture is a picture of coconuts. The caption for
the entire page, which appears below the large picture, reads ". . . party
locally!"]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and Financial Statements, including the notes
thereto, appearing elsewhere in this Prospectus. Except as otherwise
specified, all information in this Prospectus gives effect to the
Reorganization (as defined below in "Reorganization and Final Partnership and
S Corporation Distributions") and the issuance of the shares of Class A
Stock, which will be effected prior to or simultaneous with the consummation
of this Offering and assumes no exercise of the Warrants offered hereby, the
Representative's Warrants (as defined) or the Over-Allotment Option. As used
herein the term "Company" refers to KatManDu Entertainment Corp., its
predecessors and its subsidiaries. Investors should carefully consider the
information set forth under the captions "Risk Factors" and "Dilution."
THE COMPANY
The Company owns and operates a casual dining, outdoor, theme restaurant
named "KatManDu" (referred to herein as "KatManDu-Philadelphia").
KatManDu-Philadelphia is located on the Delaware River waterfront in central
Philadelphia and operates from mid-April through mid-September. With its
waterfront setting, casual atmosphere, live musical entertainment and
dancing, KatManDu-Philadelphia is designed to replicate a mythical "tropical
island paradise" vacation setting. The Company also sells a variety of
merchandise, such as T-shirts, sweatshirts, caps, jackets and novelty items.
The Company has commenced development of a second KatManDu
restaurant/nightclub ("KatManDu-Trenton"), presently scheduled to open in the
first quarter of 1997. The Company has entered into a 30-year lease for a
21,500 square foot site which includes a 10,000 square foot historic landmark
building on the Delaware River waterfront in Trenton, New Jersey.
KatManDu-Trenton is located adjacent to an office park and the new Trenton
Thunder baseball stadium. With a portion of the net proceeds of this Offering
and the proceeds of a construction loan for which the Company has already
received a commitment, the Company intends to develop this site into an
indoor/outdoor KatManDu restaurant/nightclub which will operate year round.
KatManDu-Philadelphia has attracted a culturally diverse, multi-aged
customer base, including both local and regional residents and tourists. Key
to the success of KatManDu has been its targeting of a socioeconomically and
culturally diverse audience with a median age in the 25-55 year-old bracket.
The largest population segment in the United States is the so-called
Baby-Boomers, persons between the ages of 30 and 50. KatManDu believes that
it appeals to such age group because it offers the right combination of
quality dining and sophisticated entertainment in a comfortable tropical
island paradise vacation environment.
KatManDu-Philadelphia seats up to 180 persons for dinner and Sunday
brunch, and can accommodate an additional 250 persons for cocktails at its
"Main Bar" area (which includes a 100-linear foot bar) and up to 1,200
persons on its dance floor and adjoining full-service "Tiki" bar. After
dinner and on Saturday and Sunday afternoons and evenings, when live music is
featured, KatManDu-Philadelphia attracts young adults and active older adults
drawn by its music-filled environment and dancing. At other times,
KatManDu-Philadelphia provides a more relaxed atmosphere appealing to
business people and families.
With the proceeds of this Offering and other forms of site specific
financing, the Company plans to develop one to two additional
restaurant/nightclubs in 1997 in addition to KatManDu-Trenton and two other
restaurant/nightclubs in 1998. The Company will target waterfront locations
in urban areas with favorable demographics, such as Atlantic City, the New
York City metropolitan area, Baltimore/Washington D.C., Los Angeles, Las
Vegas, Vancouver, Orlando and Miami.
The Company's executive offices are located at 415 North Columbus
Boulevard, Philadelphia, Pennsylvania 19123 and its telephone number is (215)
629-7400.
3
<PAGE>
THE OFFERING
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<S> <C>
Securities offered hereby ..................... 2,500,000 Shares of Common Stock and 2,500,000 Warrants at an assumed
initial public offering price of $6.00 per Share of Common Stock
and $0.10 per Warrant. The Shares of Common Stock and the Warrants
may only be purchased together on the basis of one Share of Common
Stock and one Warrant and are separately tradable upon issuance.
Each Warrant entitles the registered holder thereof to purchase
at any time until five years after the date on which this Offering
is declared effective (the "Effective Date"), one share of Common
Stock at an exercise price per share equal to 120% of the initial
public offering price. The Warrants are subject to redemption by
the Company for $0.10 per Warrant at any time commencing 18 months
after the Effective Date, on 30 days written notice, provided that
the closing bid price of the Common Stock equals or exceeds 200%
of the initial public offering price per share of Common Stock for
any 20 trading days within a period of 30 consecutive trading days
ending on the fifth trading day prior to the date of the notice
of redemption to the holders of the Warrants.
Outstanding Securities before this Offering:
Common Stock (1) (2) ........................ 408,036 shares
Class A Common Stock ........................ 1,258,630 shares
Outstanding Securities after this Offering:
Common Stock (1) (2) ........................ 2,908,036 shares
Class A Stock ............................... 1,258,630 shares
Warrants .................................... 2,500,000 warrants
Voting Rights ................................. Holders of Common Stock and Class A Stock (collectively, the "Common
Shares") are entitled to one vote per share and three votes per
share, respectively. Immediately after this offering, holders of
Common Stock and Class A Stock will have approximately 43.51%
and 56.49%, respectively, of the combined voting power of all
outstanding Common Shares. Following this Offering, Messrs. Silver and Harting,
the principal stockholders of the Company, will own and/or control approximately
60.5% of the combined voting power of the outstanding Common Shares. See
"Risk Factors - Control by Existing Management; Effects of Disproportionate
Voting Rights"; "Principal Stockholders" and "Description of Securities."
Proposed AMEX Symbols
Common Stock ................................ KAT
Warrants .................................... KAT WS
Use of Proceeds ............................... The net proceeds to the Company from the sale of the Securities
offered hereby are expected to be approximately $12,767,500
(assuming an initial public offering price of $6.00 per Share and
$0.10 per Warrant). Such net proceeds will be used to finance the
development and opening of KatManDu-Trenton and one to two additional
KatManDu restaurant/nightclubs in 1997 and two more in 1998, to
repay the June 1996 Financing (as defined) and certain other funded
debt, and to provide working capital. See "Use of Proceeds."
Risk Factors .................................. An investment in the Securities offered hereby is speculative and
involves a high degree of risk. This Prospectus contains
forward-looking information which involves risks and uncertainties.
The Company's actual results could differ materially from those
anticipated by such forward-looking information as a result of various
factors, including those discussed under "Risk Factors" in this
Prospectus. In addition, purchasers of Shares of Common Stock offered
hereby will experience immediate and substantial dilution with respect
to their investment. See "Risk Factors."
</TABLE>
4
<PAGE>
- ------
(1) Excludes 500,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan, of which 195,176 shares are issuable
upon exercise of outstanding options granted to certain officers,
directors and employees of the Company, at an exercise price equal to the
initial public offering price per share. See "Management" and "Principal
Stockholders."
(2) Includes 141,666 shares of Common Stock issued in connection with the
June 1996 Financing (as defined). See "Management's Discussion and
Analysis of Financial Condition and Plan of Operations - Liquidity and
Capital Resources."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION(1)
The summary financial information set forth below is derived from the more
detailed financial statements appearing elsewhere in this Prospectus. This
information should be read in conjunction with such financial statements,
including the notes thereto. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operations."
<TABLE>
<CAPTION>
For the Years ended For The Six Months For The Seven Months
December 31, ended June 30, ended July 31,
1994 1995 1995 1996 1995 1996
------------ ----------- ------------ ------------ -------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statements of Income Data:
Net revenue(2) ............................ $2,773,042 $2,865,751 $1,303,638 $1,290,743 $2,003,963 $1,886,541
Food and beverage, promotional
merchandise .............................. 633,117 620,099 301,177 308,514 403,450 404,307
General and administrative, rent expense to
related party ............................ 1,723,594 1,742,898 827,870 847,411 1,149,584 1,144,185
Corporate overhead ........................ 122,038 164,628 89,720 80,139 123,051 118,529
Compensation expense(3) ................... -- -- -- 248,400 -- 248,400
Interest expense net ...................... 67,119 65,612 31,355 39,721 36,944 41,247
------------ ------------ ------------ ------------ ---------- -----------
Income (loss) before minority interest .... $ 227,174 $ 272,514 $ 53,516 ($ 233,442) $ 290,934 ($ 70,127)
Minority interests(4) ..................... (22,717) (27,251) (5,352) (1,496) (29,093) (1,496)
------------ ------------ ------------ ------------ ---------- -----------
Net income (loss) ......................... $ 204,457 $ 245,263 $ 48,164 ($ 234,938) $ 261,841 ($ 71,623)
============ ============ ============ ============ ========= ==========
Net income (loss) per common share ........ .12 .15 .03 (.14) .16 (.04)
Weighted average number of shares
outstanding(5) ........................... 1,666,666 1,666,666 1,666,666 1,666,666 1,666,666 1,666,666
Pro forma provision for income taxes(6)(9) $ 83,100 $ 99,600 $ 19,750 $ 106,700
------------ ------------ ------------ ------------
Pro forma net income before
cumulative effect of accounting change(6) $ 121,357 $ 145,663 $ 28,414 $ 155,141
Cumulative effect of accounting change for
income taxes(6) .......................... (22,100) -- -- --
------------ ------------ ------------ ------------
Pro forma net income (6) .................. $ 143,457 $ 145,663 $ 28,414 $ 155,141
============ ============ ============ ============
Pro forma net income per common share(6) .. $ .09 $ .09 $ .02 $ .09
============ ============ ============ ============
Pro forma weighted average number of shares
outstanding(5) ........................... 1,666,666 1,666,666 1,666,666 1,666,666
</TABLE>
<TABLE>
<CAPTION>
As of July 31, 1996
(Unaudited)
--------------------------------
Balance Sheet Data(7) As
Actual Adjusted(8)(9)
------------- -------------
<S> <C> <C>
Cash .................................. $ 526,436 $11,951,134
Property and equipment, net ........... 476,515 476,515
Total assets .......................... 3,627,160 13,117,158
Loan payable -- June 1996 Financing
Notes ................................ 1,100,000 --
Loan payable, related parties ......... 125,000 --
Loan payable, other ................... 104,969 --
Total current liabilities ............. 2,060,228 717,425
Stockholders' equity .................. 1,530,204 12,363,005
Working capital (deficiency) .......... (1,433,377) 11,334,124
</TABLE>
- ------
(1) The Summary Financial Information gives effect to the Reorganization
described under "Reorganization and Final Partnership and S Corporation
Distributions" and the issuance of the Class A Stock and sets forth on a
consolidated basis the operations of KatManDu Investment Partners ("KIP"), a
Pennsylvania limited partnership formed in 1991, KatManDu Corp. ("Kat
Corp."), a Pennsylvania corporation formed in 1990 and T-Kat Corp.
("T-Kat"), a New Jersey corporation formed in 1995. See "The Company" and
"Reorganization and Final Partnership and S Corporation Distributions."
(2) KatManDu-Philadelphia is only open from mid-April through mid-September.
Accordingly, it has no revenues for the Company's first and fourth
calendar quarters. See "Management's Discussion and Analysis of Financial
Condition and Plan of Operation."
6
<PAGE>
(3) Upon formation, the Company issued an aggregate of 51,750 shares of
Common Stock to Bruce Waugh, David Gromacki and Diane Thomsen, employees
of the Company. Such shares may not be sold or otherwise transferred
prior to April 1, 2001 and are also subject to forfeiture if the
employee's employment with the Company is terminated. For financial
accounting purposes, compensation expense was charged in the amount of
$248,400 in the first quarter of 1996. See "Principal Stockholders" and
Note 11(f) to the Consolidated Financial Statements.
(4) The Preefer Interests (as defined in note 7 below) are reflected as a
"minority interest" for all periods presented. The purchase of the
Preefer Interests has been reflected using the purchase method of
accounting. Of the total amount paid for the Preefer Interests in
settlement of the Preefer Litigation (as defined in note 7 below)
($225,000), $98,284 is being amortized over a 15 year period. See Note 10
to the Consolidated Financial Statements.
(5) Weighted average number of shares outstanding for both historical and pro
forma amounts, gives effect to the Reorganization and the issuance of
141,666 shares in connection with the June 1996 Financing described in
note 7 below. See "Reorganization and Final Partnership and S Corporation
Distributions."
(6) Prior to the consummation of the Reorganization, the Company has not been
subject to income taxes since KIP is a partnership and Kat Corp. and
T-Kat are S corporations. (T-Kat's election to be taxed as an S
corporation was effective as of January 1, 1996. However, T-Kat did not
have any income in 1995.) Upon consummation of the Reorganization, the
Company will be subject to federal corporate income taxes and
Pennsylvania and New Jersey corporate income taxes. Accordingly, pro
forma net income and pro forma net income per share for certain periods
presented reflects a provision for income taxes as if the Company had
been subject to federal and state income taxes. See "The Company" and
"Reorganization and Final Partnership and S Corporation Distributions."
(7) The Balance Sheet Data reflects (i) the proceeds from the sale by the
Company of its 10% promissory notes (the "June 1996 Financing Notes") in
the aggregate principal amount of $1.1 million in June 1996 (the "June
1996 Financing"); (ii) the repayment of certain liabilities to related
parties; (iii) the purchase of the interests of David Preefer and Karen
Zimmerman (the "Preefer Interests") in KIP, Kat Corp. and Chinatown
Convention Center Hotel Corporation ("Chinatown"), the corporate general
partner of KIP, in connection with the settlement of a lawsuit brought by
KIP, Chinatown, S. Lance Silver and Stuart N. Harting against David
Preefer and Kat Corp. (the "Preefer Litigation"); and (iv) a capital
contribution of approximately $321,700 by certain principal stockholders
of the Company, all of which occurred in June and July 1996. See
"Management Discussion and Analysis of Financial Condition and Plan of
Operation - Liquidity and Capital Resources" and "Certain Transactions."
(8) Adjusted to reflect (i) the sale of 2,500,000 Shares of Common Stock and
2,500,000 Warrants offered by the Company at an assumed initial public
offering price of $6.00 per Share and $0.10 per Warrant and the initial
application of the proceeds therefrom, after deducting estimated expenses of
this Offering, (ii) the deferred offering expenses of approximately
$1,072,000 relating to this Offering, (iii) the repayment of approximately
$230,000 of loans to certain parties and (iv) the remaining, non-recurring
charges relating to the June 1996 Financing in the amounts of (x) $9,167 for
accrued interest through September 30, 1996 on the June 1996 Financing Notes
and (y) $850,000 for original issue discount. See "Management Discussion and
Analysis of Financial Condition and Plan of Operation - Liquidity and
Capital Resources" and "Certain Transactions."
(9) As adjusted balance sheet data and pro forma statement of income data do
not reflect the Final Distribution (see "Reorganization and Final
Partnership and S Corporation Distributions") which may be as much as
$450,000 but cannot be determined at this time.
7
<PAGE>
THE COMPANY
The Company was founded in 1990 as Kat Corp., and in 1991 as KIP. KIP
holds the lease for the premises occupied by KatManDu-Philadelphia and all of
the assets used in its business, and Kat Corp. holds the liquor license for
KatManDu-Philadelphia and operates KatManDu-Philadelphia. T-Kat Corp. was
organized in 1995 to develop, own and operate KatManDu-Trenton. In March
1996, the Company was organized under the laws of the State of Delaware to
serve as a holding company for the ownership interests in Kat Corp., KIP and
T-Kat. Accordingly, the three entities are presented as wholly-owned
subsidiaries. See "Reorganization and Final Partnership and S Corporation
Distributions."
Unless the context otherwise requires, as used herein the "Company" refers
to KatManDu Entertainment Corp., its predecessors and affiliates.
REORGANIZATION AND FINAL PARTNERSHIP AND S CORPORATION DISTRIBUTIONS
Immediately prior to the consummation of this Offering, the stockholders
of Kat Corp., T-Kat and Chinatown, and the limited partners of KIP will
transfer their ownership interests in those entities to the Company in a
tax-free exchange pursuant to which the transferors will receive an aggregate
of 1,258,630 shares of Class A Stock and 60,000 shares of Common Stock of the
Company. Immediately thereafter, KIP and Chinatown will be liquidated and Kat
Corp. and T-Kat will become wholly-owned subsidiaries of the Company with Kat
Corp. owning and operating KatManDu-Philadelphia and T-Kat owning and
operating KatManDu-Trenton (collectively, the "Reorganization"). See
"Principal Stockholders."
As KIP is a partnership and each of Kat Corp., Chinatown and T-Kat has
elected to be taxed as an S corporation for federal and state income tax
purposes, none of such entities is subject to federal income taxes or state
corporate income taxes. Rather, the partners of KIP and the stockholders of
Kat Corp., T-Kat and Chinatown, respectively, include their proportionate
share of such entities' taxable income in their personal taxable income
without regard to whether such entities made distributions to them, and have
been subject to federal and state income taxes on such income. (While T-Kat
made the election to be taxed as an S corporation with respect to years
beginning on and after January 1, 1996, it did not have any taxable income in
1995.) The partners of KIP and the shareholders of Kat Corp., T-Kat and
Chinatown will continue to be taxable on the income of those entities until
consummation of the Reorganization. Accordingly, the Company will declare a
special distribution to such partners and stockholders in an amount equal to
the aggregate undistributed taxable income of each of such entities through
the date of the Reorganization (the "Final Distribution"). The Company
intends to make the Final Distribution promptly after the determination of
the taxable net income for each of KIP, Chinatown, Kat Corp. and T-Kat,
respectively, for the period ending on the date the Reorganization is
consummated. The Company has agreed with the Representative that the Final
Distribution will not exceed $450,000. Purchasers of Common Stock in this
Offering will not receive any part of the Final Distribution. See "Use of
Proceeds."
The Company is not an S corporation and, accordingly, following this
Offering the Company will be subject to federal and state income taxes.
8
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby is speculative and involves
a high degree of risk. In addition to the other information contained in this
Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing the Securities
offered hereby. Prospective investors should be in a position to risk the
loss of their entire investment. This Prospectus contains forward-looking
information which involve risks and uncertainties. The Company's actual
results could differ materially from those anticipated by such
forward-looking information as a result of various factors, including those
set forth in the following risk factors and elsewhere in this Prospectus.
Limited Operating History; Dependence Upon Offering; Financial
Condition. The Company opened KatManDu-Philadelphia in 1991. All historical
financial results for the Company are derived solely from
KatManDu-Philadelphia.
KatManDu-Philadelphia is operational from mid-April to mid-September only.
Accordingly, the Company generates no revenues in the first and fourth
quarters of each calendar year (including the quarter ending immediately
following the consummation of this Offering) and its cash position is
extremely limited and, generally, it has negative working capital during such
periods. The Company was in default with respect to various obligations to
its principal shareholders and entities which they control in 1994 and 1995.
All of such loans have since been repaid. Also, as of July 31, 1996, the
Company had negative working capital of approximately $1.4 million. Of such
amount, $1.1 million represents the aggregate principal amount of the June
1996 Financing Notes, which amount will be repaid out of the proceeds of this
Offering. Finally, the Company expects to incur a non-recurring, non-cash
interest charge of $850,000 in the third quarter of 1996 attributable to
original issue discount arising from the issuance of 141,666 shares of Common
Stock in connection with the June 1996 Financing.
The Company's ability to generate net income in the future will depend
upon the success of KatManDu-Philadelphia and the successful implementation
of the Company's expansion strategy. As the Company's cash requirements will
be significant, the Company is dependent on the proceeds of this Offering to
implement its expansion strategy. The Company presently believes that it will
cost approximately $3.75 million to develop and construct KatManDu-Trenton.
The Company estimates that the cost of developing and opening future
restaurant/nightclubs will range between $3.5 million and $5.0 million and
could be more in certain cities. The significant investment associated with
each new restaurant/nightclub may cause the operating results of the Company
to fluctuate significantly and adversely affect the profitability of the
Company. Poor operating results at any one of the Company's current or
planned restaurant/nightclubs or a delay in a planned opening of a
restaurant/nightclub could have a material adverse effect on the
profitability of the Company. There can be no assurance that the Company will
be able to achieve the significant revenue it requires to meet its operating
and other expenses. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Plan of Operations."
Quarterly Fluctuations In Results of Operation; Seasonality. The
restaurant business in general is subject to seasonal fluctuations.
KatManDu-Philadelphia generally is only open from mid-April through
mid-September. For the rest of the year it has no revenues even though it has
expenses. Therefore, after consummation of this Offering, the Company will
not generate any revenues until KatManDu-Trenton becomes operational,
anticipated to be in the first quarter of 1997, or the new season begins for
KatManDu-Philadelphia in April 1997. Even then, there can be no assurance
that KatManDu-Trenton will generate sufficient revenues, if any, to cover the
Company's expenses. In addition, because it is outdoors,
KatManDu-Philadelphia's results of operations are directly affected by
weather conditions. Rain and below normal temperatures, particularly on
weekends such as was the case for the 1996 season, have had and, may in the
future have, an adverse impact on operations. KatManDu-Trenton has been
designed to operate year-round, having separate, fully equipped indoor and
outdoor areas. Nevertheless, there can be no assurance that its revenues will
be consistent throughout the year, or that other restaurant/nightclubs can be
developed on a similar or more profitable basis. Moreover, the Company's
results of operations may also fluctuate from quarter to quarter in the
future as a result of the amount and timing of start-up expenses and revenues
contributed by new restaurant/nightclubs and the integration of such new
restaurant/nightclubs into the operations of the Company as well as other
factors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
9
<PAGE>
Possible Need For Additional Financing; Financing Risks. The Company's
ability to execute its expansion plans depends on its ability to finance the
development of new restaurant/nightclubs. The capital resources required to
develop each new KatManDu restaurant/nightclub are significant. The Company
currently estimates the total cost of developing and opening a new KatManDu
restaurant/nightclub, including development costs, construction costs,
equipment, furniture, fixtures and pre-opening expenses, will range from $3.5
million to $5.0 million or more, depending upon location, site conditions,
construction costs and other relevant factors. The Company presently expects
that the estimated net proceeds from this Offering, together with cash flow
from operations and site specific financing (i.e., landlord contributions,
vendor financing, vendor advertising, equipment leases, leases, mortgage
financings) will be sufficient to develop KatManDu-Trenton, one to two
additional KatManDu restaurant/nightclubs in 1997 and an additional two
restaurant/nightclubs in 1998. However, there can be no assurance that any
additional restaurant/nightclubs will be successfully developed, that the
Company will be able to develop and open a new restaurant/nightclub at such
costs, that the Company will have sufficient cash flow from operations, or
that the Company will be able to secure site specific financing on such terms
and conditions which will enable the Company to achieve its expansion goals.
The Company may be required to seek other forms of financing (including the
sale of debt and equity securities) to achieve its expansion goals. If the
Company is unable to secure additional sources of financing on terms and
conditions acceptable to the Company or at all, the Company's expansion
strategy could be materially adversely affected.
The Company plans to obtain site specific financing arrangements to fund,
in part, the cost of developing future restaurant/nightclubs. In addition,
the Company intends to develop each new restaurant/nightclub through a
separate subsidiary. However, the lender in such case may require additional
security such as a lien on all of the assets of the Company or a guaranty by
the Company rather than a security interest only in the assets of the
restaurant/nightclub which is being developed. To the extent the Company's
assets are mortgaged or otherwise used to secure such financing, such
financing will increase the risks associated with a downturn in business
which might result from new competition or an adverse change in the economy
and other factors which may negatively impact the business. Among other
factors, because the Company's obligations under long-term leases will remain
constant, decreases in revenues from sales and/or increases in operating
expenses from projected levels may result in a substantial reduction in cash
available to satisfy the Company's debt service requirements. If the revenues
from a particular restaurant/nightclub are insufficient to service the
Company's debt, its lease obligations or its operating expenses, the Company
will be required to seek additional funds from other sources or suffer the
risk of loss of some or all of its restaurant/nightclubs. There can be no
assurance that the Company will be able to obtain such additional funds on
terms acceptable to it. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operations."
The Company anticipates that the total cost to develop and construct
KatManDu-Trenton will be approximately $3.75 million. The Company has
received a commitment from Equity National Bank for a $2.5 million
construction loan (the "Construction Loan") to be used in connection with the
development of KatManDu-Trenton. The Construction Loan will be secured by
the assets of T-Kat and a leasehold mortgage on KatManDu-Trenton and will be
guaranteed by the Company and by Messrs. Silver and Harting personally. In
addition, the New Jersey Economic Development Authority (the "NJEDA") has
passed a resolution approving the Company's application for a $2.5 million
loan (the "NJEDA Loan"), the proceeds of which will be used to repay the
Construction Loan. The NJEDA Loan will be funded upon completion of
KatManDu-Trenton and the issuance of a certificate of occupancy with respect
thereto. It is anticipated that $1 million of the NJEDA Loan will be provided
by one of the NJEDA's local development financing funds and $1.5 million will
be provided by a bank. The portion of the NJEDA Loan funded by the local
development fund will be for a term of 10 years and will bear interest at 5%
per annum. The portion of the NJEDA to be funded by the bank will be
guaranteed by the NJEDA to the extent of 90% of such proceeds and may not be
for a term in excess of 15 years. There can be no assurance that the Company
will have sufficient cash to make the requisite payments on the NJEDA Loan or
that it will be able to obtain other financing on acceptable terms, if at
all. If the Company is unable to make the requisite payments on the NJEDA
Loan, the lender may have the right to seize some or all of the Company's
assets.
Intellectual Property; Proprietary Marks. The Company's ability to
successfully implement its tropical island paradise theme will depend, in
part, upon its ability to continue to use and protect its proprietary marks.
The Company's inability or failure to establish its rights or to adequately
protect any of its intellectual property rights or its inability to continue
to use "KatManDu" on or in connection with its promotional merchandise, may
have a material adverse effect on the Company.
10
<PAGE>
In 1992, the Company's trade name, KATMANDU(R), was registered as a
service mark for restaurant and nightclub services on the Principal Register
in the United States Patent and Trademark Office. The Company regards its
KATMANDU(R) service mark as having substantial value and being important in
its marketing program. Accordingly, the Company intends to protect its
service mark by taking appropriate legal action whenever necessary, although
there can be no assurance that the Company will be able to effectively
enforce or protect its rights and prevent others from using the same or
similar marks. The Company is aware of local restaurants which may be
operating with trade names identical to or similar to "KatManDu", and a
nightclub operating as "Club Kat-Man-Du" on Hilton Head Island, South
Carolina. However, the Company is not aware of any use of the KatManDu
service mark by others for restaurant or nightclub services that could
materially affect its business.
The Company has been using its "KatManDu" logo in connection with the sale
of promotional merchandise, such as T-shirts, sweatshirts, caps, bags and
other novelty items, since inception even though "KATMANDU" is a registered
mark in the U.S. of another company for retail store services for the sale of
women's apparel and apparel accessories and "KATMANDO" is a registered mark
in the U.S. of another company for clothing. However, the Company has not to
date received any objection to its use of "KatManDu" in connection with
promotional merchandise or otherwise. The Company also believes that there
are other users of the term "KatManDu" or close variants thereof in
association with clothing other than the two U.S. registrants identified
above. Although there can be no assurance that one or more of the owners of
these prior marks or registrations will not object to the use of "KatManDu"
by the Company in connection with the sale of promotional merchandise, the
Company has been advised by its intellectual property counsel that, in the
opinion of counsel, the Company's use of "KatManDu" on and with respect to
the sale of promotional merchandise sold at its restaurant/nightclubs should
not be found to infringe or otherwise violate the rights of any other known
entity including the owners of the KATMANDU and KATMANDO registrations
identified above. Nevertheless, the Company intends to modify its mark for
such promotional merchandise to include, for example, the descriptive words
"restaurant/nightclub" and the geographic location and also to include the
word ISLAND to further reduce the risk of a claim of infringement and to
emphasize the promotional nature of such merchandise. In addition, the
Company may file an application to register and use "IslandKatManDu" as a
mark for restaurant services and as a trademark for promotional merchandise.
The Company believes that the "Island KatManDu" mark will further distinguish
its services and goods. While promotional merchandise sales now account for
less than 3% of gross revenues, a determination that the Company's use of its
name and logo with respect to sales of its promotional merchandise infringes
or otherwise violates the rights of other owners of "KATMANDU" and/or
"KATMANDO" marks or registrations may cause the Company to incur significant
expense and may also have a material adverse effect on the Company's growth
prospects and cause the Company to be enjoined against any further use of the
term "KatManDu" on and in connection with certain promotional merchandise.
See "Business -- Intellectual Property Rights."
Long-Term, Non-cancelable Leases; Affiliated Transactions. The premises
occupied by KatManDu-Philadelphia are subject to a long-term, non-cancelable
lease which terminates on November 15, 2005 (the "Philadelphia Lease").
Currently, rent under the Philadelphia Lease is $50,000 per annum. Beginning
March 1, 1997, the annual base rent will be the greater of (i) $50,000
increased to reflect cost of living adjustments and (ii) 4% of the gross
income from KatManDu-Philadelphia. The lease for KatManDu-Trenton is for a
term of 30 years. The annual rent payable by T-Kat under such lease is an
amount equal to 2% of the gross revenues of KatManDu-Trenton with a minimum
payment of $50,000 and a maximum payment of $100,000, which amounts are
adjusted every three years to reflect increases in the consumer price index
for the Philadelphia/New Jersey region. In addition, T-Kat is obligated to
pay as additional rent all real estate taxes, assessments and utility charges
applicable to such premises. Any future restaurant/nightclubs developed by
the Company may be subject to similar long-term leases which may provide for
rent which is a percentage of revenues. If an existing or future
restaurant/nightclub does not perform at a profitable level, and the decision
is made to close such restaurant/nightclub, the Company will nonetheless be
committed to perform its obligations under the applicable lease. See
"Business -- Properties."
The Company leases the premises occupied by KatManDu-Philadelphia from
Pier 25 North Associates, a Pennsylvania limited partnership ("Pier 25
North"). The general partners of Pier 25 North are S. Lance Silver and Stuart
N. Harting, the principal stockholders and senior executives of the Company,
who each own 16.20% of Pier 25 North. In addition, the Company leases the
entire second deck of the restaurant ship, The Elizabeth,
11
<PAGE>
located immediately adjacent to KatManDu-Philadelphia, for additional
restaurant seating and for its executive offices, from Elizabeth Restaurant
Partners ("ERP"), a Pennsylvania limited partnership. The general partner of
ERP is Lizzy Management Corporation, a Pennsylvania corporation, all of the
stock of which is owned by Messrs. Silver and Harting. The limited partners
of ERP are the S. Lance Silver Trust and the Stuart N. Harting Trust and
Bruce Waugh, Executive Vice President-Operations of the Company. The Company
also leases storage space from Powerhouse Associates ("Powerhouse"), a
Pennsylvania limited partnership controlled by Messrs. Silver and Harting, as
well as the right to display a KatManDu sign on the building owned by
Powerhouse. The rent for the storage space is $6,000 per annum under a lease
that terminates December 31, 1999 and the rent for the sign is $12,000 per
year. Finally, T-Kat will lease the premises to be occupied by KatManDu-
Trenton from T-Kat Urban Renewal Corp., a New Jersey corporation which, in
turn, leases such premises from the Mercer County Improvement Authority. The
terms of the lease between T-Kat Urban Renewal Corp. and T-Kat are identical
to the terms of the lease between T-Kat Urban Renewal Corp. and the Mercer
Country Improvement Authority. T-Kat Urban Renewal Corp. is owned by Messrs.
Silver and Harting. See "Business -- Properties" and "Certain Transactions."
The Company does not anticipate that leases for future KatManDu
restaurant/nightclubs will be entered into with management affiliated
entities unless there are valid business reasons for doing so and then only
upon terms which are no less favorable to the Company as those that could be
obtained from unaffiliated third parties. See "Risk Factors -- Potential
Conflicts of Interest."
Potential Conflicts of Interest. Prior to this Offering the Company has
entered into various leases with entities owned and/or controlled by its
senior executives, S. Lance Silver and Stuart N. Harting, which were not a
result of arms' length negotiations between unrelated parties. As a result,
the terms of these transactions may not be as favorable to the Company as
those that it could have obtained from unaffiliated third parties. In
addition, one of the Company's Directors, David Wallack, is the owner of a
theme restaurant in Miami Beach, Florida, a possible location for a future
KatManDu restaurant/nightclub. Mr. Wallack is also a purchaser of one of the
Company's Notes in connection with the June 1996 Financing which will be
repaid out of the proceeds of this Offering. As a result of such
relationships, such personnel will have conflicts of interest in allocating
management time among their various business activities. In addition, as a
result of their multiple business affiliations, such personnel may have
conflicting legal and business obligations. The Company has adopted a policy
that all future transactions between the Company and any of its officers,
directors and 5% stockholders or their affiliates of the Company must be for
bona fide business reasons, must be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties and must be approved
by a majority of the independent outside members of the Board of Directors of
the Company who do not have an interest in the transaction. See "Management."
Expansion Risks. Future growth will depend on the Company's ability to
increase the number of its restaurant/nightclubs. The Company's ability to
successfully develop, open and operate new restaurant/nightclubs will largely
be dependent upon a variety of factors, some of which may be unknown or
beyond the Company's control, including customer acceptance of the KatManDu
theme in new geographic areas; the ability of the Company's management to
identify suitable sites and to purchase or negotiate leases for such sites;
timely and economic development and construction of restaurant/nightclubs;
timely approval from local governmental authorities; the hiring and training
of skilled management and other personnel; the availability of adequate
financing; and the general state of the economy. In addition, the Company
expects that the opening of additional restaurant/nightclubs will give rise
to additional expenses associated with managing restaurant/nightclubs located
in multiple markets. Such expenses include advertising in more than one
market; lease rates and construction costs that may be higher in markets
other than Philadelphia and Trenton; travel costs; and other similar
expenses. The likelihood of success of the Company must be considered in
light of the problems, expenses, difficulties, complications and delays
frequently encountered in connection with the establishment and/or expansion
of any new business. Accordingly, there can be no assurance that the Company
will be able to open new restaurant/nightclubs or that, if opened, such
restaurant/nightclubs can be operated profitably. Furthermore, to the extent
that the Company succeeds in opening additional restaurant/nightclubs, the
Company must manage the transition to multiple site operations, higher volume
operations, the control of overhead expenses, the addition of necessary
personnel, the maintenance of effective quality food and service controls and
the ability of the Company's management to apply a list of standardized
policies and procedures to a much larger number of restaurant/nightclubs. See
"Business -- Expansion Plans and Site Selection."
12
<PAGE>
Acceptance of KatManDu Theme in New Markets. Although the Company intends
future restaurant/ nightclubs to have characteristics similar to
KatManDu-Philadelphia, the KatManDu prototype restaurant/nightclub is
evolving and a number of factors could change the tropical island paradise
theme as applied in different locations. These factors include demographic
and regional differences; traffic patterns; type of available floor space;
and the availability of specialty items and entertainment. Accordingly,
future restaurant/nightclubs could be larger or smaller than
KatManDu-Philadelphia, could vary in the mix of restaurant/nightclub
operations, and could have differences in the application of the tropical
island paradise theme. There can be no assurance that the Company will be
able to predict accurately or on a timely basis how to modify the KatManDu
prototype restaurant/nightclub to accommodate local tastes. Furthermore, the
success of any restaurant based on a particular theme is subject to shifting
consumer tastes and interests and there can be no assurance that the tropical
island paradise theme will appeal in new markets or that it will continue to
have appeal in Philadelphia. Frequently, restaurants, particularly
theme-oriented restaurants, experience a decline of revenue growth or of
actual revenues as consumers tire of the related theme. See "Business -- The
KatManDu 'Tropical Island Paradise' Vacation Theme."
Availability of Sites. The Company's primary strategy is to develop new
restaurant/nightclubs on or near waterfront sites, although it will consider
other locations. Because of the relatively large size of each KatManDu
restaurant/nightclub and the Company's site selection criteria, the
availability of desirable locations may be limited and the Company may be
hindered in finding suitable locations for the development of new
restaurant/nightclubs. Additionally, the Company's ability to open additional
restaurant/nightclubs will depend upon a number of other factors including
the ability of the Company to negotiate leases on acceptable terms. See
"Business -- Expansion Plans and Site Selection."
Possible Development and Construction Delays. In connection with the
development and construction of the KatManDu restaurant/nightclubs, a number
of events over which the Company will have no control could occur which might
materially adversely affect the costs and completion time of such projects.
Such events include governmental regulatory approvals, shortages of or the
inability to obtain labor and/or materials, inability of the general
contractor or subcontractors to perform under their contracts, strikes,
adverse weather conditions and acts of God, availability and cost of needed
debt or lease financing, and changes in federal, state or local laws or
regulations. In addition, the Company will also be dependent on unaffiliated
third parties to complete the construction of a restaurant/nightclub.
Accordingly, there can be no assurance that the Company will be able to
complete any restaurant/nightclub in a timely manner or within its proposed
budget. See "Business -- Expansion Plans and Site Selection."
Interruption in Supplies. Although the Company will not be materially
dependent upon any one supplier, the Company will be dependent on frequent
deliveries of produce and food items. As a result, the Company is subject to
the risk of possible food shortages or interruptions in supply caused by
adverse weather or other conditions which could adversely affect the
availability and cost of such items. See "Business -- Purchasing."
Competition. The restaurant business is highly competitive and, as a
result, there is a high failure rate. Competition is based primarily upon
price, service, food quality (including taste, freshness, healthfulness and
nutritional value) and location. Success or failure in both the restaurant
and entertainment industries is also generally affected by changes in
consumer preferences, national, regional and local economic conditions and
demographic changes. Also, factors such as inflation, increased food, labor
and employee benefit costs, and the availability of experienced management
and hourly employees may also adversely affect the restaurant and
entertainment industries in general and the Company's restaurant/nightclubs
in particular. Restaurant operating costs are further affected by increases
in the minimum hourly wage, unemployment tax rates and similar matters over
which the Company has no control.
The Company will compete on a general basis with a large variety of
national and regional restaurant operations, as well as locally owned
restaurants, diners, and other moderately priced, full service, casual dining
establishments and with other entertainment venues, such as nightclubs, bars
and dance clubs. There are numerous well established competitors, including
national, regional and local restaurant chains, such as TGI Friday's(R),
Bennigan's(R) and The Cheesecake Factory(R), possessing substantially greater
financial, marketing, personnel and other resources than the Company.
The Company will also compete with other theme restaurants in the highly
competitive and developing theme restaurant market. Many of the Company's
competitors in the theme restaurant industry have substantially
13
<PAGE>
greater financial resources and longer operating histories than the Company,
including competitors already established in regions into which the Company
is planning to expand, as well as competitors planning to expand in the same
regions, such as Hard Rock Cafe(R), Planet Hollywood(R) and Rainforest
Cafe(R). Theme restaurants, such as KatManDu-Philadelphia, are more
susceptible to shifts in consumer preferences. Additionally, other
restaurants and companies could utilize the tropical island paradise or a
related theme (e.g., Rainforest Cafe(R), Chart House(R)). There can be no
assurance that the Company will be able to respond to various competitive
factors affecting the restaurant industries. See "Business -- Competition."
Control By Existing Management; Effects of Disproportionate Voting Rights.
Upon completion of this Offering, Messrs. Silver and Harting will own and/or
control an aggregate of 1,258,630 shares of Class A Stock and 266,370 shares of
Common Stock. Such stock represents approximately 60.5% of the combined voting
power of the Company's outstanding capital stock (57.3% assuming the
Over-Allotment Option is exercised). Accordingly, Messrs. Silver and Harting
will be able to substantially control the Company's affairs, including, without
limitation, the sale of equity or debt securities of the Company, the election
of directors, the appointment of officers, the determination of officers'
salaries and the approval of significant corporate transactions (such as
acquisitions of the Company or its assets). The disproportionate voting rights
of the Class A Stock and the Common Stock could have an adverse effect on the
market price of the Common Stock. Such disproportionate voting rights may make
the Company a less attractive target for a takeover than it otherwise might be,
or render more difficult or discourage a merger proposal, a tender offer or a
proxy contest, even if such actions were favored by shareholders of the Company
other than the holders of the Class A Stock. Accordingly, such disproportionate
voting rights may deprive holders of Common Stock of an opportunity to sell
their shares at a premium over prevailing market prices, since takeover bids
frequently involve purchases of stock directly from shareholders at such a
premium price. See "Management", "Principal Shareholders" and "Description of
Securities."
Government Regulation. The Company's business is subject to various
federal, state and local government regulations relating to the development
and operation of restaurants, bars and clubs, including those relating to
building and zoning requirements and the preparation and sale of food and
alcoholic beverages. While the Company has not yet experienced an inability
to obtain or maintain any necessary governmental licenses, permits or
approvals, the failure to obtain or maintain food and liquor licenses could
have a material adverse effect on the Company's operating results.
Difficulties or failures in obtaining required licenses and approvals will
result in delays or cancellations of the opening of new
restaurant/nightclubs. The food and liquor licenses are also subject to
suspension or non-renewal if the granting authority determines that the
conduct of the holder does not meet the standards for initial grant or
renewal. Although the Company has satisfied restaurant and liquor licensing
requirements for KatManDu-Philadelphia and KatManDu-Trenton, no assurance can
be given that the Company will be able to maintain existing approvals or
obtain such further approvals at other locations.
The Federal Americans With Disabilities Act (the "Disabilities Act")
prohibits discrimination on the basis of disability in public accommodations
and employment. The Company could be required to expend funds to modify its
restaurant/nightclubs in order to provide service to or make reasonable
accommodations for disabled persons. Although KatManDu-Philadelphia is
designed to satisfy the requirements of the Disabilities Act and
KatManDu-Trenton will be similarly designed, no assurance can be given that
the Company will not be required to make modifications to its
restaurant/nightclubs to comply with current and/or future laws, rules and
regulations relating to accommodations for the disabled. See "Business --
Regulation."
Potential "Dram Shop" Liability. Restaurants in most states are subject to
"dram shop" laws and legislation, which impose liability on licensed
alcoholic beverage servers for injuries or damages caused by their negligent
service of alcoholic beverages to a visibly intoxicated person or to a minor,
if such service is the proximate cause of the injury or damage and such
injury or damage is reasonably foreseeable. While the Company maintains
liquor liability insurance as part of its comprehensive general liability
insurance which management believes is adequate to protect against such
liability, there can be no assurance that the Company will not be subject to
a judgment in excess of such insurance coverage or that it will be able to
continue to maintain such
14
<PAGE>
insurance coverage at reasonable costs or at all. The imposition of a
judgment substantially in excess of the Company's insurance coverage would
have a material adverse effect on the Company. Similarly, the failure of the
Company to obtain and maintain insurance coverage could also materially and
adversely affect the Company. See "Business -- Regulation."
Insurance. Although the Company will carry general liability and
commercial insurance, liquor insurance, property insurance and workers
compensation insurance, there can be no assurance that this insurance will be
adequate to protect the Company against any liability claims. Any claim that
is not covered by one of such policies or is in excess of the limits of
liability of the relevant policy would have a material adverse effect on the
financial condition of the Company. In addition there can be no assurance
that the Company will be able to maintain its insurance on reasonable terms.
See "Business -- Insurance."
Dependence on Key Personnel. The Company's success is dependent upon the
personal efforts and abilities of the Company's senior corporate management,
particularly S. Lance Silver, Chief Executive Officer and Co-President, and
Stuart N. Harting, Co-President. The loss of the services of either of these
individuals could have a substantial adverse effect on the Company. The
Company has entered into three year employment agreements with each of
Messrs. Silver and Harting commencing on the Effective Date and has agreed to
obtain "key-man" life insurance policies on the lives of Messrs. Silver and
Harting in the amount of $1 million each prior to the consummation of this
Offering. The success of the Company will also depend upon the ability to
attract and retain a highly qualified additional corporate and unit level
management teams. The failure to obtain, or delays in obtaining, other key
employees could have a material adverse effect on the Company. See
"Management."
Substantial Dilution. Purchasers of the Common Stock offered hereby will
experience immediate and substantial dilution in net tangible book value of
$3.16 per share of Common Stock from the initial public offering price. See
"Dilution."
Absence of Dividends. Although the Company made cash distributions prior
to this Offering and will make the Final Distribution soon after the
completion of this Offering, it does not expect to pay cash or stock
dividends on its Common Stock in the foreseeable future. To the extent, the
Company has earnings in the future, it intends to retain such earnings in the
business operations of the Company. See "Reorganization and Final Partnership
and S Corporation Distributions" and "Dividend Policy."
Broad Discretion In Application of Proceeds. Approximately $11.4 million
(89.29%) of the estimated net proceeds from this Offering has been allocated
to expansion and working capital. Accordingly, the Company will have broad
discretion as to the application of such proceeds. Pending the use of
proceeds as described above, the net proceeds will be invested in short-term,
interest bearing, investment grade government securities. See "Use of
Proceeds."
Limitation of Director Liability. The Company's Certificate of
Incorporation provides that a director of the Company will not be personally
liable to the Company or its stockholders for monetary damages for breach of
the fiduciary duty of care as a director, including breaches which constitute
gross negligence, subject to certain limitations imposed by the Delaware
General Corporation Law (the "DGCL"). Thus, under certain circumstances,
neither the Company nor the stockholders will be able to recover damages even
if directors take actions which harm the Company. See "Management --
Indemnification of Directors and Officers and Related Matters."
Lack of Public Market; Determination of Offering Price; Volatility of Prices
of the Securities. Prior to this Offering, there has been no public market for
the Securities. Although the Company has applied for listing of the Common Stock
and the Warrants on AMEX under the symbols KAT and KAT WS, respectively, there
can be no assurance that they will be quoted on such system or under such
symbols or that an active public market for the Securities will be developed or
be sustained after this Offering. The offering price of the Shares of Common
Stock offered hereby has been arbitrarily determined by negotiations between the
Company and the Representative and bears no relationship to the Company's
current earnings, book value, net worth or financial statement criteria of
value. The factors considered in determining the offering price included an
evaluation by management and the Representative of the history of and prospects
for the industry in which the Company competes and the prospects for earnings of
the Company. Furthermore, the trading prices of the Securities could be subject
to wide fluctuations in response to variations in the Company's operating
results, announcements by the Company or others, developments affecting the
Company or its competitors, suppliers or customers and other events or fac-
15
<PAGE>
tors. In addition, the stock market has experienced extreme price and volume
fluctuations in recent years. These fluctuations have had a substantial
impact on the market prices of many companies, often unrelated to their
performance, and may adversely affect the market prices for any or all of the
Securities. See "Underwriting."
Current Prospectus and State Registration Required to Exercise Warrants;
Possible Redemption of Warrants. The Company will be able to issue shares of
Common Stock upon exercise of the Warrants only if there is a current
prospectus relating to such Common Stock under an effective registration
statement filed with the Securities and Exchange Commission (the
"Commission") and only if such shares of Common Stock are qualified for sale
or exempt from qualification under applicable state securities laws of the
jurisdictions in which the various holders of the Warrants reside. Although
the Company has agreed to use its best efforts to meet such regulatory
requirements, there can be no assurance that the Company will be able to do
so. Although the Warrants will not knowingly be sold to purchasers in
jurisdictions in which the Warrants are not registered or otherwise qualified
for sale, purchasers may buy Warrants in the aftermarket or may move to
jurisdictions in which the shares of Common Stock issuable upon exercise of
the Warrants are not so registered or qualified. In this event, the Company
would be unable to issue shares of Common Stock to those persons upon
exercise of the Warrants unless and until the shares of Common Stock issuable
upon exercise of the Warrants are qualified for sale or exempt from
qualification in jurisdictions in which such persons reside. There is no
assurance that the Company will be able to effect any required registration
or qualification. The Warrants may be deprived of any value if a then current
prospectus covering the shares of Common Stock issuable upon exercise of the
Warrants is not effective pursuant to an effective registration statement or
if such shares of Common Stock are not qualified or exempt from qualification
in the jurisdictions in which the holders of the Warrants reside. See
"Description of Securities -- Warrants."
Potential Adverse Effect of Redemption of Warrants; Market
Overhang. Commencing eighteen (18) months after the date of this Prospectus,
the Company may redeem all, but not less than all, of the Warrants for $0.10
per Warrant on thirty (30) days prior written notice to the holders of the
Warrants if the per share closing bid price of the Common Stock as reported
on AMEX equals or exceeds 200% of the initial public offering price per
share for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth trading day prior to the notice
of redemption. Redemption of the Warrants could force the holders to exercise
the Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants for
possible additional appreciation, or to accept the redemption price, which is
likely to be substantially less than the market value of the Warrants at the
time of redemption. Any holder who does not exercise its Warrants prior to
their expiration or redemption, as the case may be, will forfeit his, her or
its right to purchase the shares of Common Stock underlying the Warrants. See
"Description of Securities -- Warrants."
Delaware Anti-Takeover Statute; Issuance of Preferred Stock; Barriers to
Takeover. The Company is a Delaware corporation and, thus, upon the
consummation of this offering, will become subject to the prohibitions
imposed by Section 203 of the DGCL, which is generally viewed as an
anti-takeover statute. In general, this statute will prohibit the Company,
once public, from entering into certain business combinations without the
approval of its Board of Directors and, as such, could prohibit or delay
mergers or other attempted takeovers or changes in control with respect to
the Company. Such provisions may discourage attempts to acquire the Company.
In addition, the Company's authorized capital consists of 30,000,000 shares
of capital stock of which 7,551,780 shares are designated as Class A Stock,
17,448,220 shares are designated as Common Stock and 5,000,000 shares are
designated as Preferred Stock. The Class A Stock and the Common Stock are
identical in all respects except that the holders of the Class A Stock are
entitled to three votes per share and the holders of the Common Stock are
entitled to one vote per share. Messrs. Silver and Harting own all of the
issued and outstanding shares of the Class A Stock. No class other than the
Common Stock is currently designated and there is no current plan to
designate or issue any such securities. The Board of Directors, without any
action by the Company's shareholders, is authorized to designate and issue
shares in such classes or series (including classes or series of Preferred
Stock) as it deems appropriate and to establish the rights, preferences and
privileges of such shares, including dividends, liquidation and voting
rights. The rights of holders of Preferred Stock and other classes of common
stock that may be issued may be superior to the rights granted to the holders
of the existing Common Stock. Further, the ability of the Board of Directors
to designate and issue such undesignated shares could impede or deter an
unsolicited tender offer or takeover proposal regarding the Company and the
issuance
16
<PAGE>
of additional shares having preferential rights could adversely affect the
voting power and other rights of holders of Common Stock. Issuance of
Preferred Stock, which may be accomplished though a public offering or a
private placement to parties favorable to current management, may dilute the
voting power of holders of Common Stock (such as by issuing Preferred Stock
with super voting rights) and may render more difficult the removal of
current management, even if such removal may be in the stockholders' best
interests. Any such issuance of Preferred Stock could prevent the holders of
Common Stock from realizing a premium on their shares. See "Description of
Securities -- Preferred Stock" and "Risk Factors -- Control by Existing
Management."
Potential Adverse Impact on Market Price of Securities; Shares Eligible for
Future Sale; Additional Registered Securities. Sales of substantial amounts of
the Company's securities in the public market after this Offering or the
perception that such sales may occur could materially adversely affect the
market price of the Securities and may impair the Company's ability to raise
additional capital by the sale of its equity securities. Of the 4,166,666 Common
Shares and the 2,500,000 Warrants to be outstanding upon completion of this
Offering, the 2,500,000 Shares of Common Stock and 2,500,000 Warrants offered
hereby (2,875,000 Shares and 2,875,000 Warrants if the Over-Allotment Option is
exercised in full) will be immediately freely tradable without restriction under
the Securities Act of 1933, as amended (the "Securities Act") except for any
Securities purchased by an "affiliate" of the Company (as that term is defined
under the rules and regulations of the Securities Act), which will be subject to
the resale limitations of Rule 144 under the Securities Act. The remaining
1,666,666 Common Shares outstanding prior to consummation of this Offering are
"restricted" securities within the meaning of Rule 144 under the Securities Act
and may be sold under the conditions of such rule, including satisfaction of
certain holding period requirements. Holders of 1,258,630 shares of Class A
Stock and 149,590 shares of Common Stock, including each officer and director
and certain stockholders of the Company, have executed agreements ("Lock-Up
Agreements") pursuant to which they have agreed not to, directly or indirectly,
issue, offer, agree to offer to sell, sell or grant an option for the purchase
or sale of, transfer, pledge, assign, hypothecate, distribute or otherwise
dispose of or encumber any shares of Common Stock or options, rights, warrants
or other securities convertible into, exchangeable or exercisable for or
evidencing any right to purchase or subscribe for shares of Common Stock
(whether or not beneficially owned by such person) or any beneficial interest
therein for a period of 13 months from the date of this Prospectus. Holders of
261,666 shares of Common Stock, including David Wallack, a Director of the
Company with respect to 3,220 shares of Common Stock received in connection with
the June 1996 Financing and Messrs. Silver and Harting with respect to 60,000
shares pledged to Cherry Associates ("Cherry") to secure a personal
indebtedness, have entered into Lock-Up Agreements with the same terms and
conditions except that the lock-up period is 7 months from the date of this
Prospectus. Accordingly, taking into consideration the restrictions of Rule 144
and the Lock-up Agreements, 261,666 of the restricted shares of Common Stock
will become eligible for sale beginning in April 1997 and 1,258,630 of the
restricted shares of Class A Stock will become eligible for sale beginning in
October 1997. In addition, upon completion of this Offering, options to purchase
an aggregate of 195,176 shares of Common Stock will be outstanding. Such shares
will also be subject to a Lock-Up Agreement providing for a 13 month lock-up
period. It is not known what effect, if any, future sales of additional
securities or the availability of such securities for sale will have on the
market price of the Securities prevailing from time to time. Nevertheless, the
sale or availability for sale of significant quantities of securities could
materially adversely affect the market price of the Securities. See "Shares
Eligible for Future Sales."
The Company has granted to the Representative a right of first refusal for
a period of three years after the effective date of this Offering to act as
underwriter or placement agent with respect to any public or private sale of
securities for cash to be made by the Company or any of its present or future
subsidiaries. In addition, the Company has agreed that the Representative
will act as the Company's exclusive agent with respect to the solicitation of
the Warrants and will receive from the Company a commission of 5% of the
exercise price of the Warrants commencing 12 months after the Effective Date
payable upon exercise. See "Underwriting" and "Description of the
Securities."
Representative's Potential Influence on the Market. A significant number
of the Securities offered hereby may be sold to customers of the
Representative. Such customers may engage in transactions for the sale or
purchase of such Securities through or with the Representative. Although it
has no obligation to do so, the Representative intends to make a market in
the Securities and may otherwise effect transactions in such securities. If
it participates in such market, the Representative may influence the market,
if one develops, for the Securities.
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<PAGE>
Such market-making activity may be discontinued at any time. Moreover, if the
Representative sells the securities issuable upon exercise of the
Representative's Warrants (as defined) or acts as warrant solicitation agent
for the Warrants, it may be required under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to temporarily suspend its
market-making activities. The prices and liquidity of the Securities may be
significantly affected by the degree, it any, of the Representative's
participation in such market. See "Underwriting."
Risks Associated with Forward-Looking Statements Included in this
Prospectus. This Prospectus contains certain forward-looking statements
regarding the plans and objectives of management for future operations,
including plans and objectives relating to the development of
KatManDu-Trenton and other KatManDu restaurant/nightclubs. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. The Company's plans and
objectives are based on favorable weather conditions for its outdoor
restaurants, assumptions that the Company's tropical island paradise theme
will be accepted in markets outside Philadelphia, that competitive conditions
within the theme restaurant and entertainment industries will not change
materially or adversely and that there will be no unanticipated material
adverse change in the Company's operations or business. Assumptions relating
to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that its assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the forward-looking statements included in
this Prospectus will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein
particularly in view of the Company's early stage operations, the inclusion
of such information should not be regarded as a representation by the Company
or any other person that the objectives and plans of the Company will be
achieved.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby, after deducting underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $12,767,500 (or
approximately $14,757,625 if the Over-Allotment Option is exercised in full).
The Company intends to apply the net proceeds approximately as follows:
Amount Percentage
------------- ------------
Development of KatManDu restaurant/nightclubs:
Additional 3-4 KatManDu restaurant/nightclubs .. $ 8,948,500 70.09%
KatManDu-Trenton ............................... 980,000 7.68%
Repayment of Debt:
June 1996 Financing and Accrued Interest Thereon 1,109,000 8.68%
Loans from Affiliates .......................... 125,000 0.98%
Loans from Non-Affiliates ...................... 105,000 0.82%
Working Capital .................................. 1,500,000 11.75%
------------ --------
Total ........................................ $12,767,500 100.00%
============ ========
In addition to KatManDu-Trenton, the Company plans to develop one to two
additional restaurant/nightclubs in 1997 and two more in 1998. Based on
current estimates of the cost of developing a KatManDu restaurant/nightclub
and the Company's site selection criteria, the Company is allocating
approximately $8,948,500 to the development of such restaurant/nightclubs.
The Company estimates that the costs of developing and opening a new
restaurant/nightclub will range from $3.5 million to $5.0 million or more,
depending upon location, site conditions, construction costs, site specific
financing and size and type of the restaurant/nightclub. In addition to the
proceeds of this Offering, each new KatManDu restaurant/nightclub will be
financed out of cash flow from operations and other forms of site specific
financing, such as mortgages, landlord concessions, vendor advertising and
financing and equipment leases. The total estimated cost of developing a new
KatManDu restaurant/nightclub includes all costs relative to constructing,
developing and opening a new restaurant/nightclub, including but not limited
to architectural and design fees, permit costs, engineering costs,
construction costs, initial food, liquor and merchandise inventory, furniture
and fixtures, initial staffing and employee training costs, ground breaking
and grand opening costs, and initial marketing and promotional costs. The
Company expects that it will incur approximately $650,000 in preopening and
related costs (including professional fees, licenses, and working capital)
and $750,000 of inventory, fixtures and equipment in connection with the
opening of each restaurant/nightclub. The Company may also utilize certain of
the net proceeds to acquire and develop restaurant operations with formats
and concepts complementary to those of the Company or to acquire existing
restaurants for conversion to the Company's existing concepts. The Company
does not presently have any agreements, commitments, plans or understandings
concerning any specific acquisition.
The Company has commenced the development of KatManDu-Trenton, which is
scheduled to open in the first quarter of 1997. The Company is allocating
approximately $980,000 of the net proceeds of this Offering to complete the
development of KatManDu-Trenton. The Company currently estimates that the
total cost of developing and opening KatManDu-Trenton, including development
costs, construction costs, equipment, furniture, fixtures and pre-opening
expenses, will be approximately $3.75 million, which will be financed in
part, by the Construction Loan. The Construction Loan will be secured by the
assets of T-Kat, a leasehold mortgage and will be guaranteed by the Company
and Messrs. Silver and Harting personally. The balance of the development
costs, approximately $1.25 million, will be paid by the Company. The Company
has already incurred approximately $500,000 of such expenses, of which
approximately $270,000 has been paid. Of such amount, approximately $200,000
has been paid out of the proceeds of the June 1996 Financing and the balance
was paid from the Company's cash flow from operations. Upon completion of
KatManDu-Trenton and the issuance of a certificate of occupancy with respect
thereto, the Construction Loan will be repaid with the proceeds of the NJEDA
Loan. No assurance can be given that KatManDu-Trenton will be successfully
developed or that it will be developed at such costs.
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<PAGE>
The Company will use $1.1 million of the proceeds from this Offering to
repay the principal of the June 1996 Financing and approximately $9,167 of
such proceeds to pay the accrued interest thereon through September 30, 1996.
The proceeds of the June 1996 Financing were used to purchase the Preefer
Interests in connection with the settlement of the Preefer Litigation and to
pay certain obligations and expenses of the Company, including expenses
relating to this Offering. In addition, the Company has used approximately
$200,000 of such proceeds to pay expenses relating to the development of
KatManDu-Trenton. The balance of the June 1996 Financing proceeds,
approximately $290,000 as of September 1, 1996, is expected to be used in
connection with the development of KatManDu-Trenton and for working capital.
To the extent such funds are actually expended for KatManDu-Trenton, the net
proceeds of this Offering to be used for KatManDu-Trenton will be reduced.
The Company will use approximately $125,000 of the proceeds of this
Offering to repay a short-term loan borrowed from 1809 Chestnut Associates
("1809 Chestnut"), a limited partnership in which S. Lance Silver and Stuart
N. Harting or persons or entities related and/or controlled by them own a
majority interest and approximately $105,000 to repay a short-term borrowing
from Cherry, incurred in April 1996. The proceeds of such loans were used to
pay preopening expenses relating to the 1996 season of KatManDu-Philadelphia.
Working capital includes funds to be used for funding the anticipated
increase in inventories, for general and administration expenses, for the
payment of all or a portion of the Final Distribution (to the extent the
Company has insufficient cash therefor) and for other general corporate
purposes.
The Company believes that the estimated net proceeds to be received by the
Company from this Offering, together with revenue from operations, will be
sufficient to meet the Company's cash requirements for a period of at least
12 months following the date of this Prospectus, including the further
development and completion of KatManDu-Trenton and the opening of at least
one additional restaurant/nightclub. Thereafter, if the Company has
insufficient funds for its needs, it may be required to seek additional funds
from other sources. There can be no assurance that additional funds can be
obtained on acceptable terms, if at all. If necessary funds are not
available, the Company's business would be materially adversely affected.
The foregoing represents the Company's best estimate of its expected use
of the net proceeds of this Offering. The amounts actually expended for
certain purposes described above may vary significantly depending on numerous
factors, including but not limited to, the development of KatManDu-Trenton.
The Company reserves the right to reallocate among the foregoing uses.
Any proceeds from the exercise of the Over-Allotment Option or the
Warrants, will be added to working capital.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
31, 1996 (i) on an actual basis giving effect to the Reorganization and the
issuance of the Class A Stock and (ii) as adjusted, to give effect to the
receipt of the estimated net proceeds from the sale by the Company of the
Securities pursuant to this Offering and the initial application thereof and the
recognition of unamortized original issue discount of approximately $850,000
related to the June 1996 Financing. The table should be read in conjunction with
the Consolidated Financial Statements and notes thereto appearing elsewhere in
this Prospectus.
July 31, 1996
------------------------------
Actual(2) As Adjusted(3)
------------ --------------
(Unaudited)
Short term debt:
Loan Payable -- June 1996 Financing
Notes ................................ $1,100,000 $ --
Loan Payable to related party .......... 125,000 --
Loan Payable -- other .................. 104,969 --
---------- -------------
Total short-term debt .................. $1,329,969 $ --
Stockholders' equity (deficit):
Preferred Stock, par value $.001;
5,000,000 shares authorized; no shares
issued and outstanding ............... $ -- $ --
Class A Stock, $.001 par value;
7,551,780 shares authorized, 1,258,630
shares issued and outstanding actual
and as adjusted ...................... 1,259 1,259
Common Stock, par value $.001;
17,448,220 shares authorized; 408,036
shares issued and outstanding actual;
2,908,036 shares issued and
outstanding, as adjusted(1) .......... 408 2,908
Additional paid-in capital ............. 2,183,608 14,948,608
Accumulated deficit .................... (655,071) (2,589,770)
---------- -------------
Total stockholders' equity ............. 1,530,204 12,363,005
---------- -------------
Total capitalization ................... $2,860,173 $12,363,005
============ =============
- ------
(1) Excludes (i) 500,000 shares of Common Stock reserved for issuance under
the Company's 1996 Stock Option Plan, and (ii) 3,000,000 shares of Common
Stock issuable upon exercise of the Warrants and the Representative's
Warrant. See "Management" and "Principal Stockholders" and
"Underwriting."
(2) Includes (i) the proceeds from the June 1996 Financing and the issuance
of 141,666 shares of Common Stock in connection therewith; (ii) the
repayment of certain liabilities to related parties; (iii) the purchase
of the Preefer Interests in connection with the settlement of the Preefer
Litigation; and (iv) a capital contribution to the Company of
approximately $321,700 by certain principal stockholders of the Company,
all of which occurred in June and July 1996. See "Management Discussion
and Analysis of Financial Condition and Plan of Operation -- Liquidity
and Capital Resources" and "Certain Transactions."
(3) Adjusted to reflect (i) the receipt of the estimated net proceeds from the
sale of 2,500,000 Shares of Common Stock and 2,500,000 Warrants pursuant to
this Offering at an assumed price of $6.00 per Share of Common Stock and
$0.10 per Warrant; (ii) the deferred offering expenses of approximately
$1,072,000 relating to this Offering; (iii) the repayment of approximately
$230,000 of loans to certain parties; (iv) the repayment of the June 1996
Financing Notes and accrued interest thereon of $9,167; and (v) the related
charge to operations for the total value of shares issued as original issue
discount of $850,000. Does not reflect the Final Distribution (see
"Reorganization and Final Partnership and S Corporation Distributions")
which may be as much as $450,000 but cannot be determined at this time.
21
<PAGE>
DILUTION
The negative net tangible book value of the Common Stock at July 31, 1996
was approximately $532,306 or $0.32 per share. Net tangible book value per
share equals the Company's total stockholders' equity, less the Company's
intangible assets of $2,062,510, divided by the number of shares of Common
Stock outstanding. After giving effect to the sale by the Company of the
Securities in this Offering (and after deducting the underwriting discount
and the estimated offering expenses), the pro forma net tangible book value
at July 31, 1996 would have been $12,235,194, or $2.94 per share. This
represents an immediate increase in pro forma net tangible book value of
$3.26 per share to current stockholders and an immediate dilution of $3.16
(52%) per share to new investors purchasing Shares in this Offering. Dilution
is determined by subtracting (i) pro forma net tangible book value per share
after this Offering from (ii) the amount of cash paid by a new investor for a
Share of Common Stock. The following table illustrates the per Share
dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Aggregate initial public offering price of one Share of Common Stock
and one Warrant ...................................................... $6.10
Net tangible book value per share before this Offering(1) ........ ($ .32)
Increase per share attributable to new investors ................. $3.26
--------
Pro forma net tangible book value per share after this Offering (2) ... $2.94
-------
Dilution per Share to new investors ................................... $3.16
=======
</TABLE>
- ------
(1) Net tangible book value reflects receipt of the proceeds of the June 1996
Financing and the related issuance of 141,666 shares of common stock in
connection therewith. In addition, it reflects (i) the purchase of the
Preefer Interests in connection with the settlement of the Preefer
Litigation, (ii) the payment of related party loans and (iii) receipt of a
capital contribution from certain principal stockholders. See "Certain
Transactions" and "Management's Discussion and Analysis of Financial
Condition and Plan of Operation -- Liquidity and Capital Resources."
Finally, net tangible book value includes architectural, engineering and
other construction costs of approximately $461,000 incurred in connection
with the tenant improvements made to the KatManDu-Trenton
restaurant/nightclub site.
(2) If the Over-Allotment Option is exercised in full, the net tangible book
value would be $14,225,319 and dilution per Share to new investors would
be $3.13 (51%). The above table assumes no exercise of outstanding
options or warrants.
The following table sets forth as of July 31, 1996, the number and
percentage of shares purchased, and the amount and percentage of cash and
other consideration paid by existing stockholders for shares of Common Stock
purchased from the Company and by new investors (before deduction of the
underwriting discount and other estimated offering expenses):
<TABLE>
<CAPTION>
Total Cash and Other
Shares Purchased Consideration
------------------------ --------------------------
Price
Number Percent Amount Percent Per Share
----------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1) 1,666,666 40% $ 2,183,608 13% $1.31
Public Investors ........ 2,500,000 60% $15,250,000 87% $6.10(2)
----------- --------- ------------- ---------
Total .............. 4,166,666 100% $17,433,608 100%
</TABLE>
- ------
(1) Includes a capital contribution of approximately $321,700 made by certain
stockholders in June and July 1996 and original issue discount of
$850,000 attributable to the issuance of 141,666 shares of Common Stock
in connection with the June 1996 Financing.
(2) Includes price of Warrant.
22
<PAGE>
DIVIDEND POLICY
Historically, the Company has distributed all of its profits to its
shareholders. For the years ended December 31, 1995 and 1994 such
distribution amounted to, approximately, $456,000 and $400,000, in the
aggregate, respectively. Through July 31, 1996, the Company has distributed
approximately $200,000, in the aggregate, to its shareholders. Immediately
prior to this Offering, the Company will declare the Final Distribution. The
new investors in this Offering will not share in this distribution. See
"Reorganization and Final Partnership and S Corporation Distributions."
The Board of Directors does not intend to pay out any other cash dividends
on the Company's Common Stock in the foreseeable future. The Board of
Directors presently intends to retain all earnings, if any, to finance the
development and opening of additional restaurant/nightclub units. The payment
of dividends in the future, if any, will be at the discretion of the Board of
Directors and will depend upon such factors as earnings levels, capital
requirements, the Company's financial condition and other factors deemed
relevant by the Board of Directors.
23
<PAGE>
SELECTED FINANCIAL DATA(1)
The selected financial data of the Company presented below have been
derived from the Consolidated Financial Statements of the Company, which have
been audited by Arthur Andersen, LLP, independent public accountants. The
selected balance sheet data of the Company for the six months ended June 30,
1996, and seven months ended July 31, 1996, respectively, have been derived
from financial statements which are not audited, but in the opinion of
management, such financial statements include all adjustments necessary for a
full presentation of the position and results of operations as of such date
and for such period. Results of operations for the six months ended June 30,
1995 and June 30, 1996 and the seven months ended July 31, 1995 and July 31,
1996 are not necessarily indicative of results for the full year. The
following selected financial information should be read in conjunction with
the Consolidated Financial Statements and the related Notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Plan of
Operations" included elsewhere in this Prospectus.
SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
For the Six For the Seven
For the Years ended Months ended Months ended
December 31, June 30, July 31,
----------------------------- ----------------------------
1994 1995 1995 1996 1995 1996
------------ ------------ ------------ ------------- ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net revenue(2) ................... $2,773,042 $2,865,751 $1,303,638 $ 1,290,743 $2,003,963 $1,886,541
Food and beverage, promotional
merchandise ..................... 633,117 620,099 301,177 308,514 $ 403,450 404,307
General and administrative, rent
expense to related party ........ 1,723,594 1,742,898 827,870 847,411 $1,149,584 1,144,185
Corporate overhead(3) ............ 122,038 164,628 89,720 80,139 123,051 118,529
Compensation expense(4) .......... -- -- -- 248,400 -- 248,400
Interest expense, net ............ 67,119 65,612 31,355 39,721 36,944 41,247
------------ ------------ ------------ ------------- ------------ ------------
Income (loss) before minority
interest ........................ $ 227,174 $ 272,514 $ 53,516 ($ 233,442) $ 290,934 ($ 70,127)
Minority interests(5) ............ (22,717) (27,251) (5,352) (1,496) (29,093) (1,496)
------------ ------------ ------------ ------------- ------------ ------------
Net income (loss) ................ $ 204,457 $ 245,263 $ 48,164 ($ 234,938) $ 261,841 ($ 71,623)
============ ============ ============ ============= ============ ============
Net income (loss) per common share $ .12 $ .15 $ .03 ($ .14) $ .16 ($ .04)
============ ============ ============ ============= ============ ============
Weighted average number of shares
outstanding(6) .................. 1,666,666 1,666,666 1,666,666 1,666,666 1,666,666 1,666,666
Pro forma provision for income
taxes(7) ........................ $ 83,100 $ 99,600 $ 19,750 $ 106,700
------------ ------------ ------------- ------------
Pro forma net income (loss) before
cumulative effect of accounting
change (7) ...................... $ 121,357 $ 145,663 $ 28,414 $ 155,141
Cumulative effect of accounting
change for income taxes(7) ...... (22,100) -- -- --
------------ ------------ ------------ ------------
Pro forma net income (loss) (7) .. $ 143,457 $ 145,663 $ 28,414 $ 155,141
============ ============ ============ ============
Pro forma net income (loss) per
share ........................... $ .09 $ .09 $ .02 $ .09
============ ============ ============ ============
Pro forma weighted average number
of shares outstanding(6) ........ 1,666,666 1,666,666 1,666,666 1,666,666
</TABLE>
24
<PAGE>
SELECTED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31 AS OF JUNE 30, AS OF JULY 31,
1994 1995 1996 1996
----------- ----------- --------------- --------------
<S> <C> <C> <C> <C>
Cash .................................. $ 92,838 $ 19,768 $ 856,680 $ 526,436
Property and equipment, net ........... 628,972 515,835 484,584 476,515
Total assets .......................... 797,212 664,919 3,767,586 3,627,160
Loan payable -- June 1996 Financing
Notes ................................ -- -- 1,100,000 1,100,000
Loan payable, related parties ......... 559,010 405,158 125,000 125,000
Loan payable, other ................... -- -- 104,969 104,969
Total current liabilities ............. 989,148 985,838 2,371,446 2,060,228
Stockholders equity (deficit) ......... (204,071) (357,647) 1,359,412 1,530,204
Working capital (deficiency) .......... (864,927) (921,523) (1,356,760) (1,433,377)
</TABLE>
- ------
(1) The Selected Financial Data gives effect to the Reorganization and the
issuance of the Class A Stock and the Common Stock and sets forth on a
combined basis the operations of KIP, Kat Corp. and T-Kat. See "The
Company" and "Reorganization and Final Partnership and S Corporation
Distributions."
(2) KatManDu-Philadelphia is only open from mid-April through mid-September.
Accordingly, it has no revenues for the Company's first and fourth
calendar quarters. See "Management's Discussion and Analysis of Financial
Condition and Plan of Operation."
(3) The Company has entered into employment contracts with Messrs. Silver and
Harting increasing their individual annual compensation from $54,000 to
$150,000 each commencing on the day this Offering is consummated.
(4) Upon formation, the Company issued an aggregate of 51,750 shares of
Common Stock to Bruce Waugh, David Gromacki and Diane Thomsen, employees
of the Company. Such shares may not be sold or otherwise transferred
prior to April 1, 2001 and are also subject to forfeiture if the
employee's employment with the Company is terminated. For financial
accounting purposes, compensation expense was charged in the amount of
$248,400 in the first quarter of 1996. See "Principal Stockholders" and
Note 11(f) to the Consolidated Financial Statements.
(5) The Preefer Interests are reflected as a "minority interest" for all
periods presented. The purchase of the Preefer Interests has been
reflected using the purchase method of accounting. Of the total amount
paid for the Preefer Interests in settlement of the Preefer Litigation
($225,000), $98,284 is being amortized over a 15 year period. See Note 10
to the Consolidated Financial Statements.
(6) Weighted average number of shares outstanding for both historical and pro
forma amounts, gives effect to the Reorganization and the issuance of
141,666 shares in connection with the June 1996 Financing. See
"Reorganization and Final Partnership and S Corporation Distributions."
(7) Prior to the consummation of this Offering, the Company has not been
subject to income taxes. Upon consummation of this Offering, the Company
will be subject to federal corporate income taxes and Pennsylvania and
New Jersey corporate income taxes. Accordingly, pro forma net income and
pro forma net income per share for certain periods presented reflects a
provision for income taxes as if the Company had been subject to federal
and state income taxes. Pro forma statement of income data do not reflect
the Final Distribution (see "Reorganization and Final Partnership and S
Corporation Distributions") which may be as much as $450,000 but cannot
be determined at this time. See "The Company" and "Reorganization and
Final Partnership and S Corporation Distributions."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Plan
of Operations and other parts of this Prospectus contain forward-looking
information that involve risks and uncertainties. The Company's actual
results could differ materially from those anticipated by such
forward-looking information. Factors that may cause such differences include,
but are not limited to, those discussed under "Risk Factors" and elsewhere in
this Prospectus. This Management's Discussion and Analysis of Financial
Condition and Plan of Operations should be read in conjunction with the
Company's consolidated financial statements and notes thereto, included
elsewhere in this Prospectus.
OVERVIEW
The Company owns and operates a restaurant/nightclub featuring live
musical entertainment and dancing in a "mythical tropical island paradise"
setting. KatManDu-Philadelphia, a 17,425 square foot restaurant/nightclub
facility located on the Delaware River waterfront in Philadelphia,
Pennsylvania, opened in May 1991. The total cost of developing, constructing
and opening KatManDu-Philadelphia was approximately $1.12 million, which
included approximately $630,000 for the design and construction, $441,000 for
equipment, furniture and fixtures and $47,000 for other costs. The restaurant
area of KatManDu-Philadelphia has a seating capacity of 160 to 180 persons.
In addition, there is a 100 linear foot bar in an approximate 1,600 square
foot main bar area (the "Main Bar") that can accommodate up to 250 people and
a 4,400 square foot nightclub area that contains a dance floor, full-service
"Tiki" bar, performance stage and deejay booth and which can accommodate
another 1,200 persons. Rental payments under the lease for the premises
occupied by KatManDu-Philadelphia (the "Philadelphia Lease") currently are
$50,000 per year. In March 1997 the annual rent under the Philadelphia Lease
will increase to the greater of (i) $50,000 increased by a cost of living
adjustment and (ii) 4% of KatManDu-Philadelphia's gross income. Because it is
an outdoor facility, KatManDu-Philadelphia is operational only 5 months a
year from mid-April through mid-September.
KatManDu-Trenton. The Company plans to open a second restaurant/nightclub,
KatManDu-Trenton, in the first quarter of 1997. KatManDu-Trenton will be
located on the Delaware River waterfront in Trenton, New Jersey in an area
that has been designated for development. As part of this program, a new
stadium was completed in 1995 to be used by the Trenton Thunder minor league
baseball club and as a venue for concerts. The Company will incur significant
expenses during the next five months to complete the development of
KatManDu-Trenton. The Company estimates that the total cost of developing and
opening KatManDu-Trenton will be approximately $3.75 million which includes
approximately $2.25 million for construction costs, $625,000 for furniture,
fixtures and equipment and the balance for other costs. The total cost of
developing KatManDu-Trenton will be financed with the proceeds of the
Construction Loan, the proceeds of the June 1996 Financing, cash flow from
operations and the net proceeds of this Offering. Upon completion of
KatManDu-Trenton and the issuance of a certificate of occupancy with respect
thereto, the Construction Loan is expected to be repaid with the proceeds of
the NJEDA Loan. As of July 31, 1996, project development costs, such as
architectural and engineering fees, general contractor costs, legal costs and
permitting and licensing fees, for KatManDu-Trenton were approximately
$460,000, of which $210,000 has been paid.
Plan of Operation. Immediately following this Offering and until such time
as KatManDu-Trenton is operational, the Company's sole source of revenue will
be KatManDu-Philadelphia. However, KatManDu-Philadelphia closes for the
season in mid-September and KatManDu-Trenton is not expected to commence
operations until the first quarter of 1997. Future revenues and profits of
the Company will depend upon various factors, including the continued success
of KatManDu-Philadelphia, the success of KatManDu-Trenton, the opening of
additional restaurant/nightclubs, market acceptance of the KatManDu concept
and general economic conditions. In addition to the continued seasonal
operation of KatManDu-Philadelphia and the continued development and,
ultimately, the operation of KatManDu-Trenton, the Company's plan of
operation for the next 12 months is to develop at least one additional
restaurant/nightclub. The Company believes that cash flow from operations,
together with the proceeds from this Offering will be sufficient to satisfy
the Company's working capital requirements for at least the next 12 months.
26
<PAGE>
The Company further believes that cash flow from operations, the proceeds
of this Offering and other forms of site specific financing (i.e., landlord
contributions, vendor financing, vendor advertising, equipment leases, and
mortgage financing) should be sufficient to develop one to two additional
restaurant/nightclubs in 1997 and another two in 1998. The Company estimates
that the costs of developing and opening a new restaurant/nightclub will
range from $3.5 million to $5.0 million or more depending upon location, site
conditions, construction costs, and size and type of the
restaurant/nightclub. This sum represents all costs relative to constructing,
developing and opening a new restaurant/nightclub, including but not limited
to architectural and design fees, permit costs, engineering costs,
construction costs, initial food, liquor and merchandise inventory, furniture
and fixtures, initial staffing and employee training costs, ground breaking
and grand opening costs, and initial marketing and promotional costs. The
Company expects that it will incur approximately $650,000 in preopening costs
and related costs and purchase approximately $750,000 of inventory, fixtures
and equipment in connection with the opening of each restaurant/nightclub.
Generally, the Company will capitalize the construction costs relating to the
construction of a new restaurant/nightclub, and will treat all preopening
costs, including the cost of hiring and training the initial workforce,
travel, promotion and advertising expenses, as period costs and expense them
as incurred. The Company may require additional capital in the future through
securities offerings and debt financings to expand its business operations if
cash flow from operations is less than anticipated and/or site specific
financing is not available on terms acceptable to the Company.
There can be no assurance that the Company will successfully implement its
expansion plans, in which case the Company will continue to be dependent on
the revenues from KatManDu-Philadelphia and, eventually, KatManDu-Trenton as
well. The Company also faces all of the risks, expenses and difficulties
frequently encountered in connection with the expansion and development of a
new business. Furthermore, to the extent the Company's expansion strategy is
successful, it must manage the transition to multiple site operations, higher
volume operations, the control of overhead expenses and the addition of
necessary personnel.
GENERAL
KatManDu-Philadelphia is exclusively an outdoor facility and, therefore,
is only open from mid-April through mid-September. The 1996 season began on
April 19th. In 1995 the season began on April 20 and ended on September 21.
KatManDu-Trenton will operate year-round and is expected to commence
operations in the first quarter of 1997.
The Company's revenues are derived, generally, from sales of food and
beverages, gate charges, banquet fees and sales of promotional merchandise.
Revenue is generated primarily from the sale of food and beverages, both
alcoholic and non-alcoholic. In addition, there is a "gate charge" collected
from patrons as they enter the restaurant. The gate charge ranges from $3.00
to $7.00 and is collected daily after 8:30 p.m. and beginning at 2:00 p.m. on
Saturdays and Sundays. Finally, the Company derives revenue from the sale of
promotional merchandise (i.e., T-shirts, sweatshirts, caps, jackets, bags,
etc.). To date, merchandise sales have constituted only a small portion of
total revenues -- less than 3%. The Company will attempt to increase its sale
of promotional merchandise as a percentage of total revenues through more
aggressive marketing of the KatManDu concept to its customers and by
increasing the amount of floor space in each unit reserved for the display
and sale of such merchandise. For example, in KatManDu-Philadelphia the
retail area occupies approximately 80 square feet. In KatManDu-Trenton, the
retail area has been allocated approximately 260 square feet. However, there
can be no assurance that an increase in the amount of retail area will result
in higher sales. Also, there can be no assurance that the Company will be
able to continue to use the term "KatManDu" on or in connection with
merchandise sales. See "Risk Factors -- Intellectual Property; Proprietary
Marks."
The Company's principal costs are food and beverage costs, merchandise
costs and general and administrative expenses. General and administrative
expenses include all corporate and administrative functions that serve to
support existing operations and provide an infrastructure to support future
growth. Management, supervisory and staff salaries, employee benefits,
travel, data processing, training, rent and office supplies are major items
of expense in this category. The more substantial costs (i.e., food, beverage
and labor) are variable. Management projects that when a new KatManDu
restaurant/nightclub opens, it will incur higher than normal levels of labor
costs as new personnel complete training. Management believes, however, that
as the new staff gains experience, hourly labor schedules over the ensuing
30-60 day period will be gradually adjusted to provide operating efficiencies
similar to those at KatManDu-Philadelphia.
27
<PAGE>
QUARTERLY FLUCTUATIONS IN REVENUES, SEASONALITY AND INFLATION
The restaurant business in general is subject to seasonal fluctuations.
KatManDu-Philadelphia generally is only open from mid-April through
mid-September. For the rest of the year, it has no revenues even though it has
expenses. Therefore, after consummation of this Offering, the Company will
not generate any revenues until KatManDu-Trenton becomes operational,
anticipated to be in the first quarter of 1997, or the new season begins for
KatManDu-Philadelphia in April 1997. Even then, there can be no assurance
that KatManDu-Trenton will generate any sufficient revenues, if at all, to
cover the Company's expenses.
The timing of new restaurant/nightclub openings will result in significant
fluctuations in quarterly results. It is expected that revenues will be
greatest in the third quarter as a result of seasonal traffic increases. In
addition, KatManDu-Philadelphia is solely an outdoor facility. Accordingly,
the performance of KatManDu-Philadelphia is further subject to weather
conditions. Rain and below normal temperatures, particularly on weekends,
such as was the case for the 1996 season, has had and, may in the future
have, an adverse impact on its operations. KatManDu-Trenton and, it is
anticipated, most subsequent restaurant/nightclubs will have both indoor and
outdoor restaurant/nightclubs. Accordingly, they will have revenues all
year-round and the weather will not be as much of a factor.
The primary inflationary factors affecting the Company's operations
include food, beverage and labor costs. In addition, the Company's leases
require the Company to pay taxes, maintenance, repairs and utilities, and
these costs are subject to inflationary increases. The Company believes low
inflation rates have contributed to relatively stable costs. There is no
assurance, however, that low inflation rates will continue.
RESULTS OF OPERATIONS FOR THE SEVEN MONTHS ENDED JULY 31, 1996 AND 1995 AND
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
General. For the seven months ended July 31, 1996, the Company had a net loss
of $71,623 on gross revenues of $1,923,993 compared to a net profit of $261,841
on gross revenues of $2,055,043 for the period ending July 31, 1995. The loss is
primarily attributable to a non-cash charge to earnings of $248,400 with respect
to stock issued to certain employees of the Company for services rendered and
lower sales (principally attributable to cold and inclement weather conditions)
and the resultant loss of profits thereon. Gross margins on food and beverage
sales (including banquet sales) generally remained constant at 77% and 78% for
the seven months ended July 31, 1996 and July 31, 1995, respectively. On an
operating basis, the Company earned $176,777 for the seven months ended July 31,
1996, representing a 32% decrease from the comparable period in the prior year.
Operating income is net of the costs and expenses incurred with respect to the
construction and development of KatManDu-Trenton.
For the six months ended June 30, 1996, the Company had a net loss of
$234,938 on gross revenues of $1,326,078 compared to a net profit of $48,164
on gross revenues of $1,335,972 for the period ended June 30, 1995. On an
operating basis, the Company earned $13,462 for the six months ended June 30,
1996.
Revenues. Net revenues (which represents gross revenues less promotional
beverage and meal disallowances) was $1,886,541 for the seven months ended July
31, 1996 compared to $2,003,963 for the seven months ended July 31, 1995. Gross
revenues by category for the seven months ended July 31, 1996 and 1995 are set
forth in the table below. Food revenues are comprised of the sale of food,
non-alcoholic beverages and promotional food sales. Beverage revenues are
comprised of the sale of liquor, beer, wine and promotional liquor sales.
<TABLE>
<CAPTION>
Period Ending July
Period ending July 31, Percentage of 31, Percentage of Percentage Increase
1996 Gross Revenue 1995 Gross Revenue (Decrease)
---------------------- -------------- --------------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Food ......... $ 418,659 22% $ 480,538 23% (13%)
Beverage ..... 1,083,163 56% 1,138,085 55% (5%)
Gate ......... 231,746 12% 287,032 14% (19%)
Banquet ...... 132,131 7% 89,453 5% 48%
Merchandise .. 44,847 2% 39,701 2% 13%
Miscellaneous 13,447 1% 20,234 1% (34%)
---------------------- -------------- --------------------- -------------- -------------------
Total ........ $1,923,993 100% $2,055,043 100% (6%)
</TABLE>
28
<PAGE>
The decrease in gross revenues for the period ended July 31, 1996 from the
earlier comparable period is attributed to the impact of cold and inclement
weather on the KatManDu-Philadelphia outdoor restaurant/nightclub.
Accordingly, the number of dining and bar patrons decreased and revenue from
gate charges decreased approximately 19% due to the impact of these adverse
weather conditions.
Net revenue for the period ended June 30, 1996 was $1,290,743 compared to
$1,303,638 for the period ended June 30, 1995 which decrease was primarily
attributable to inclement weather during the period.
Costs and Expenses. Total costs and expenses (excluding non-cash compensation
expenses) for the seven months ended July 31, 1996 were $1,667,021 compared to
$1,676,085 for the seven months ended July 31, 1995. As a percentage of gross
revenues, total costs and expenses (excluding non-cash compensation expenses)
for the periods ended July 31, 1996 and 1995 were 87% and 82%, respectively.
Restaurant operating expenses consist primarily of food and beverage costs,
occupancy costs and labor costs. Food and beverage costs (including banquet
costs) increased to 23% of the related revenue during the first seven months of
fiscal 1996 from 22% in the first seven months of fiscal 1995 primarily as a
result of a malfunction in the automated liquor pour system. Food costs were
approximately 32% of food sales through July 1996 compared to 28% through July
1995. Liquor costs decreased to 19% of liquor sales in 1996 from 20% in 1995.
Merchandise costs were 72% of merchandise sales through July 1996 compared to
57% in the comparable 1995 period.
General administrative expenses, consisting primarily of labor, occupancy
(including rent to a related party) and other direct unit operating costs were
$1,144,185 for the seven months ended July 31, 1996 compared to $1,149,584 for
the seven months ended July 31, 1995, and as a percentage of gross revenues,
increased to 59% in the first seven months of fiscal 1996 from 56% in the first
seven months of 1995. Such increase was primarily due to lower revenues in 1996.
Total payroll (excluding employee benefits) for the period increased to $419,526
from $359,924 in the prior period, or by 17%. This increase was attributable to
the hiring of additional service management personnel and increases in
compensation payable to other executives in anticipation of the Company's
expansion.
Corporate overhead consisting principally of payroll costs relating to the
Company's senior management, decreased to $118,529 through July 31, 1996 from
$123,051 through July 31, 1995. As a percent of gross revenues, corporate
overhead expenses remained constant at 6% for the periods in question.
Furthermore, commencing on the day this Offering is consummated, the annual
salaries of each of Messers. Silver and Harting will increase to $150,000,
per annum.
Total costs and expenses (excluding non-cash compensation expense) for the
six months ended June 30, 1996 were $1,236,064 compared to $1,218,767 for the
six months ended July 31, 1995. General administrative expenses for the six
months ended June 30, 1996 were $847,411 compared to $827,870 for the six months
ended June 30, 1995. Corporate overhead for the six months ended June 30, 1996
and 1995 was $80,139 and $89,720, respectively.
Interest Income (Expense), Net. Interest income was negligible during the
respective seven months ended July 31, 1996 and 1995. Net interest expense
increased to $41,247 through July 31, 1996 from $36,944 through July 31, 1995
due primarily to increases in the principal indebtedness of the Company.
However, the majority of such loans had been repaid as of July 31, 1996.
Net interest expense for the six months ended June 30, 1996 was $39,721
compared to $31,355 for the period ended June 30, 1995.
Net Income (Loss) After Taxes (Pro Forma). Pro forma net loss for the seven
months ended July 31, 1996 was $71,623 compared to pro forma net income after
taxes for the seven months ended July 31, 1995 of $155,141. Pro forma net loss
for the six months ended June 30, 1996 was $234,938 compared to pro forma net
income after taxes of $28,414 for the six months ended June 30, 1995.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenue. Gross revenues increased 3.3% to $2,953,301 in 1995 from
$2,860,223 in 1994. This was primarily due to a more successful advertising
and promotion strategy as well as more favorable weather conditions in the
latter half of the season. Food and beverage revenues were $2,487,085 in
1995, representing 84.2%
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of gross revenues versus $2,451,992, or 85.7%, in 1994. This percentage
decline reflects increases in revenues from other sources, such as gate
charges and sales of promotional merchandise. Sales of promotional
merchandise increased 24.7% to $45,793 in 1995 from $36,713 in 1994 as a
result of a broader selection, better quality goods and a more concerted
selling effort. One of the Company's business goals is to increase sales of
promotional merchandise as a percentage of total revenues. Accordingly, the
selection offered has been expanded in the current year as well as the amount
of floor space devoted to selling such merchandise.
Costs and Expenses. Costs and expenses, as a percentage of net revenues
was approximately 88.2% in 1995 and 89.4% in 1994. This primarily resulted
from improved operating efficiencies and cost controls. Food and beverage
costs decreased by $27,280 to $585,115 in 1995 from $612,395 in 1994. Thus,
as a percentage of revenues, food and beverage costs decreased to 20.42% in
1995 from 22.08% in 1994. Payroll for management and operations personnel,
not including employee benefits and officers' payroll, totaled $438,795 or
15.31% of net revenues in 1995 and $499,409 or 18.01% of net revenues in
1994. Advertising and promotion declined to 4.4% of net revenues in 1995,
from 6.4% of net revenues in 1994. The cost for bands and musicians also
decreased in 1995 to 7.6% of net revenues from 10.1% of net revenues in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the principal capital requirement of the Company has been
funding KatManDu-Philadelphia (including furniture, fixtures and equipment
therein). The Company has been able to meet its capital requirements through
cash flow generated by KatManDu-Philadelphia and by borrowing funds from
various sources, including related parties. As of December 31, 1995, the
Company had cash on hand of $19,768, a working capital deficiency of $921,523
and had total liabilities of $1,022,566 of which $455,423 was owed to related
parties. As of July 31, 1996, cash on hand was $526,436, the working capital
deficiency was $1,433,377 and total liabilities were $2,096,955 of which
$1,237,833 was owed to related parties. Such amounts include the aggregate
principal amount of the June 1996 Financing Notes and accrued interest of
$12,833 which is prepayable upon the successful completion of this Offering.
If this Offering is not completed, such notes are not due until May 31, 1998.
In addition, as of December 31, 1995, the sum of the undistributed profits
attributable to the Preefer Interests and the principal and accrued interest
on the obligations related to the Preefer Interests was approximately
$125,000. In June 1996, the Preefer liabilities were satisfied as the Company
purchased the interests for an aggregate of $225,000.
Since 1994, the Company has also been funding the development of
KatManDu-Trenton. The Company has recently entered into a lease (the "Trenton
Lease") pursuant to which it has the right to occupy a 21,500 square foot
site which includes a 10,000 square foot landmark building on the Delaware
River waterfront in Trenton, New Jersey, and to develop and operate therein a
KatManDu restaurant/nightclub. The Trenton Lease is a 30-year lease. Rent
payable under the Trenton Lease is 2% of revenues derived from
KatManDu-Trenton but may not be less than $50,000 nor more than $100,000 per
year, which amount will increase every three years to reflect the increase in
the consumer price index for the Philadelphia/New Jersey region over such
period. In addition, the Company is responsible for all real estate taxes and
operating expenses attributable to the property. The Company anticipates that
KatManDu-Trenton will be complete and open to the public in the first quarter
of 1997.
As of July 31, 1996, the Company has incurred approximately $461,000 of
expenses in connection with the development of KatManDu-Trenton. It is
anticipated that the total cost of developing and opening KatManDu-Trenton
will be $3.75 million which amount includes all pre-opening expenses as well
as the cost of furniture, fixtures and equipment. The Company will borrow
approximately $2.5 million from Equity National Bank in the form of a
construction loan to develop KatManDu-Trenton. In addition, through July 31,
1996, the Company has paid approximately $210,000 towards the development of
KatManDu-Trenton. The balance of the development costs will be paid out of
the proceeds of this Offering. Accordingly, the Company is dependent on the
proceeds of this Offering to complete the development of KatManDu-Trenton.
Upon completion of the development of KatManDu-Trenton and the issuance of a
certificate of occupancy with respect thereto, it is anticipated that the
proceeds of the NJEDA Loan will be used to repay the Construction Loan.
In June 1996, the Company successfully completed the sale of the June 1996
Financing Notes, in the aggregate principal amount of $1.1 million, to
accredited investors. The June 1996 Financing Notes bear interest at 10% per
annum, payable monthly in arrears. In addition, the Company issued 141,666
shares of Common
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Stock to the purchasers of the June 1996 Financing Notes. The June 1996
Financing Notes and accrued interest thereon, are due upon the earlier of (i)
the day following the day of the closing with respect to this Offering and
(ii) May 31, 1998. In the event a closing with respect to this Offering has
not occurred prior to February 28, 1997, the Company has the option to redeem
the shares of Common Stock issued to the purchasers of the June 1996
Financing Notes at a fixed price which increases over time. Said option may
be exercised by the Company only if it has repaid the entire principal
balance of and accrued interest on the June 1996 Financing Notes.
To date, the Company has expended approximately $800,000 of the proceeds
of the June 1996 Financing. Of such amount, $225,000 was used to purchase the
Preefer Interests in connection with the settlement of the Preefer
Litigation, approximately $200,000 has been used to pay expenses related to
the development of KatManDu-Trenton and approximately $140,000 was used to
pay expenses in connection with this Offering. The balance was used to pay
other obligations and expenses of the Company and for working capital. The
Company intends to use the balance of the proceeds of the June 1996
Financing, approximately $290,000, in connection with the development of
KatManDu-Trenton and for working capital. The repayment of the June 1996
Financing Notes will result in a non-recurring, non-cash charge to earnings
of $850,000 representing original issue discount attributable to the issuance
of 141,666 shares of Common Stock to the purchasers of the June 1996
Financing Notes. The June 1996 Financing Notes, and accrued interest thereon,
will be repaid out of the proceeds of the Offering. See "Use of Proceeds" and
"Certain Transactions."
Shortly after the consummation of this Offering, the Company will
determine the exact amount of and make the Final Distribution. The Company
has agreed with the Representative that the Final Distribution will not exceed
$450,000.
Future KatManDu restaurant/nightclubs will be financed, in part, with the
proceeds of this Offering remaining after completion of KatManDu-Trenton,
cash flow from operations and other forms of site specific financing, such as
landlord concessions, mortgage financings, vendor financing, vendor
advertising and equipment leases. In the event cash flow from operations
and/or site specific finance is insufficient for the Company to meet its
expansion plans, the Company will be required to seek other forms of
financing, including, possibly, the sale of equity (including, potentially,
Common Stock issued in connection with the Warrants offered hereby) and debt
securities. There are no assurances that such financing will be available or
if available, that the terms of such financing will be acceptable or
favorable to the Company.
It is not anticipated that the Company's business will require substantial
working capital to meet its operating requirements. Virtually all of the
Company's revenues are collected in cash or pursuant to credit card
processing. Food and beverage inventories are expected to increase in
relation to trade accounts payable.
FINANCIAL REPORTING
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long Lived Assets and for Long Lived Assets to Be Disposed Of" ("SFAS 121").
This statement establishes financial accounting and reporting standards for
the impairment of long lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for long lived
assets and certain identifiable intangibles to be disposed of. This statement
is effective for financial statements for fiscal years beginning after
December 15, 1995, although earlier application is encouraged. The Company
does not expect that the adoption of SFAS 121 will have a material effect on
its consolidated financial statements.
The FASB issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123"), which will require
companies either to reflect in their financial statements or reflect as
supplemental disclosure the impact on earnings and earnings per share of the
fair value of stock based compensation using certain pricing models for the
option component of stock option plans. It is the Company's intention to
continue to account in its basic financial statements under the general
philosophy of Accounting Principles Board Opinion No. 25, as allowed under
the new standard, which measures only the intrinsic option value as
compensation. Disclosure, as required by SFAS 123, will be made commencing
with the Company's financial statements for the year ending December 31, 1996
and will reflect the impact of the compensation for options issued in 1996 in
the Notes to the Consolidated Financial Statements. Accordingly, SFAS 123 has
no impact on the financial position and results of operations for any period
described herein.
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BUSINESS
The Company owns and operates, under the name "KatManDu", a casual dining,
outdoor restaurant/nightclub, located on the Delaware River waterfront in
Philadelphia, Pennsylvania. KatManDu is designed to replicate a mythical
tropical island paradise vacation setting by featuring quality food, friendly
service, live musical entertainment and dancing. It is an outdoor
restaurant/nightclub and is therefore open only from mid-April until
mid-September. KatManDu-Philadelphia has a total area of approximately 17,425
feet. The dining area has a seating capacity of 160-180 persons. The
nightclub area, approximately 4,400 square feet, can accommodate up to 1,200
persons and includes a stage for live performances, a sound booth for
recorded music, a dance floor and a full service "Tiki" bar. In addition
there is also a 1,600 square foot "Main Bar" area which includes a 100 linear
foot bar and which can accommodate an additional 250 people. Finally, there
is a small retail area of approximately 80 square feet that offers
promotional merchandise.
The Company is planning to open a second restaurant/nightclub in the first
quarter of 1997 on a 21,500 square foot site on the Delaware River waterfront
in Trenton, New Jersey ("KatManDu-Trenton"). The Company has entered into a
30-year lease for the site which includes a 10,000 square foot historic
landmark building. KatManDu-Trenton is designed to operate year round, having
separate indoor and outdoor restaurant/nightclubs, each with its own separate
restaurant and nightclub areas and Main Bar. The outdoor
restaurant/nightclub, which will only be used from mid-April through
mid-September, will have a 2,400 square foot dining area with a seating
capacity of 160-180 persons, a 800 square foot "Main Bar" area which includes
an 80 linear foot bar which can accommodate approximately 200 people and a
4,100 square foot nightclub area, which includes a stage, a deejay booth, a
dance floor and a full-service "Tiki" bar which can accommodate up to 900
persons. The indoor restaurant/nightclub will be open year round. In the
summer season (mid-April through mid-September), weather permitting, the
indoor stage will be disassembled and the nightclub area of the indoor
restaurant/nightclub will be used as additional restaurant seating. It will
have a total of approximately 5,000 square feet and will accommodate up to
350 people for dinner and cocktails or 100 people for dinner and up to 650
people in the nightclub area. In addition, KatManDu-Trenton will have a
retail area of approximately 260 square feet for sales of the Company's
promotional merchandise.
The Company estimates that the total cost to develop, construct and open
KatManDu-Trenton will be $3.75 million. The Company will finance this cost
with the proceeds of the Construction Loan, proceeds of the June 1996
Financing, cash flow from operations and the proceeds of this Offering. In
addition, the Company will use the proceeds of the NJEDA Loan to repay the
Construction Loan upon completion of KatManDu-Trenton.
The Company believes that the popularity of theme restaurants in general,
when combined with its high- quality, moderately-priced food, live musical
entertainment and dancing will make KatManDu restaurant/nightclubs a
destination restaurant for residents and tourists that will be able to
compete with other theme restaurants. Management believes that the Company
has refined its menu and overall restaurant operations and successfully
demonstrated consumer acceptance of the KatManDu concept.
KatManDu-Philadelphia has attracted a culturally diverse, multi-aged customer
base. After dinner and on Saturday and Sunday afternoons and evenings, when
live music is featured, KatManDu attracts young adults and active older
adults drawn to its music-filled, environment. At other times KatManDu
provides a more relaxed atmosphere appealing to business people and families.
The Company's strategy is to develop and operate additional
restaurant/nightclubs on waterfront and other locations in cities with
favorable demographics where the KatManDu theme will have broad appeal to
local residents and tourists. In addition to KatManDu-Trenton, the Company
anticipates developing one to two other KatManDu restaurant/nightclubs in
1997 and two more in 1998 with the proceeds of this Offering, cash flow from
operations and other site specific financing, such as landlord concessions,
mortgages and capital leases.
INDUSTRY OVERVIEW: THEME RESTAURANTS
In recent years theme restaurants have gained increasing popularity, as a
number of such restaurants featuring a variety of different themes have
opened. It is estimated that in 1996 the theme casual dining segment of the
restaurant industry will have $1 billion of revenues and $5 billion in
revenues by the year 2000. The two most popular and well known restaurants of
this genre are Planet Hollywood(R) and Hard Rock Cafe(R), both of which
combine an entertainment component with a casual dining atmosphere. Aside
from enhancing the dining
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experience, the entertainment component also provides an additional revenue
stream, predominantly from merchandise sales. Patrons of theme restaurants
have evidenced a willingness to purchase souvenir T-shirts, hats, mugs, and
other times bearing the logo and reflecting the lifestyle of the particular
theme restaurant. These retail sales are typically at higher profit margins
than food and beverage sales, inclusive of labor costs.
THE KATMANDU "TROPICAL ISLAND PARADISE" VACATION THEME
Each KatManDu restaurant/nightclub will be modeled on
KatManDu-Philadelphia in terms of decor, menu, entertainment and ambiance.
"Tropical Island Paradise Theme." By replicating the outdoor island
environment in well populated urban and suburban locations, KatManDu attempts
to provide a short vacation-break feeling for its patrons. Each KatManDu
restaurant/nightclub will be designed to simulate a tropical island paradise
setting through use of multi-level natural wood decking, tenting, tropical
foliage and large aquariums filled with exotic coral reef fish. Each KatManDu
restaurant/nightclub will either be situated in a waterfront setting or in a
setting simulating a waterfront location. In addition, the focal point for
each KatManDu restaurant/nightclub will be a large centrally located, tent
covered Main Bar serving a complete array of alcoholic and non-alcoholic
drinks, many of them using tropical fruit juices and extracts with
descriptive names evoking the tropical island paradise theme.
Menu. Following its tropical island paradise theme, KatManDu has created a
menu which draws on diverse culinary influences such as the Caribbean, the
Middle East, Central America, Asian and traditional American. The menu
features an eclectic array of regional specialties, such as Caribbean Black
Bean Chile, Crab Quesadilla, Grilled Jamaican Chops, Thai Chicken, Shrimp Dim
Sum, Crab Cakes, Mushroom Lasagna, Santa Fe Salad, Jambalaya, Grilled Salmon,
Roasted Eggplant and Olive Hummus, sorbets served in natural lemon, coconut,
peach and other casings, Chocolate Pecan Pie, Cheesecake and Key Lime Pie but
also includes a wide variety of appetizers, soups, pastas, sandwiches,
salads, burgers and full-platter entrees and deserts. Menu items are prepared
on-site using fresh, quality ingredients. A children's menu is also
available. The price range of salads and appetizers is $3.75 to $11.95. Lunch
and dinner entrees range in price from $6.95 to $16.95 with daily specials
which add a diverse and more expensive alternative. Portions are generous and
significant attention is placed on presentation and preparation. Because the
menu is not tied to any particular type of food or beverage, the Company can
introduce and eliminate items based on local or current consumer trends
without altering its tropical island paradise theme. The Company endeavors to
hire experienced chefs and invests substantial time training kitchen
employees to maintain consistent food preparation. Since the Company
considers its extensive menu selection to be an important factor in its
appeal, continuous attention is devoted to the development of new menu items.
Nightclub Operations. Each KatManDu restaurant will include a large dance
area and adjoining full-service "Tiki" bar, a stage for live musical
entertainment and a deejay booth. The mood of the nightclub will be casual
and informal. Musical entertainment is continuous, alternating between live
shows and pre-recorded music. The entertainment format draws on an eclectic
mix of musical styles generally referred to as World Music, which is designed
to have universal appeal. Under this "World Music" banner,
KatManDu-Philadelphia has established itself as a major venue for Reggae,
Soca, Calypso and other Caribbean music, as well as Brazilian, Latin,
Afro-Pop, traditional American Rhythm & Blues, Rock and Roll, and the latest
in Modern Rock and New Music.
The KatManDu music program is formulated and implemented by a house
booking agent. The house booking agent maintains contacts with record company
representatives, tour packages and booking agencies throughout the country
and the world. Much of the information regarding new and exciting acts is
gleaned from trade publications such as Billboard Magazine and general
interest music publications such as Rolling Stone, Pulse, Spin, Reggae
Report, and others. On-going involvement in talent booking and event
promotion, has introduced KatManDu into the network of professional
entertainment artists and agents. Through its reputation for major live music
event presentations, KatManDu has developed its own stable talent, including
regional, national and international performers.
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Sound/Lighting/Ambiance. Sound and lights adjust through the afternoon and
evening hours to create the desired level of energy and excitement within the
dining environment. The ambiance of the restaurant is enhanced both by the
display and exhibition of items intended to evoke a tropical paradise island
theme and by the use of lighting and audio techniques.
RESTAURANT/NIGHTCLUB OPERATIONS
KatManDu-Philadelphia operates seven days per week, from 11:30 a.m. until
2:00 a.m. from mid-April through mid-September. It is closed the rest of the
year. KatManDu-Trenton has been designed as two separate, fully functional
restaurant/nightclubs, one indoor and one outdoor. The outdoor area will be
closed from mid- September through mid-April but the indoor area will be
available for year-round use.
The configuration of future KatManDu restaurant/nightclubs will generally
follow the format of KatManDu-Philadelphia and KatManDu-Trenton, depending
on whether they will be solely outdoor or year-round facilities. In addition,
each restaurant/nightclub will take into account such factors as the size and
location of the unit, local tastes, demographics and other relevant
considerations.
EXPANSION PLANS AND SITE SELECTION
The Company believes that the KatManDu concept has broader appeal than
other theme-based restaurants. KatManDu-Philadelphia has attracted a
culturally diverse, multi-aged customer base. After dinner and on Saturday
and Sunday afternoons and evenings, when live music is featured,
KatManDu-Philadelphia attracts young adults and active older adults drawn by
its music filled environment and dancing. At other times, KatManDu-
Philadelphia provides a more relaxed atmosphere appealing to business people
and families. The Company's business strategy is to use the "KatManDu" theme
developed and refined at KatManDu-Philadelphia in additional
restaurant/nightclubs in other markets, particularly on waterfront sites. The
Company believes that the KatManDu physical environment, ambiance, menu and
live music and dance format can be replicated in other markets. Expansion
will be facilitated by food, beverage and general managers trained at
KatManDu-Philadelphia, a number of whom would be available for employment at
new sites Unlike KatManDu-Philadelphia, most new restaurant/nightclubs are
expected to operate on a year-round basis. While the Company has not yet
arranged to purchase or lease sites in the areas being considered for future
development other than Trenton, New Jersey, it currently expects to develop
one or two other KatManDu restaurant/nightclubs in 1997 and two more in 1998.
The Company will target waterfront locations, in urban areas with favorable
demographics, such as Atlantic City, New Jersey, the New York metropolitan
area, Washington, D.C., Baltimore, Maryland, Los Angeles, California, Las
Vegas, Nevada, Vancouver, British Columbia and Miami and Orlando, Florida.
By expanding its operations and building additional KatManDu
restaurant/nightclubs, the Company is seeking to increase its name brand
recognition and establish a secondary meaning in the marketplace for
"KatManDu." The Company believes that this will have a favorable impact on
the Company's business operations, particularly with respect to merchandise
sales.
The Company plans to pursue a number of different expansion possibilities.
First, the Company will seek to establish KatManDu restaurant/nightclubs in
high profile, heavy-traffic, waterfront locations. The waterfront locations
enhance the tropical island paradise sensation. In addition, by being in such
locations, the Company believes its restaurants appeal to both destination
customers as well as passers-by who are drawn to its visually and audibly
exciting environment. The Company may acquire such sites outright, lease them
and build the facility itself or enter into an arrangement where the owner of
the property would develop the restaurant/nightclubs (build-to-suit).
Secondly, the Company will consider locating future restaurants in malls and
attempt to create the tropical island paradise setting through the use of
artificial pools, foliage etc. The Company will also consider non-mall, high
traffic entertainment complexes, such as multiscreen movie complexes, stadium
venues and similar sites and will further consider joint venture arrangements
with real estate developers or other theme restaurant companies.
Typical KatManDu restaurants are expected to be between 20,000 and 30,000
square feet and cost between $3.5 million and $5.0 million or more to develop
which includes the cost of furniture, fixtures and equipment and pre-opening
expenses. The Company will seek to secure landlord contributions towards the
development of
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new restaurant/nightclubs. However, the actual cost of developing a KatManDu
restaurant/nightclub will be dependent on several factors, including, but not
limited to, location, the Company's decision to lease or purchase the real
property and to renovate an existing building or construct a new facility and
the cost of labor and materials in the particular market.
Successful expansion of the Company's operations will be largely dependent
upon a variety of factors, some of which are currently unknown or beyond the
Company's control, including: customer acceptance of the KatManDu concept in
new geographic areas; the ability of the Company to identify suitable sites
and to negotiate leases or purchases of such sites; timely and economic
development and construction of facilities; the hiring of skilled management
and other personnel; the ability of the Company to apply its standardized
policies and procedures to a much larger number of facilities; the
availability of adequate financing; the general ability to successfully
manage growth (including monitoring restaurants, controlling costs and
maintaining effective quality food and service controls); and the general
state of the economy. The development of future restaurant/nightclubs will be
financed from cash flow from operations, the proceeds of this Offering,
mortgage and other site specific financing, including landlord concessions,
build-out allowances, vendor financing and advertising and equipment leases.
There can be no assurance the Company will be able to open new
restaurant/nightclubs at the planned rate of expansion, or at all. In
addition, further increases in the number of restaurant/nightclubs, or
opening restaurant/nightclubs at a faster pace or cash flows at levels lower
than currently anticipated will require additional debt or equity financings.
No assurance can be given that cash flow from operations combined with these
other financings, if any, will be sufficient to fund the cost of developing a
new restaurant/nightclub. The Company may encounter difficulties obtaining
adequate financing for expansion. In addition, it is expected that the
opening of new restaurant/nightclubs will give rise to additional expenses
associated with managing restaurants located in multiple markets. There is no
assurance that suitable sites for additional restaurant/nightclubs will be
obtained on desirable terms, that adequate financing for the Company's
expansion plans will be obtained or that any additional
restaurant/nightclubs, if developed, would be profitable.
MANAGEMENT AND EMPLOYEES
The Company's ability to manage a complex operation will be central to its
overall success. The Company believes that its management must include
skilled personnel at all levels. The Company's Executive Vice
President-Operations Bruce Waugh, has almost 20 years experience in the
restaurant industry. S. Lance Silver and Stuart N. Harting, the founders of
the Company, have been involved in its operation and management since its
inception. Previously, they operated and managed the bar and restaurant at
the Society Hill Hotel in Philadelphia. In addition, they have been real
estate investors and developers for approximately 30 years.
The General Manager of each restaurant/nightclub will report directly to
the Chief Operating Officer. The Company plans to monitor quality and
consistency in each of its restaurant/nighclub through the careful training
and supervision of personnel and the establishment of high standards relating
to personnel performance, food and beverage preparation, and maintenance of
facilities. The Company believes that it has been able to attract high
quality, experienced restaurant and management and personnel with its
competitive compensation and bonus programs. Staffing levels will vary
according to the size of each KatManDu restaurant/nightclub.
Management believes that an employee oriented culture creates a sense of
personal responsibility among all employees, and pride in the Company's
products, resulting in a higher level of customer service. By providing
extensive training and attractive compensation, the Company fosters a strong
corporate culture and encourages a sense of personal commitment from its
employees. The Company believes its compensation structure and positive
corporate culture enable it to attract and maintain quality employees. The
Company will place particular emphasis on the hiring of the General Manager
of each restaurant/nightclub, focusing on experience and management skills.
The Company presently has approximately 132 employees, most of whom are
part-time employees. Generally, the Company prefers to hire the same
employees from season to season. The Company estimates that KatManDu-Trenton
will employ 140-150 employees, some of whom will be full-time. The Company
believes that its relationship with its employees is good.
Service and Training. The Company is committed to providing its customers
with prompt, friendly and attentive service by staffing each KatManDu
restaurant/nightclub with an experienced management team and a
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high ratio of service personnel to customers. The Company's commitment to
customer service and satisfaction is further evidenced by several Company
practices and policies, including periodic visits by restaurant management to
customers' tables, active involvement of restaurant management in responding
to customer comments and assigning waitpersons to a limited number of tables,
generally four for dinner and five for lunch. Teamwork is emphasized through
a runner system for delivering food to the tables that is designed to serve
customers in an efficient and timely manner.
The Company believes that the training and knowledge of its employees and
the consistency and quality of the service they deliver are central to the
Company's success. Accordingly, each new restaurant employee of the Company
participates in a training program during which the employee works under the
close supervision of a restaurant manager or experienced key employees who
are familiar with Company policies. Generally, such training program is three
weeks for staff and twelve weeks for managers. Once hired, employees undergo
training in food quality and preparation and beverage preparation, customer
service and sales skills and employee relations. This includes written
training materials relating to food and beverage quality and service
standards, lectures, observation and simulation exercises. The final stage is
in-store training where employees work for a two week period implementing
their newly learned skills. Management strives to instill enthusiasm and
dedication in its employees and to create a rewarding working environment
where employees know what is expected of them in measurable terms. Management
continuously solicits employee feedback concerning restaurant operations and
attempts to be responsive to the employee's concerns.
PURCHASING
The Company attempts to obtain consistent quality items at competitive
prices from reliable sources. In order to maximize operating efficiencies and
to provide the freshest ingredients for its food products while obtaining the
lowest possible prices for the required quality, each restaurant/nightclub
management team will determine the daily quantities of food items needed and
will order such quantities from major suppliers at prices often negotiated
directly with the Company's corporate office. Food and supplies will be
shipped directly to the particular restaurant/nightclub. The Company
purchases perishable food products locally. The Company does not maintain a
central food product warehouse or commissary. The Company has not experienced
any significant delays in receiving restaurant supplies and equipment. The
Company is not dependent on any one supplier for its restaurant goods.
MANAGEMENT INFORMATION SYSTEMS ACCOUNTING
The Company uses an integrated management information system that is
designed to be utilized in all future KatManDu restaurant/nightclubs. This
system includes a computerized point-of-sale system which facilitates the
movement of customer food and beverage orders between the customer areas and
kitchen operations, controls cash, handles credit card authorizations, keeps
track of revenues on a per employee basis and provides management with
revenue data. The point-of-sale system is accessed by service personnel who
are assigned individual identification keys and appropriate information is
printed in the kitchen and bar areas which eliminates the need to read
handwritten tickets. The point-of-sale system electronically transfers data
nightly into the Company's computer system. The Company's automated
point-of-sale system also provides data for posting directly to the Company's
general ledger and to other accounting subsystems. The automated general
ledger system provides various management reports comparing current and prior
operating results as well as measuring performance against predetermined
operating budgets. The results are reported to and reviewed with Company
management by accounting personnel. Such reporting includes (i) bi-weekly
reports of revenues, cost of revenues and selected controllable unit
expenses, (ii) detailed quarterly performance reports of revenues and
expenses and (iii) quarterly reports of administrative expense performance.
Informal inventories are done on a daily basis and formal inventories are
taken every two weeks for accounting purposes.
LIQUOR CONTROL SYSTEM
KatManDu-Philadelphia uses a liquor control system as an alternative to
free-pouring. The system consists of a series of manifold trays mounted on
multi-level heavy duty shelving, with each tray having four manifolds. Each
manifold tray has a pump which is activated when a bartender pushes the
appropriate button, a series of which are available at each bartender
station. The buttons are programmed either for single liquor pours, for
36
<PAGE>
house liquors and the more popular premium and requested liquors, or for
multiple liquor drinks. (The system is not used for beer and wine.) The
manifold trays, liquor bottles and pumps are located in a remote location
from the bars in a "pump room." The pump room is typically checked by a
manager at the end of each night, or every two hours during times of peak
operations, to assure that nothing is running out. For security, the pump
room is always kept locked; only the general manager and four assistant
managers have the key. Additional accessory equipment consists of such items
as a control unit with interface boards that allows for the integration of
the liquor control system with the point-of-sale computer system.
The liquor control system permits management to control and account for
virtually every drink poured. By virtue of its interface with the point of
sale system, drinks are immediately rung up when poured once the drink button
is pressed, the product name and its price are immediately displayed on a
digital read-out found on the register and the price is entered. The drink
cannot be voided once entered and rung in.
The liquor control system has many advantages: it improves customer
satisfaction by producing drinks that are consistent; it lowers the liquor
cost by eliminating waste and loss due to overpouring, broken liquor bottles
(no bottles to be handled) or unauthorized comp drinks; it minimizes the need
to free-pour liquor; it increases the speed and efficiency of the bar staff;
it cuts down on labor costs for bartenders because one bartender can serve
more customers; it allows the Company to purchase liquor in 1.75 liter
bottles which are more economical than the standard 750 ml; and provides for
securely stocking a valuable liquor inventory in a remote location. The
liquor control system also provides the flexibility of programming 3
different pour sizes and 3 different price levels per brand of liquor Basic
maintenance can be performed on-site by Company trained personnel. Also,
on-site personnel can calibrate the system without the need for a service
personnel visit.
MARKETING AND PROMOTION
To date, the Company has relied primarily upon "word of mouth" referrals,
and local radio and print advertising to attract customers to
KatManDu-Philadelphia. The Company does direct mail and advertising to target
"house VIP" customer lists. In addition, a color newsletter is mailed to
approximately 5,000 people to promote specific programs, events and
activities. KatManDu-Philadelphia has also received a significant amount of
positive media publicity, particularly, for its support of many civic and
charitable efforts and as host for successful events for such organizations
as the Red Cross, Variety Club, Muscular Dystrophy Association, Cerebral
Palsy, Leukemia Society, Action Aids, the Ronald McDonald House, Miss America
Pageant and others.
The KatManDu-Philadelphia musical entertainment format has contributed
significantly to the media and publicity profile of the business. Featuring
daily live music presentations totaling approximately ten shows each week
provides KatManDu wide exposure in a variety of media including newspapers,
magazines, radio and TV outlets throughout the region. The presentation of
such musical events provides an ongoing stream of highly promotable
"news-making" opportunities. Finally, the Company uses its promotional
merchandise, comfortable, colorful, casual clothing with a pre-washed look,
to promote its image of a tropical island paradise.
COMPETITION
The restaurant and nightclub businesses are highly competitive. The
principal competitive factors within the restaurant and entertainment
industries generally include the uniqueness and perceived quality of the
restaurant or attraction, its proximity to a densely populated area, the
atmosphere and cleanliness of the establishment and the quality of food,
beverage and entertainment available. In addition, the restaurant industry is
also generally affected by changes in consumer preferences; national,
regional and local economic conditions; and demographic trends. The
performance of an individual restaurant/nightclub may also be affected by
factors such as traffic patterns, demographic considerations, and type,
number and location of competing restaurants. Factors such as inflation,
increased food, labor and employee benefit costs, and the availability of
experienced management and hourly employees may also adversely affect the
restaurant and retail industries in general, and the Company's
restaurant/nightclubs in particular. Restaurant operating costs are further
affected by increases in the minimum hourly wage, unemployment tax rates and
similar matters over which the Company has no control.
Many of the Company's competitors have well established reputations and
identities and possess substantially greater financial, marketing, personnel
and other resources than the Company. These competitors include established
local independent restaurants as well as national chain restaurants such as
TGI Friday's(R), Benni-
37
<PAGE>
gan's(R) and The Cheesecake Factory(R). The Company is also aware that other
theme restaurants which have substantially greater financial and marketing
resources than the Company, such as Planet Hollywood(R), Hard Rock Cafe(R)
and Rainforest Cafe, have announced, or are contemplating plans to open theme
restaurants or have actually opened such restaurants in some of the markets
where future KatManDu restaurant/nightclubs may be located, such as New York,
Miami, Orlando, Atlantic City, Los Angeles, Las Vegas and Washington, D.C. In
addition, other restaurants may use the tropical island paradise or similar
theme (i.e., Chart House(R), Rainforest Cafe(R)). These restaurants, as well
as additional restaurants that may open, will offer direct competition to the
Company. The Company believes its attention to and emphasis on providing
continuous entertainment in the form of live performances and prerecorded
music and dancing in a themed environment distinguishes it from other theme
restaurants.
Finally, to the extent that the Company generates revenues from the sale
of promotional merchandise, it may be competing with certain other retail
establishments. The retail business is highly speculative and has
traditionally involved a high degree of risk. The success of retail business
is dependent on a variety of factors, including public taste, inventory
selection and the popularity of other retail outlets in the area. As in the
case of the restaurant business, the retail business is often affected by
changes in consumer taste, national, regional or local economic conditions,
demographic-trends, traffic patterns and the type, number and location of
competing retail outlets.
REGULATION
The Company is subject to federal, state and local laws affecting its
business, including various health, sanitation and safety standards, as well
as regulation of the sale of alcohol and beer. To date, the Company has not
experienced any difficulty in obtaining or maintaining the permits and
licenses necessary for the conduct of its business. However, the failure to
receive or retain, or delay in obtaining, a license to serve alcohol and beer
in a particular location could adversely affect the Company's operations in
that location and impair the Company's ability to obtain licenses elsewhere.
Restaurants in most states, including Pennsylvania and New Jersey, are
subject to dram shop laws and legislation which impose liability on licensed
alcoholic beverage servers for injuries or damages caused by their negligent
service of alcoholic beverages to a visibly intoxicated person or to a minor,
if such service is the proximate cause of the injury or damage and such
injury or damage is reasonably foreseeable. While the Company maintains
liquor liability insurance as part of its existing comprehensive general
liability insurance, which management believes is adequate to protect against
such liability, there can be no assurance that it will not be subject to a
judgment in excess of such insurance coverage or that it will be able to
continue to maintain such insurance coverage at reasonable costs. The
imposition of a judgment substantially in excess of the Company's insurance
coverage would have a material adverse effect on the Company. Similarly, the
failure or inability of the Company to maintain insurance coverage could
materially and adversely affect the Company. The Disabilities Act prohibits
discrimination on the basis of disability in public accommodations and
employment. The Company believes that KatManDu-Philadelphia does and
KatManDu-Trenton will be designed to comply with the requirements of the
Disabilities Act; however, the Company could be required to further modify
such restaurant/nightclubs to comply with the provisions of the Disabilities
Act. See "Risk Factors."
PROPERTIES
The premises occupied by KatManDu-Philadelphia is leased by the Company
pursuant to a non-cancelable lease, (the "Philadelphia Lease"), expiring on
November 15, 2005, at a current rent of $50,000 per annum. Beginning March 1,
1997 the base rent under the Philadelphia Lease will be equal to the greater
of (i) $50,000 increased by a cost of living adjustment and (ii) 4% of
KatManDu-Philadelphia's gross income. The Company has also entered into a
lease, expiring September 30, 2001, (the "Elizabeth Lease") for the entire
second deck of the restaurant ship, Elizabeth, which is adjacent to
KatManDu-Philadelphia. The base rent under this lease is $50,000 per year.
The Company uses such leased premises as additional seating for its
restaurant operations and for its executive offices. The Philadelphia Lease
and the Elizabeth Lease are with Pier 25 North and ERP, respectively, each an
affiliate of the founders of the Company. Finally, the Company leases
approximately 4,500 square feet of storage space from Powerhouse pursuant to
a lease which expires on December 31, 1999 at a rental of $6,000 per annum.
In addition, the Company pays Powerhouse $12,000 a year under a roof lease
pursuant to which it has the right to display a KatManDu sign on the roof of
the building owned by Powerhouse. Powerhouse is also an affiliate of the
founders of the Company. See "Certain Transactions."
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<PAGE>
The site leased by KatManDu-Trenton, consisting of approximately 21,500
square feet, is leased pursuant to a thirty-year non-cancelable lease (the
"Trenton Lease"), providing for annual rent equal to 2% of the gross revenues
of KatManDu-Trenton, but no less than $50,000 and no more than $100,000,
subject to adjustment every three years to reflect increases in the consumer
price index for the Philadelphia/New Jersey region during such period. In
addition, the Company is obligated pay all property taxes, assessments and
utility charges attributable to the premises covered by such lease.
INTELLECTUAL PROPERTY RIGHTS
The Company's ability to successfully implement the KatManDu concept will
depend in part upon its ability to continue to use and to protect its
proprietary marks. The Company uses "KatManDu" in connection with its
restaurant services and the sale of promotional merchandise, particularly
clothing. In 1992, the Company's trade name KATMANDU(R) was registered as a
service mark on the Principal Register in the United States Patent and
Trademark Office for restaurant and nightclub services. The Company regards
its KATMANDU(R) service mark as having substantial value and being important
in its marketing program. Accordingly, the Company intends to protect its
service mark by taking appropriate legal action whenever necessary. The
Company is aware of local restaurants which may be operating with tradenames
identical or similar to "KATMANDU" and a nightclub operating as "Club
Kat-Man-Du" on Hilton Head Island, South Carolina. However, the Company is
not aware of any use of the "KatManDu" service mark by others for restaurant
or nightclub services that could materially affect its business.
The Company also uses its proprietary mark in connection with the sale of
promotional merchandise even though "KATMANDU" is a registered mark in the
U.S. of another company for retail store services for the sale of women's
apparel and apparel accessories and "KATMANDO" is a registered mark in the
U.S. of another company for clothing. However, the Company has not to date
received any objection to its use of "KatManDu" in connection with the sale
of promotional merchandise or otherwise. The Company believes that there are
other users of the term "KatManDu" or a close variation thereof in
association with clothing other than the two U.S. registrants identified
above. Although there can be no assurance that one or more of the owners of
these prior marks or registrations will not object to the extended use of
"KatManDu" by the Company in connection with the sale of promotional
merchandise, the Company has been advised by its intellectual property
counsel that, in the opinion of such counsel, its use of "KatManDu" on and
with respect to the sale of promotional merchandise sold at its
restaurant/nightclubs should not be found to infringe or otherwise violate
the rights of any other entity or the owners of these marks. Nevertheless,
the Company intends to modify its mark for such promotional merchandise to
include descriptive words and geographic locations and also to include the
word "Island". The Company also may file an application to register and use
"Island KatManDu" as a service mark for restaurant services and as a
trademark for related promotional merchandise.
INSURANCE
The Company maintains general liability and commercial insurance
(including liquor liability insurance) and product liability insurance to
cover customary risks inherent in the operation of its business in general.
While the Company believes that it maintains insurance policies which are
adequate in amount and coverage for its current operations, there can be no
assurance that coverage will continue to be available in adequate amounts or
at a reasonable cost.
LEGAL PROCEEDINGS
The Company is a named defendant in the case of Middleton v. Katmandu
Corp. et al, filed in the Court of Common Pleas, Philadelphia County. The
action arises out of an accident occurring on April 4, 1994 involving a
pedestrian struck by a drunk driver. Litigation counsel for the Company has
advised that the risk of an adverse judgment is minimal, in part because at
the time of the accident KatManDu-Philadelphia was closed for the season. The
plaintiff sued the Commonwealth of Pennsylvania, the city of Philadelphia and
other land owners and business owners around the site of the accident on
North Columbus Boulevard, alleging that the defendants had a duty to provide
a safe passageway for pedestrians. The case is currently at the discovery
stage and has not yet been scheduled for trial. The Company is not aware of
any other threatened litigation that would have a material adverse effect on
its business.
39
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE COMPANY
The following table sets forth certain information with respect to each
person who is a director or executive officer or key employee of the Company:
<TABLE>
<CAPTION>
Name Age Position
----------------- ----- -------------------------------------------------------
<S> <C> <C>
S. Lance Silver . 53 Co-Chairman, Chief Executive Officer, Co-President and
Director
Stuart N. Harting 54 Co-Chairman, Co-President and Director
James R. Bergman 51 Executive Vice President -- Administration, Chief Financial
Officer, Secretary and Treasurer and Director
Bruce Waugh ..... 40 Executive Vice President -- Operations and Director
David R. Gromacki 33 Senior Vice President-Executive Chef
Diane Thomsen ... 29 Assistant Vice President and General Manager --
KatManDu-Philadelphia
David Wallack ... 48 Director
Jill R. Felix ... 52 Director
</TABLE>
S. LANCE SILVER co-founded the Company in 1990, and has served as its
Co-Chairman, Chief Executive Officer and Co-President and as a Director since
inception. Prior to entering the restaurant business, Mr. Silver was a real
estate developer and a founder and principal of Silver & Harting, a real
estate development and mangement firm. Mr. Silver is an active member of the
Philadelphia Waterfront Business Association. From 1980 through 1983 Mr.
Silver managed and operated the bar and restaurant at the Society Hill Hotel
in Philadelphia, which he developed with Mr. Harting. Mr. Silver was a
general partner of Hoopskirt Factory Partners ("HFP"), a Pennsylvania limited
partnership, which filed a petition for relief under Chapter 11 of the U.S.
Bankruptcy Code of 1978, as amended (the "Bankruptcy Code"), in April 1993.
The filing prevented the holder of the first mortgage on the property owned
by HFP from foreclosing. Alternative financing was obtained and an order of
dismissal was entered on November 1, 1994 and all claims were paid in full.
In addition, Mr. Silver was a principal stockholder of a corporate general
partner of Headhouse Associates, a Pennsylvania limited partnership
("Headhouse"), which owned a leasehold and which filed for protection under
the Chapter 11 of the Bankruptcy Code in December 1991. Mr. Silver received
his degree in business administration and finance from Drexel University.
STUART N. HARTING co-founded the Company in 1990, and has served as its
Co-Chairman and Co-President and as a Director since inception. Prior to
entering the restaurant business, Mr. Harting was a real estate developer and
a founder and principal of Silver & Harting, a real estate development and
management firm. From 1980 through 1983 Mr. Harting managed and operated the
bar and restaurant at the Society Hill Hotel in Philadelphia which he
developed with Mr. Silver. Mr. Harting is an active member of the
Philadelphia Waterfront Business Association, of which he was President from
1992-1996. In addition, Mr. Harting is a Director of the Delaware River Ferry
Company. Mr. Harting was a general partner of HFP and a principal stockholder
of a corporate general partner of Headhouse. See discussion above. Mr.
Harting holds a business administration degree from Temple University and has
been a member of the Advisory Board of its business school since 1990.
JAMES R. BERGMAN has served as a consultant to the Company since 1993 and
was elected to the Board of Directors of the Company in August 1996. He had
been previously associated with Messrs. Silver & Harting from 1986 through
1990 when he joined their real estate development and management firm, Silver
and Harting. From 1990 to 1993 Mr. Bergman was a self-employed business
consultant. In January 1992, Mr. Bergman filed a petition for relief under
Chapter 7 of the Bankruptcy Code. On July 1, 1992, the Bankruptcy Court
issued an
40
<PAGE>
order of discharge under chapter 7 of the Bankruptcy Code. Mr. Bergman holds
a Masters in Business Administration, with concentrations in finance and
marketing, from the Harvard Business School and a Bachelor of Arts, with a
major in economics, from Columbia University.
BRUCE WAUGH, Executive Vice President-Operations of the Company, is a
restaurant and hospitality industry professional with 20 years experience in
bar and restaurant management. He joined the Company in March 1991,
participating in the planning and opening of KatManDu-Philadelphia, and has
been its General Manager since its inception, overseeing complete systems
implementation, training and control. Mr. Waugh was elected to the Board of
Directors of the Company in August 1996. Mr. Waugh holds a Bachelor of
Science degree in business management from LaSalle University.
DAVID R. GROMACKI, Senior Vice President of the Company, has been the
Executive Chef of KatManDu-Philadelphia since its inception. From 1990 to
1991, Mr. Gromacki was the Executive Chef at the Dock Street Restaurant, a
micro brewery pub & restaurant in Philadelphia. His prior positions were as
the Executive Chef and co-owner of the Main Street Bar and Grill, from 1984
through 1985, a fine dining restaurant/nightclub featuring jazz and blues in
Lexington, Kentucky and as Executive Chef at the Peppercorn Duck Club, from
1986 through 1988 a fine dining restaurant in the Hyatt Regency Hotel in
Lexington, Kentucky. Throughout this same period he was employed by Carmen
Catering, a concert and tour caterer. Mr. Gromacki served as Executive Chef
of Woodstock 1994 and other concert tours. Mr. Gromacki received in 1981 a
Culinary Arts degree from Johnson and Wales Culinary Institute in Providence,
RI.
DIANE THOMSEN, Assistant Vice President of the Company since March 1996,
has been employed by the Company since its inception. Ms. Thomsen is
currently the Assistant General Manager of KatManDu-Philadelphia with
specific responsibility as Beverage Director and, generally, overseeing all
operations while reporting to Mr. Waugh. Upon consummation of this Offering,
the Company intends to promote Ms. Thomsen to General Manager of
KatManDu-Philadelphia. From 1988 to 1991, Ms. Thomsen was employed as
Assistant Manager at Baci, a Philadelphia-based fine dining
restaurant/nightclub. She holds a marketing and management degree from Temple
University.
DAVID WALLACK was elected to the Board of Directors of the Company in
August 1996. Mr. Wallack is the developer, owner and operator since 1991 of
Mango's Tropical Cafe, a restaurant/cabaret/nightclub situated in the center
of Ocean Drive in the heart of the famed Deco-District in Miami Beach,
Florida. Mr. Wallack received a B.A. from the University of Miami and a J.D.
from Miami Law School. He is a member of the Florida Bar Association and is
Vice-Chairman of the Ocean Drive Association, an organization which has
helped to guide the redevelopment and resurgence of the South Beach
community.
JILL R. FELIX was elected to the Board of Directors of the Company in
August 1996. Ms. Felix, a real-estate professional, has been associated with
Liberty Property Trust, formerly Rouse & Associates, Malvern, Pennsylvania,
since 1979. Since October 1995 she has served as the Senior Vice President,
New Business Development. Her previous positions with that company were
President, Rouse International France from 1993 through 1995 and Partner for
International Development from 1988 through 1993. Ms. Felix received a B.S.
degree in Sociology and Psychology from the University of Wisconsin in 1966
and a Masters Degree in Social Work from Bryn Mawr College in 1968.
Each of the Company's directors has been elected to serve until the next
annual meeting of shareholders and until the election and qualification of a
successor. The Company's executive officers are elected annually by the
Company's Board of Directors and serve at the discretion of the Board of
Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee comprised of Ms. Felix and
Mr. Wallack. The Audit Committee recommends to the Board of Directors the
appointment of independent auditors, reviews and approves the scope of the
annual audit of the Company's financial statements, reviews and approves any
non-audit services performed by the independent auditors, reviews the
findings and recommendations of the internal and independent auditors and
periodically reviews and approves major accounting policies and significant
internal accounting control procedures.
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<PAGE>
The Board of Directors also has a Compensation Committee comprised of Ms.
Felix and Mr. Wallack. The Compensation Committee reviews and recommends
compensation of officers and directors, administers stock option plans and
reviews major personnel matters.
COMPENSATION OF EXECUTIVE OFFICERS
No executive of the Company received more than $100,000 in compensation in
1995. The following table sets forth certain summary information concerning
the aggregate total annual salary and bonus paid or accrued by the Company
for services rendered in 1995 to its chief executive officer and
co-Presidents. None of the below named executive officers were granted
options by the Company in 1995.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
All Other
Salary Bonus Compensation
Name and principal position Year ($) ($) ($)
---------------------------------- ------ --------- ------- --------------
<S> <C> <C> <C> <C>
S. Lance Silver, Co-Chairman, CEO
& Co-President(1)(2) ............ 1995 $54,000 -- --
Stuart N. Harting, Co-Chairman &
Co-President(1)(2) .............. 1995 $54,000 -- --
</TABLE>
- ------
(1) Does not include distribution of his share of profits of Kat Corp. and
KIP.
(2) Pursuant to their employment agreements with the Company, Messrs. Silver
and Harting will each begin drawing annual salaries of $150,000
commencing on the closing of this Offering.
EMPLOYMENT AGREEMENTS
In July 1996, the Company entered into a three-year employment agreement
with each of Messrs. Silver and Harting (to be effective as of the Effective
Date) pursuant to which Mr. Silver will serve as Chief Executive Officer and
Mr. Silver and Mr. Harting will both serve as co-President of the Company.
Messrs. Silver and Harting will each receive an annual base salary of
$150,000 and have the opportunity to earn performance- related bonuses,
including stock options issued pursuant to the Company's 1996 Stock Option
Plan. Pursuant to such agreement, they may not disclose confidential
information about the Company and they have agreed not to compete with the
Company for a one-year period after any termination of employment. If either
Messrs. Silver or Harting is terminated by the Company without "good cause,"
they are entitled to receive their base salary and benefits for the remaining
term of their employment agreement or 24 months, whichever is shorter.
STOCK OPTIONS
In April 1996, in order to attract and retain persons necessary for the
success of the Company, the Company adopted its 1996 Stock Option Plan (the
"Option Plan") covering up to 500,000 shares of Common Stock, pursuant to
which officers, directors and key employees of the Company and consultants to
the Company are eligible to receive incentive and/or non-incentive stock
options. The Option Plan, which expires March 1, 2006, will be administered
by the Board of Directors or a committee designated by the Board of
Directors. The selection of participants, allotment of shares, determination
of price and other conditions relating to the purchase of options will be
determined by the Board of Directors, or a committee thereof, in its sole
discretion. Incentive stock options granted under the Option Plan are
exercisable for a period of up to 10 years from the date of grant at an
exercise price which is not less than the fair market value of the Common
Stock on the date of the grant, except that the term of an incentive stock
option granted under the Option Plan to a shareholder owning more than 10% of
the outstanding Common Stock may not exceed five years and its exercise price
may not be less than 110% of the fair market value of the Common Stock on the
date of the grant. Non-qualified stock options granted under the Option Plan
are exercisable for a period of up to 10 years from the date of grant at an
exercise price which may not be less than 85% of the fair market value of the
Common Stock on the date of grant. As of the date hereof, the Company has
granted incentive stock options for an aggregate of 175,176 shares,
exercisable at a price of $6.00 per share over a five-year period, to 4 of
its officers. Options are generally exercisable for one-quarter of the shares
covered thereby as of first anniversary of the date of the grant and for an
42
<PAGE>
additional one-quarter of the shares covered thereby each year thereafter. In
addition, the Company has granted non-qualified options for 10,000 shares
exercisable at a price of $6.00 per share to each of the Company's 2 outside
directors upon their taking office. Options granted to outside directors are
exercisable for 50% of the shares covered immediately upon grant and for the
remainder of the shares following one year's service. No other options have
been granted or exercised under the Option Plan.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND RELATED MATTERS
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by the DGCL, the personal liability of directors and officers for
monetary damages for breach of their fiduciary duties as directors and
officers (other than liabilities arising from acts or omissions which involve
intentional misconduct, fraud or knowing violations of law or the payment of
distributions in violation of the DGCL). The Certificate of Incorporation
provides further that the Company shall indemnify to the fullest extent
permitted by the DGCL any person made a party to an action or proceeding by
reason of the fact that such person was director, officer, employee or agent
or the Company. Subject to the Company's Certificate of Incorporation, the
By-laws provide that the Company shall indemnify directors and officers for
all costs reasonably incurred in connection with any action, suit or
proceeding in which such director or officer is made a party by virtue of his
being an officer or director of the Company, except where such director or
officer is finally adjudged to have been derelict in the performance of his
duties as such director or officer.
The Company has not entered into indemnification agreements with any of
its directors. The Company expects to enter into separate indemnification
agreements with its officers and directors containing provisions which are in
some respects broader than the specific indemnification provisions contained
in the Company's Certificate of Incorporation and By-laws. The
indemnification agreements may require the Company, among other things, to
indemnify such directors and officers against certain liabilities that may
arise by reason of their status as directors and officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to
which they could be indemnified, and to obtain directors' and officers'
insurance, if available on reasonable terms. The Company believes these
agreements are necessary to attract and retain qualified persons as directors
and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such
indemnification.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning stock
ownership by (i) each person known by Company to be the beneficial owner of
more than 5% of the outstanding Common Stock or of the Class A Stock, (ii)
each director of the Company, and (iii) all executive officers and directors
as a group as of the date of this Prospectus and the percentage ownership of
the Common Stock and Class A Stock for each named person prior to and after
consummation of this Offering.
<TABLE>
<CAPTION>
Shares Beneficially Total Shares Owned
Owned Before Offering (% of Class) After Offering
---------------------------------- ----------------------------
Percentage
Percentage of Voting
Class A Stock Common Stock of Shares Power
---------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Stuart N. Harting(3)(6)(8) .................... 629,315 (50.0%) 236,370 (57.9%) 20.8% 31.8%
S. Lance Silver(4)(6)(8) ...................... 629,315 (50.0%) 236,370 (57.9%) 20.8% 31.8%
James R. Bergman(5)(8) ........................ 34,620 (8.5%) * *
Bruce Waugh(5)(8) ............................. 34,620 (8.5%) * *
David Wallack(6)(7) ........................... 8,220 (2.0%) * *
Jill R. Felix(7) .............................. 5,000 (1.2%) * *
All directors and executive officers as a group
(7 persons)(5)(8) ............................ 1,258,630 (100%) 279,590 (66.9%) 36.8% 60.6%
</TABLE>
- ------
* Represents less than one percent.
(1) The addresses of the persons named in this table are: Messrs. Silver,
Harting, Bergman and Waugh, c/o the Company, 415 North Columbus
Boulevard, Philadelphia, PA 19123; Mr. Wallack, 900 Ocean Drive, Miami
Beach, Florida; and Ms. Felix, 602 Cricklewood Road, West Chester,
Pennsylvania 19380.
(2) Unless otherwise indicated, each named person has sole voting and
investment power with respect to the shares of Common Stock and/or Class
A Stock set forth opposite his name.
(3) Includes 629,315 shares of Class A Stock, of which shares are owned
by the Stuart N. Harting Trust, an irrevocable trust established by Mr.
Harting of which he is the trustee and his wife and children are the
beneficiaries, and 30,000 shares of Common Stock which are pledged to
Cherry to secure an indebtedness in the principal amount of $280,000 of
Stuart N. Harting and S. Lance Silver.
(4) Includes 629,315 shares of Class A Stock, of which shares are owned
by the S. Lance Silver Trust, an irrevocable trust established by Mr.
Silver of which he is the trustee and his wife and children are the
beneficiaries, and 30,000 shares of Common Stock which are pledged to
Cherry to secure an indebtedness in the principal amount of $280,000 of
Stuart N. Harting and S. Lance Silver.
(5) All of the employees of the Company who own shares of Common Stock, other
than Messrs. Silver and Harting, have entered into restricted stock
agreements with the Company, pursuant to which the shares of Common Stock
which they own (i) may not be sold or otherwise transferred prior to
April 1, 2001 and (ii) will be forfeited if their employment with the
Company is terminated (unless such termination is without cause, or by
reason of death or disability of such employee) prior to such date. These
restrictions will lapse with respect to 25% of the shares of Common Stock
owned by such employee on each of April 1, 1998, 1999, 2000 and 2001.
(6) Concurrently, the shares of Common Stock owned by Mr. Wallack and the
60,000 shares of Common Stock owned by Messrs. Silver and Harting (30,000
each) which are pledged to Cherry are being registered for sale, at the
Company's expense, pursuant to a separate prospectus. See "Shares
Eligible For Future Sale."
(7) Includes options to purchase 5,000 shares of Common Stock granted under
the Option Plan exerciseable within 60 days of the effective date this
Offering.
(8) Holders of 206,370 shares of Common Stock, including all employees of the
Company, have entered into an agreement with Messrs. Silver and Harting
granting them the right to vote such shares and in connection therewith
have executed irrevocable proxies in favor of Messrs. Silver and Harting.
44
<PAGE>
CERTAIN TRANSACTIONS
Immediately prior to this Offering, the Company will effect the
Reorganization pursuant to which it will issue 1,258,630 shares of Class A
Stock and 60,000 shares of Common Stock to S. Lance Silver, Stuart N.
Harting, the S. Lance Silver Trust and the Stuart N. Harting Trust in a
tax-free exchange for all of their rights, title and interest in various
predecessors of the Company. See "The Company" and "Reorganization and Final
Partnership and S Corporation Distributions." In addition, upon formation of
the Company, an aggregate of 206,370 shares of Common Stock was issued to
various officers and employees of and consultants to the Company. Finally, in
June 1996, the Company issued 141,666 shares of Common Stock to the
purchasers of the June 1996 Financing Notes including 3,220 shares of Common
Stock to David Wallack, a Director of the Company. See "Management",
"Principal Stockholders" and "Management's Discussion and Analysis of
Financial Condition and Plan of Operation -- Liquidity and Capital
Resources."
In June 1995, the Company paid its past due indebtedness to the S. Lance
Silver Trust and the Stuart N. Harting Trust in the amounts of $122,695 and
$119,338, respectively, including interest, of $46,517 and $43,161,
respectively, and to Lizzy Management Corporation ("Lizzy"), a corporation
controlled by Messrs. Silver and Harting, in the amount of $15,832. In June
and July 1996, the Company paid its past-due indebtedness to Powerhouse and
1809 Chestnut, in the amounts of $30,654 and $346,245, respectively,
including accrued interest. Such indebtedness was incurred in 1991 and bore
interest at a rate of 12.5% per annum. Messrs. Silver and Harting control,
directly and indirectly, approximately 95% of Powerhouse and 85% of 1809
Chestnut. Messrs. Silver and Harting and the entities which they control
immediately contributed their share of the proceeds from the repayment of the
Powerhouse and 1809 Chestnut loans, approximately $321,700, to the Company.
In April 1996, the Company borrowed $125,000 from 1809 Chestnut and
$105,000 from Cherry. The proceeds of the loan were used to fund certain
expenses associated with the opening of KatManDu-Philadelphia for the 1996
season. The entire principal amount of such loans, together with accrued
interest thereon will be repaid out of the proceeds of this Offering.
In June 1996, the Company purchased the Preefer Interests for an aggregate
of $225,000 in connection with the settlement of the Preefer Litigation. Of
the total purchase price, $54,550 was attributable to the outstanding
principal balance of a loan made by Karen Zimmerman to KIP and $33,538
represented the accrued interest on such loan.
The Company will continue to lease the premises currently occupied by
KatManDu-Philadelphia from Pier 25 North, an affiliate of Messrs. Silver and
Harting. Beginning in March 1997, annual rental payments due under the lease
will be equal to the greater of (i) $50,000 increased by cost of living
adjustments and (ii) 4% of the gross income of KatManDu-Philadelphia. The
lease terminates in November 2005. The Company has entered into lease with
ERP for the second deck of the restaurant ship Elizabeth, which will be used
for additional seating for KatManDu-Philadelphia and for the Company's
executive offices, and with Powerhouse for storage space and the right to
display a KatManDu sign on the building owned by Powerhouse. See "Business --
Properties." T-Kat will sublease the KatManDu-Trenton restaurant from T-Kat
Urban Renewal Corporation which leases the premises from the Mercer County
Improvement Authority. T-Kat Urban Renewal Corp. is owned by Messrs. Silver
and Harting. The terms of the sublease between T-Kat and T-Kat Urban Renewal
Corporation are identical to the terms of the over-lease between the Mercer
County Improvement Authority and T-Kat Urban Renewal Corporation.
T-Kat has received a commitment, dated July 15, 1996 (the "Commitment"),
from Equity National Bank for the Construction Loan. The Construction Loan is
to be secured by all of the assets of T-Kat, a leasehold mortgage encumbering
the Trenton Lease, an assignment of T-Kat's liquor license and is to be
guaranteed by Messrs. Silver and Harting and the Company. The Construction
Loan will be issued for a term of 12 months and will bear interest at a
floating rate equal to 1% above the New York Prime Rate, as published in the
money section of the Wall Street Journal. Interest only will be payable
monthly, calculated daily based upon the actual principal balance of the
Construction Loan and the current interest rate. The Commitment contains
other terms and conditions typical of construction loans.
45
<PAGE>
Shortly after the consummation of this Offering, the Company will make the
Final Distribution to the current partners of KIP and the current
shareholders of Chinatown, Kat Corp. and T-Kat. The amount of the Final
Distribution will not exceed $450,000. See "Reorganization and Final
Partnership and S Corporation Distributions."
The Company believes that all prior transactions between the Company, its
officers, directors or other affiliates of the Company have been on terms no
less favorable than could have been obtained from unaffiliated third parties.
Any future transactions and loans with officers, directors or 5% stockholders
or their affiliates of the Company must be for valid business reasons, be on
terms no less favorable to the Company than could be obtained from
unaffiliated third parties and such transactions be approved by a majority of
the independent outside members of the Company's Board of Directors who do
not have an interest in the transactions.
DESCRIPTION OF SECURITIES
CAPITAL STOCK
The Company's authorized capital stock consists of 7,551,780 shares of
Class A Stock, 17,448,220 shares of Common Stock and 5,000,000 shares of
undesignated Preferred Stock. After the closing of this Offering, there will
be issued and outstanding 4,166,666 shares of Common Stock (4,541,666 shares
of Common Stock if the Representative's Over-Allotment Option is exercised in
full). None of the Preferred Stock are issued and outstanding.
COMMON STOCK AND CLASS A STOCK
GENERAL
The rights of holders of Common Stock and holders of Class A Stock are
identical except for voting and restrictions on transferability. After giving
effect to the Reorganization, there will be 408,036 shares of Common Stock
outstanding held of record by 23 stockholders and 1,258,630 shares of Class A
Stock outstanding held of record by four stockholders.
VOTING RIGHTS
The holders of Class A Stock are entitled to three votes per share and the
holders of Common Stock are entitled to one vote per share. Except as otherwise
required by law or as described below, holders of Class A Stock and Common Stock
will vote together as a single class on all matters presented to the
stockholders for their vote or approval, including the election of directors.
Stockholders are not entitled to vote cumulatively for the election of
directors, and no class of outstanding common stock acting alone is entitled to
elect any directors. Immediately prior to this offering, Messrs. Silver and
Harting will own and/or control the 1,258,630 outstanding shares of Class A
Stock and 266,370 shares of Common Stock, representing approximately 96.6% of
the combined voting power of the Company's outstanding capital stock. Following
the Offering, Messrs. Silver and Harting will own and/or control approximately
60.5% of the combined voting power of the Common Shares. Therefore, they will
have the ability to elect all of the directors of the Company, appoint officers,
determine officers' compensation, make decisions regarding the sale of debt or
equity securities of the Company and to effect or prevent certain corporate
transactions which require majority approval of the combined classes, including
mergers and other business combinations.
TRANSFER RESTRICTIONS
Class A Stock is subject to certain limitations on transferability that do
not apply to the Common Stock. The Certificate of Incorporation provides that if
there is a Transfer (as defined therein) of shares of Class A Stock to a person
other than a Permitted Transferee (as hereinafter defined) then such shares
automatically convert into an equal number of shares of Common Stock. "Permitted
Transferee" means, the spouse and lineal decendents of a holder of Class A
Stock. Shares of Class A Stock acquired by the Company will be canceled and may
not be reissued. This provision may not be amended without the affirmative vote
of holders of the majority of the shares of Class A Stock and the affirmative
vote of holders of a majority of the shares of Common Stock, each voting
separately as a class. Except in limited circumstances, the Company will be
restricted from issuing any additional shares of Class A Stock.
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<PAGE>
DIVIDENDS AND LIQUIDATION
Holders of Class A Stock and holders of Common Stock have an equal right
to receive dividends when and if declared by the Company's Board of Directors
out of funds legally available therefor. If a dividend or distribution
payable in Class A Stock is made on the Class A Stock, the Company must also
make a pro rata and simultaneous dividend or distribution on the Common Stock
payable in shares of Common Stock. Conversely, if a dividend or distribution
payable in Common Stock is made on the Common Stock, the Company must also
make a pro rata and simultaneous dividend or distribution on the Class A
Stock payable in shares of Class A Stock. In the event of the liquidation,
dissolution, or winding up of the Company, holders of the shares of Class A
Stock and Common Stock are entitled to share equally, share-for-share, in the
assets available for distribution after payment of all creditors and the
liquidation preferences of the Preferred Stock of the Company.
CONVERSION
Each share of Class A Stock is convertible at the option of the holder
thereof into one share of Common Stock at anytime.
OTHER PROVISIONS
Holders of Class A Stock and Common Stock have no preemptive rights to
subscribe to any additional securities of any class which the Company may
issue and there are no, redemption or sinking fund provisions applicable to
either such class, nor is the Class A Stock or the Common Stock subject to
calls or assessments by the Company. The absence of preemptive rights could
result in a dilution of the interest of the existing shareholders should
additional shares of Common Stock be issued. In addition, the rights of
holders of the shares of Common Stock may become subject in the future to
prior and superior rights and preferences in the event the Board of Directors
establishes one or more additional classes of Common Stock, or one or more
series of Preferred Stock. The rights, preferences, and privileges of the
holders of Common Stock and Class A Stock are subject to and may be adversely
affected by, the rights of the holders of any series of Preferred Stock which
the Company may designate and issue in the future. Upon the consummation of
this offering, there will be no shares of Preferred Stock outstanding, and
the Board of Directors has no present plan to establish any such additional
class or series. See "Risk Factors -- Effect of Certain Anti-Takeover
Provisions."
Concurrently, 261,666 shares of Common Stock are being registered, at the
Company's expense, for sale by certain stockholders pursuant to a separate
prospectus. See "Shares Eligible For Future Sale."
The Company will apply for the listing of the shares of Common Stock on AMEX
under the symbol "KAT". There can be no assurance that the Common Stock will be
quoted on such system or under such symbol. There is currently no established
market for the Common Stock, and there is no assurance that any such market will
develop.
PREFERRED STOCK
The Board of Directors of the Company is authorized (without any further
action by the shareholders) to issue Preferred Stock in one or more series
and to fix the voting rights, liquidation preferences, dividend rates,
conversion rights, redemption rights and terms, including sinking fund
provisions, and certain other rights and preferences. Satisfaction of any
dividend preferences of outstanding Preferred Stock would reduce the amount
of funds available for the payment of dividends on the Common Stock. Also
holders of the Preferred Stock would normally be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding up
of the Company before any payment is made to the holders of Common Stock. In
addition, under certain circumstances, the issuance of preferred stock may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the
Company's securities, or the removal of incumbent management. The Board of
Directors of the Company, without shareholder approval, may issue Preferred
Stock with voting and conversion rights which could adversely affect the
holders of Common Stock. On the date of this Prospectus, none of the
5,000,000 authorized shares of Preferred Stock are outstanding and the
Company has no present intention to issue any shares of Preferred Stock.
WARRANTS
The Warrants offered hereby will be issued under and governed by the
provisions of a Warrant Agreement (the "Warrant Agreement") between the
Company and Continental Stock Transfer and Trust Company, as war-
47
<PAGE>
rant agent (the "Warrant Agent") and will be evidenced by warrant
certificates in registered form. The following summary of the Warrant
Agreement is not complete and is qualified in its entirety by reference to
the Warrant Agreement, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
The shares of Common Stock and the Warrants offered together are
detachable and separately transferable. One Warrant entitles the holder
thereof (a "Warrant-holder") to purchase one share of Common Stock during the
five years following the Effective Date, subject to earlier redemption,
provided that at such time a current prospectus relating to the shares of
Common Stock issuable upon exercise of the Warrants is in effect and the
issuance of such shares is qualified for sale or exempt from qualification
under applicable state securities laws. Each Warrant will be exercisable at
an exercise price of $7.20 per Warrant, subject to adjustment in certain
events.
The Warrants are subject to redemption by the Company beginning 18 months
after the Effective Date, on not less than 30 days written notice, at a price of
$0.10 per Warrant at any time following a period of 20 trading days within a
period of 30 consecutive trading days ending on the fifth trading day prior to
the date the notice of redemption to the Warrant-holders where the per share
closing bid price of the Common Stock equals or exceeds 200% of the initial
offering price to the public (subject to adjustment). For these purposes, the
closing bid price of the Common Stock shall be determined by the last reported
sale price on the primary exchange on which the Common Stock is traded.
Warrant-holders will automatically forfeit all rights thereunder except the
right to receive the $0.10 redemption price per warrant unless the Warrants are
exercised before they are redeemed.
The Warrant-holders are not entitled to vote, receive dividends, or exercise
any of the rights of holders of shares of Common Stock for any purpose. The
Warrants are in registered form and may be presented for transfer, exchange or
exercise at the office of the Warrant Agent. The Company will apply for listing
of the Warrants on AMEX under the symbol "KAT WS". There can be no assurance
that the Warrants will be quoted on such system or under such symbol. There is
currently no established market for the Warrants, and there is no assurance that
any such market will develop.
The Warrant Agreement provides for adjustment of the exercise price and
the number of shares of Common Stock purchasable upon exercise of the
Warrants to protect Warrant-holders against dilution in the event of stock
dividends and distributions, stock splits, recapitalizations, mergers,
consolidations and similar transactions.
The Warrants may be exercised upon surrender of the certificate therefor
on or prior to the expiration date (or earlier redemption date) at the
offices of the Warrant Agent, with the form of "Election to Purchase" on the
reverse side of the certificate properly completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or cashier's
check payable to the order of the Company) for the number of Warrants being
exercised.
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer and Trust Company, located at 2 Broadway, New
York, New York 10004, is the transfer agent and registrar for the Common
Stock and the Warrants.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock or
the Warrants of the Company, and no predictions can be made for the effect,
if any, that market sales of shares or the availability of shares for sale
will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the Common Stock and the Warrants in the
public market could adversely affect prevailing market prices for the Common
Stock and the Warrants and the ability of the Company to raise equity capital
in the future.
Upon completion of this Offering, there will be 4,166,666 Common Shares
issued and outstanding (4,541,666, if the Representative's Over-Allotment Option
is exercised in full). The Shares of Common Stock and Warrants purchased in this
Offering, will be freely tradable without registration or other restriction
under the Securities Act of 1933, as amended (the "Securities Act"), except for
any shares purchased by an "affiliate" (as defined in the Act) of the Company.
Shares purchased by an "affiliate" of the Company will be subject to Rule 144.
The remaining 1,666,666 Common Shares held by existing stockholders will be
restricted securities as that term is defined in Rule 144 under the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered under the Securities Act or if they qualify for an exemption
from registration under Rule 144 promulgated under the Securities Act. Sale of
the Restricted Shares in the public market, or the availability of such shares
for sale, could adversely affect the market prices of Common Stock and Warrants.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) including persons deemed to be affiliates, whose
restricted securities have been fully paid for and held for at least two
years from the later of the date of issuance by the Company or acquisition
from an affiliate, may sell such security in broker's transactions or
directly to market makers, provided that the number of shares sold in any
three-month period may not exceed the greater of 1% of the then outstanding
shares of Common Stock or the average weekly trading volume of the shares of
Common Stock in the over-the-counter market during the four calendar weeks
preceding the sale. Sales under Rule 144 are also subject to certain notice
requirements and the availability of current public information about the
Company. After three years have elapsed from the later of the issuance of
restricted securities by the Company or their acquisition from an affiliate,
such securities may be sold without limitation by persons who are not
affiliates under the rule.
Holders of 1,258,630 shares of Class A Stock and 149,590 shares of Common
Stock, including all officers and directors and certain stockholders of the
Company, have entered into Lock-Up Agreements pursuant to which they have agreed
not to, directly or indirectly, issue, offer, agree or offer to sell, sell,
transfer, assign, encumber, grant an option for the purchase or sale of, pledge,
hypothecate or otherwise dispose of any beneficial interest in such securities
for a period of 13 months following the Effective Date. Upon expiration of this
lock-up period, the 1,258,690 shares of Class A Stock will be eligible for sale
under Rule 144 and 146,370 shares of Common Stock held by existing stockholders
will become eligible for public resale at various times over a period of less
than two years following the completion of this Offering, subject in some cases
to vesting provisions and volume limitations.
Holders of 261,666 shares of Common Stock, including David Wallack, a
Director of the Company, with respect to 3,220 shares of Common Stock
received in connection with the June 1996 Financing and Messrs. Silver and
Harting with respect to 60,000 shares (30,000 shares each) pledged to Cherry,
have executed lock-up agreements pursuant to which they have agreed with the
Representative not to sell or otherwise dispose of any of such securities for
a period of 7 months from the date of this Prospectus without the prior
written consent of the Representative and the Company. The Company has
agreed, at its own expense, to register such shares for sale to the public
upon the expiration of the seven month period commencing with the effective
date of this Offering. The Company will not receive any proceeds from the
sale of such securities. Sales of such securities by such holders or the
potential of such sales may have a material adverse effect on the market
price of the Securities offered hereby. See "Risk Factors."
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<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement (the "Underwriting Agreement") to purchase from
the Company and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the respective number of Shares and Warrants set forth
opposite their names:
<TABLE>
<CAPTION>
Number of Number of
Underwriter Shares Warrants
------------------------------- ----------- -----------
<S> <C> <C>
National Securities Corporation
Total ..................... 2,500,000 2,500,000
=========== ===========
</TABLE>
The Underwriters are committed to purchase all the Shares of Common Stock
and Warrants offered hereby, if any of such Securities are purchased. The
Underwriting Agreement provides that the obligations of the several
Underwriters are subject to conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per Share and
$ per Warrant. Such dealers may reallow a concession not in excess of $
per Share and $ per Warrant to certain other dealers. After the
commencement of the Offering, the public offering prices, concession and
reallowance may be changed by the Representative.
The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make. The Company has
also agreed to pay to the Representative a non-accountable expense allowance
equal to 3% of the gross proceeds derived from the sale of the Securities
underwritten, of which $35,000 has been paid to date.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the forty-five (45) day period from the date of this
Prospectus, to purchase up to an additional 375,000 shares of Common Stock
and/or 375,000 Warrants at the initial public offering price per Share and
Warrant, respectively, offered hereby, less underwriting discounts and the
non-accountable expense allowance. Such option may be exercised only for the
purpose of covering over-allotments, if any, incurred in the sale of the
Securities offered hereby. To the extent such option is exercised in whole or
in part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional Securities proportionate
to its initial commitment.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the
Company up to 250,000 shares of Common Stock and/or 250,000 Warrants (the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $ per share of Common Stock [120% of the initial
public offering price per Share] and $ per Warrant [120% of the initial
public offering price per Warrant] for a period of four (4) years, commencing
at the beginning of the second year after their issuance and sale and are
restricted from sale, transfer, assignment or hypothecation for a period of
twelve (12) months from the date hereof, except to officers of the
Representative. The Representative's Warrants provide for adjustment in the
number of shares of Common Stock and Warrants issuable upon the exercise
thereof and in the exercise price of the Representative's Warrants as a
result of certain events, including subdivisions and combinations of the
Common Stock. The Representative's Warrants grant to the holders thereof
certain rights of registration for the securities issuable upon exercise
thereof.
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<PAGE>
All officers, directors and stockholders of the Company and all holders of
any options, warrants or other securities convertible, exercisable or
exchangeable for shares of Common Stock have agreed not to, directly or
indirectly, issue, offer, agree or offer to sell, sell, transfer, assign,
encumber, grant an option for the purchase or sale of, pledge, hypothecate or
otherwise dispose of any beneficial interest in such securities for a period
of thirteen (13) months (or seven (7) months, in the case of the holders of
the June 1996 Financing Notes) following the Effective Date. An appropriate
legend shall be marked on the face of certificates representing all such
securities.
The Underwriting Agreement provides that the Representative has a right of
first refusal for a period of three (3) years from the effective date of the
Registration Statement with respect to any sale of securities by the Company
or any of its present or future affiliates or subsidiaries for cash.
The Company has agreed that the Representative has a right to designate a
nominee for election to the Company's Board of Directors which individual may
be a director, employee or affiliate of the Representative.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Consequently, the initial public offering prices of
the Securities has been determined by negotiation between the Company and the
Representative and does not necessarily bear any relationship to the
Company's asset value, net worth, or other established criteria of value. The
factors considered in such negotiations, in addition to prevailing market
conditions, included the history of and prospects for the industry in which
the Company competes, an assessment of the Company's management, the
prospects of the Company, its capital structure, the market for initial
public offerings and certain other factors as were deemed relevant.
Upon the exercise of any Warrants more than one year after the date of
this Prospectus, which exercise was solicited by the Representative, and to
the extent not inconsistent with the guidelines of the National Association
of Securities Dealers and the Rules and Regulations of the Commission, the
Company has, where defined, agreed to pay the Representative a commission
which shall not exceed five percent (5%) of the aggregate exercise price of
such Warrants in connection with bona fide services provided by the
Representative relating to any warrant solicitation undertaken by the
Representative. In addition, the individual must designate the firm entitled
to payment of such warrant solicitation fee. However, no compensation will be
paid to the Representative in connection with the exercise of the Warrants if
(a) the market price of the Common Stock is lower than the exercise price,
(b) the Warrants were held in a discretionary account, or (c) the exercise of
the Warrants is not solicited by the Representative. Unless granted an
exemption by the Commission from its Rule 10b-6 under the Exchange Act, the
Representative will be prohibited from engaging in any market-making
activities with regard to the Company's securities for the period from nine
(9) business days (or other such applicable periods as Rule 10b-6 may
provide) prior to any solicitation of the exercise of the Warrants until the
later of the termination of such solicitation activity or the termination (by
waiver or otherwise) of any right the Representative may have to receive a
fee. As a result, the Representative may be unable to continue to provide a
market for the Common Stock or Warrants during certain periods while the
Warrants are exercisable. If the Representative has engaged in any of the
activities prohibited by Rule 10b-6 during the periods described above, the
Representative undertakes to waive unconditionally its rights to receive a
commission on the exercise of such Warrants.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Morse, Zelnick, Rose & Lander, LLP ("MZRL"), a professional
limited liability partnership, with offices in New York, New York. Partners
of MZRL, or their affiliates, will own an aggregate of 40,000 shares of
Common Stock. Orrick, Herrington & Sutcliffe LLP, New York, New York has
acted as counsel to the Underwriters.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said report.
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<PAGE>
AVAILABLE INFORMATION
The Company is not a reporting company under the Exchange Act. The Company
has filed a Registration Statement on Form SB-2 under the Exchange Act with the
Eastern Regional Office of the Securities and Exchange Commission (the "SEC")
with respect to the Securities offered hereby. This Prospectus filed as a part
of the Registration Statement does not contain all of the information contained
in the Registration Statement and the exhibits thereto, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
Securities offered hereby, reference is made to such Registration Statements
including the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract, agreement or other documents are
not necessarily complete, and in each instance, reference is made to such
contract, agreement or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement and exhibits may be inspected without
charge and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as at the New York regional office of the Commission at
Seven World Trade Center, 14th Floor, New York, New York 10048. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Application will be made to list the Common
Stock and the Warrants on AMEX. The foregoing material also should be available
for inspection at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
52
<PAGE>
KATMANDU ENTERTAINMENT CORP.
INDEX
DECEMBER 31, 1995
AND JUNE 30 AND JULY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS .......................... F - 2
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND JUNE 30,
AND JULY 31, 1996 (UNAUDITED) ................................ F - 3 - 4
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER
31, 1994 AND 1995, FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND
1996 (UNAUDITED), AND FOR THE SEVEN MONTHS ENDED JULY 31, 1995
AND 1996 (UNAUDITED) ......................................... F - 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY FOR THE
YEARS ENDED DECEMBER 31, 1994 AND 1995, FOR THE SIX MONTHS
ENDED JUNE 30, 1996 (UNAUDITED) AND FOR THE SEVEN MONTHS ENDED
JULY 31, 1996 (UNAUDITED) .................................... F - 6 - 7
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1994 AND 1995, THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 (UNAUDITED) AND THE SEVEN MONTHS ENDED JULY 31, 1995
AND 1996 (UNAUDITED) ......................................... F - 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...................... F - 9 - 15
</TABLE>
F-1
<PAGE>
After giving effect of the stock transfer discussed in Note 11, we would be
in a position to render the following audit report.
Arthur Andersen LLP
New York, New York
September 3, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Katmandu Entertainment Corp.
We have audited the accompanying consolidated balance sheet of Katmandu
Entertainment Corp. (a Delaware corporation) and subsidiaries as of December
31, 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the two years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Katmandu
Entertainment Corp. and subsidiaries as of December 31, 1995, and the results
of their operations and their cash flows for each of the two years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
F-2
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996 (UNAUDITED) AND JULY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30, July 31,
1995 1996 1996
------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash .............................................. $ 19,768 $ 856,680 $ 526,436
Inventories ....................................... 7,294 80,466 68,646
Prepaid expenses .................................. 10,270 77,540 31,769
Loan receivable, related parties .................. 26,983 -- --
---------- ---------- ----------
Total Current Assets ......................... 64,315 1,014,686 626,851
---------- ---------- ----------
PROPERTY AND EQUIPMENT, AT COST
Furniture ......................................... 75,950 75,950 75,950
Leasehold improvements ............................ 582,558 602,912 603,443
Machinery and equipment ........................... 467,211 467,211 467,211
---------- ---------- ----------
1,125,719 1,146,073 1,146,604
Less: Accumulated depreciation .................... 609,884 661,489 670,089
---------- ---------- ----------
Net Property and Equipment ................... 515,835 484,584 476,515
---------- ---------- ----------
OTHER ASSETS
Liquor license .................................... 23,000 23,000 23,000
Trademark and artwork ............................. 6,055 6,055 6,055
Intangible assets, net of accumulated amortization
of $46,555 in 1995, 47,050 in June 30, 1996
(Unaudited) and 47,131 in July 31, 1996
(Unaudited) .................................... 1,048 553 472
Deferred financing cost ........................... -- 853,666 862,832
Deferred offering expenses ........................ -- 974,199 1,071,868
Construction in progress .......................... 54,666 312,559 461,283
Purchase of Minority Interest ..................... -- 98,284 98,284
---------- ---------- ----------
Total Other Assets ........................... 84,769 2,268,316 2,523,794
---------- ---------- ----------
TOTAL ASSETS ........................................ $ 664,919 $3,767,586 $3,627,160
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996 (UNAUDITED) AND JULY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30, July 31,
1995 1996 1996
------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses ....... $ 380,174 $ 794,696 $ 532,338
Accounts payable to a related party ......... 17,711 -- --
Loan payable, June 1996 Financing Notes ..... -- 1,100,000 1,100,000
Taxes payable, other than on income ......... 110,855 168,492 148,908
Interest payable to related parties ......... 32,554 33,385 12,833
Loan payable to related parties ............. 405,158 125,000 125,000
Loan payable, other ......................... -- 104,969 104,969
Minority interest ........................... 39,386 -- --
Other current liabilities ................... -- 44,904 36,180
--------- ---------- ----------
Total Current Liabilities .............. 985,838 2,371,446 2,060,228
--------- ---------- ----------
OTHER LIABILITIES
Deferred rent ............................... 36,728 36,728 36,728
--------- ---------- ----------
Total Other Liabilities ................ 36,728 36,728 36,728
--------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
(NOTES 10 & 11)
STOCKHOLDERS'(DEFICIT) EQUITY
Preferred stock, $.001 par value; 5,000,000
shares authorized, none issued and
outstanding as of December 31, 1995 and
June 30, 1996 (Unaudited) and July 31, 1996
(Unaudited) ............................... -- -- --
Class A Common Stock, $.001 par value;
7,551,780 shares authorized, 1,258,630
shares issued and outstanding as of
December 31, 1995; and 1,258,630 shares
issued and outstanding as of June 30, 1996
(Unaudited) and July 31, 1996 (Unaudited) . 1,259 1,259 1,259
Common stock, $.001 par value; 17,448,220
shares authorized, 60,000 shares issued and
outstanding as of December 31, 1995; and
408,036 shares issued and outstanding as of
June 30, 1996 (Unaudited) and July 31, 1996
(Unaudited) ............................... 60 408 408
Additional paid in capital .................. 21,681 2,170,481 2,183,608
Accumulated deficit ......................... (380,647) (812,736) (655,071)
--------- ---------- ----------
Total Stockholders' (Deficit) Equity ... (357,647) 1,359,412 1,530,204
--------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY ............................... $ 664,919 $3,767,586 $3,627,160
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND FOR THE PERIODS
ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) AND JULY 31, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30, Seven Months Ended July 31,
-------------------------- --------------------------- ---------------------------
1994 1995 1995 1996 1995 1996
---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Food and beverage ................. $2,451,992 $2,487,085 $1,125,606 $1,128,189 $1,708,076 $1,633,953
Gate charges ...................... 355,597 396,123 175,969 158,905 287,032 231,746
Promotional merchandise ........... 36,713 45,793 22,407 27,226 39,701 44,847
Miscellaneous ..................... 15,921 24,300 11,990 11,758 20,234 13,447
---------- ---------- ---------- ---------- ---------- ----------
Gross revenue ..................... 2,860,223 2,953,301 1,335,972 1,326,078 2,055,043 1,923,993
Promotional disallowance .......... (87,181) (87,550) (32,334) (35,335) (51,080) (37,452)
---------- ---------- ---------- ---------- ---------- ----------
Net revenue ......................... $2,773,042 $2,865,751 $1,303,638 $1,290,743 $2,003,963 $1,886,541
---------- ---------- ---------- ---------- ---------- ----------
Cost and expenses
Food and beverage ................. 612,395 585,115 271,642 292,202 380,708 372,118
Promotional merchandise ........... 20,722 34,984 29,535 16,312 22,742 32,189
General administrative expenses,
rent expense to related party ... 1,723,594 1,742,898 827,870 847,411 1,149,584 1,144,185
Corporate overhead ................ 122,038 164,628 89,720 80,139 123,051 118,529
Compensation expense (Note 11f) ... -- -- -- 248,400 -- 248,400
---------- ---------- ---------- ---------- ---------- ----------
Total Cost and Expenses ......... 2,478,749 2,527,625 1,218,767 1,484,464 1,676,085 1,915,421
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) ............. 294,293 338,126 84,871 (193,721) 327,878 (28,880)
Interest income ..................... 2,264 2,009 108 96 1,000 965
Interest expense .................... (69,383) (67,621) (31,463) (39,817) (37,944) (42,212)
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before minority interest 227,174 272,514 53,516 (233,442) 290,934 (70,127)
Minority interests .................. (22,717) (27,251) (5,352) (1,496) (29,093) (1,496)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) ............... $ 204,457 $ 245,263 $ 48,164 ($234,938) $261,841 ($71,623)
========== =========== ========== ========== ========== ==========
Net income (loss) per common share .. $ .12 $ .15 $ .03 ($.14) $.16 ($.04)
========== =========== ========== ========== ========== ==========
Weighted average number of shares
outstanding ....................... 1,666,666 1,666,666 1,666,666 1,666,666 1,666,666 1,666,666
Pro forma provision for income taxes
(Note 7) .......................... 83,100 99,600 19,750 -- 106,700 --
---------- ----------- ---------- ---------- ---------- ----------
Pro forma net income (loss) before
cumulative effect of accounting
change ............................ $ 121,357 $ 145,663 $ 28,414 $ (234,938) $ 155,141 $ (71,623)
Cumulative effect of accounting change
for income taxes .................. (22,100) -- -- -- -- --
---------- ----------- ---------- ---------- ---------- ----------
Pro forma net income (loss) ......... $ 143,457 $ 145,663 $ 28,414 ($234,938) $155,141 ($71,623)
========== ========== ========== ========== ========== ==========
Pro forma net income (loss) per
common share ...................... $ .09 $ .09 $ .02 ($.14) $.09 ($.04)
========== ========== ========== ========== ========== ==========
Pro forma weighted average number of
shares outstanding ................ 1,666,666 1,666,666 1,666,666 1,666,666 1,666,666 1,666,666
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'(DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND THE
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Class A Common Stock Common Stock
---------------- --------------------- ----------------- Additional
No. of No. of No. of Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1993 ....... -- $ -- 1,258,630 $1,259 60,000 $ 60 $ 21,681 $ 24,784 $ 47,784
Net income ...... -- 204,457 204,457
Distributions ... -- -- -- -- -- -- (456,312) (456,312)
-- ---- --------- ------ ------- ---- ---------- ---------- ----------
Balance, December
31, 1994 ....... -- -- 1,258,630 $1,259 60,000 $ 60 $ 21,681 ($ 227,071) ($ 204,071)
Net income ...... -- -- -- -- -- -- 245,263 245,263
Distributions ... -- -- -- -- -- -- (398,839) (398,839)
-- ---- --------- ------ ------- ---- ---------- ---------- ----------
Balance, December
31, 1995 ....... -- $ -- 1,258,630 $1,259 60,000 $ 60 $ 21,681 ($ 380,647) ($ 357,647)
== ==== ========= ====== ======= ==== ========== ========== ==========
Net loss ........ -- (234,938) (234,938)
Distributions ... -- -- -- -- -- -- (197,151) (197,151)
Issuance of common
stock .......... -- -- -- 206,370 206 990,370 -- 990,576
Issuance of common
stock, June 1996
Financing ...... -- -- -- 141,666 142 849,858 -- 850,000
Contributions from
stockholders ... -- -- -- -- -- 308,572 -- 308,572
-- ---- --------- ------ ------- ---- ---------- ---------- ----------
Balance, June 30,
1996 ........... -- $ -- 1,258,630 $1,259 408,036 $408 $2,170,481 ($ 812,736) $1,359,412
== ==== ========= ====== ======= ==== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'(DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND THE
SEVEN MONTHS ENDED JULY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Class A Common Stock Common Stock
---------------- --------------------- ----------------- Additional
No. of No. of No. of Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1993 ....... -- $ -- 1,258,630 $1,259 60,000 $ 60 $ 21,681 $ 24,784 $ 47,784
Net income ...... -- 204,457 204,457
Distributions ... -- -- -- -- -- -- (456,312) (456,312)
-- ---- --------- ------ ------- ---- ---------- --------- ----------
Balance, December
31, 1994 ....... -- -- 1,258,630 $1,259 60,000 $ 60 $ 21,681 ($227,071) ($204,071)
Net income ...... -- -- -- -- -- -- 245,263 245,263
Distributions ... -- -- -- -- -- -- (398,839) (398,839)
-- ---- --------- ------ ------- ---- ---------- --------- ---------
Balance, December
31, 1995 ....... -- $ -- 1,258,630 $1,259 60,000 $ 60 $ 21,681 ($380,647) ($357,647)
== ==== ========= ====== ======= ==== ========== ========= =========
Net loss ........ -- (71,623) (71,623)
Distributions ... -- -- -- -- -- -- (202,801) (202,801)
Issuance of common
stock .......... -- -- -- 206,370 206 990,370 -- 990,576
Issuance of common
stock, June 1996
Financing Notes . -- -- -- 141,666 142 849,858 -- 850,000
Contributions from
stockholders ... -- -- -- -- -- 321,699 -- 321,699
-- ---- --------- ------ ------- ---- ---------- --------- ----------
Balance, July 31,
1996 ........... -- $ -- 1,258,630 $1,259 408,036 $408 $2,183,608 ($655,071) $1,530,204
== ==== ========= ====== ======= ==== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE PERIODS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
AND JULY 31, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30, July 31,
-------------------------- --------------------------- --------------------------
1994 1995 1995 1996 1995 1996
----------- ------------ ----------- ------------- ----------- ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................... $ 204,457 $ 245,263 $ 48,164 ($ 234,938) $ 261,841 ($ 71,623)
--------- --------- --------- ---------- --------- ----------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Amortization and depreciation ..... 138,545 129,735 64,868 52,100 75,679 60,783
Minority interest ................. 22,717 27,251 5,352 1,496 29,093 1,496
Non-cash compensation ............. -- -- -- 248,400 -- 248,400
Changes in operating assets and
liabilities:
Inventories ..................... (4,600) (2,694) (46,508) (73,172) (50,932) (61,353)
Prepaid expenses ................ (300) (9,970) (26,130) (67,270) (82,321) (21,499)
Accounts payable, related party,
trade and accrued expenses .... 58,208 216,811 228,472 396,811 229,050 134,452
Taxes payable, other than on
income ....................... (29,670) (15,460) 72,658 57,637 56,328 38,053
Deferred rent ................... (3,704) (3,704) -- -- -- --
Interest payable to related party 28,955 (67,474) 14,749 (2,835) 19,383 (32,554)
Other current liabilities ....... -- -- 2,515 44,904 -- 36,180
--------- --------- --------- ---------- ---------- ----------
Total Adjustments ............ 210,151 274,495 315,976 658,071 276,280 403,958
--------- --------- --------- ---------- ---------- ----------
Net Cash Provided By Operating
Activities ................. 414,608 519,758 364,140 423,133 538,121 332,335
--------- --------- --------- ---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Insurance proceeds ................... 129,435 -- -- -- -- --
Leasehold improvements ............... -- (7,682) (38,443) (20,354) (66,485) (20,885)
Deferred offering expenses ........... -- -- -- (232,023) -- (329,691)
Construction in progress ............. (5,000) (49,666) (6,500) (257,893) (25,194) (406,617)
Purchase of minority interest ........ -- -- -- (139,166) -- (139,166)
Contributions from stockholders ...... -- -- -- 308,572 -- 321,699
--------- --------- --------- ---------- ---------- ----------
Net Cash Provided By (Used In)
Investing Activities ....... 124,435 (57,348) (44,943) (340,864) (91,679) (574,660)
--------- --------- --------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan payable, June 1996 Financing
Notes ............................. -- -- -- 1,100,000 -- 1,100,000
Loan payable, related parties, net ... 10,442 (136,641) (282,744) (253,175) -- (253,175)
Loan payable, other .................. -- -- 47,140 104,969 10,390 104,969
Distributions ........................ (485,204) (398,839) (102,386) (197,151) (214,485) (202,801)
--------- --------- --------- ---------- ---------- ----------
Net Cash (Used In) Provided
By Financing Activities .... (474,762) (535,480) (337,990) 754,643 (204,095) 748,993
--------- --------- --------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH ........ 64,281 (73,070) (18,793) 836,912 242,347 506,668
CASH, BEGINNING OF YEAR ................ 28,557 92,838 92,838 19,768 92,838 19,768
--------- --------- --------- ---------- ---------- ----------
CASH, END OF YEAR ...................... $ 92,838 $ 19,768 $ 74,045 $ 856,680 $ 335,185 $ 526,436
========= ========= ========= ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid for interest ................ $ 40,428 $ 135,095 $ 31,463 $ 42,652 $ 18,561 $ 74,766
========= ========= =========== ============ ========== ==========
NON CASH OPERATING
ACTIVITIES:
Bartered services ..................... $ 21,497 $ 29,080 $ 13,200 $ 22,000 $ 19,800 $ 22,000
========= ========= =========== ============ ========== ==========
Compensation ......................... $ -- $ -- $ -- $ 248,400 $ -- $ 248,400
========= ========= =========== ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 -- BUSINESS ACTIVITIES AND ORGANIZATION
Katmandu Entertainment Corporation, ("Katmandu" or the "Company") was
incorporated on March 29, 1996 in the State of Delaware to wholly own
Katmandu Corporation ("Kat Corp."), T-Kat Corporation ("T-Kat") and Katmandu
Investment Partners ("KIP"), all of which are under common ownership and
control. Accordingly, the three entities are presented as wholly owned
subsidiaries of the Company. All significant intercompany transactions and
balances have been eliminated in consolidation.
Kat Corp. was formed in 1990, in the state of Pennsylvania and operates a
restaurant and nightclub on the Philadelphia, Pennsylvania waterfront. The
business is a seasonal operation, open from April through September.
T-Kat is developing a restaurant and nightclub on the Trenton, New Jersey
waterfront. While the Company was incorporated on August 25, 1995, in the
state of New Jersey, the concept for the development project and various
project costs commenced effective January 1, 1994.
KIP (a Pennsylvania Limited Partnership) was formed in 1991 to own the
furniture, leasehold improvements and machinery and equipment used in the
restaurant and nightclub operation of Kat Corp. KIP is owned by Chinatown
Convention Center Hotel, General Partner (1%), and three limited partners,
Lance Silver Trust (44.55%), Stuart Harting Trust (44.55%) and Karen
Zimmerman (9.9%).
NOTE 2 -- RISKS AND UNCERTAINTIES
The Company has a net working capital deficiency and limited operating
history. Although the Company has operating income at year end, the Company's
ability to generate net income in the future will depend upon the success of
its location in Philadelphia and the successful implementation of the
Company's expansion strategy. Management believes that its current
operations, the proceeds from the June 1996 Financing and capital
contribution made subsequent to year end will be sufficient to support the
business activities through December 1996. (See Note 11.)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The Company is subject to a number of risks including the Company's
limited operating history. The Company is also subject to general expansion
risks, availability of sites, and acceptance and evolution of its concept.
Additionally, there are risks associated with obtaining financing as well as
the quarterly fluctuations that exist due to the seasonality of the business
that could impact the future results of the Company. See discussions of Risk
Factors in the accompanying registration statement of which these combined
financial statements and notes to consolidated financial statements are a
part.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES: Inventories at December 31, 1995 are valued at the lower of
cost or market value, using the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT AND DEPRECIATION: Property and equipment are stated
at cost. Depreciation is calculated using straight-line method over lessor of
their estimated useful lives or remaining term of lease. Estimated useful
lives are as follows:
Furniture ................................ 7 years
Leasehold improvements.................... 15 years
Machinery and equipment................... 5-7 years
F-9
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1995
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Expenditures for renewals and betterments which significantly extend the
useful life of property and equipment are capitalized; expenditures for
maintenance and repairs are charged to income. When property and equipment
are retired, the asset and related accumulated depreciation accounts are
relieved of the applicable amounts. Gains or losses from retirements or sales
are credited or charged to income. Depreciation expense was $131,278 and
$120,819 for the years ended December 31, 1994 and 1995, respectively.
INTANGIBLE ASSETS AND AMORTIZATION: Intangible assets are recorded at cost
less related accumulated amortization. Amortization is calculated on a
straight-line basis for periods ranging from 5-15 years. Amortization expense
was $7,267 and $8,916 for the years ended December 31, 1994 and 1995,
respectively.
CONSTRUCTION IN PROGRESS: The Company capitalizes the costs relating to
the opening of the site in Trenton, New Jersey and will amortize such cost
over the twelve months following the opening date. At balance sheet date,
these costs are comprised primarily of legal and architectural expenses. The
Company will treat all pre opening costs as period costs and expense them as
incurred.
ADVERTISING COSTS: Advertising costs are generally charged to operations
in the year incurred. Advertising expense totaled $178,015 and $126,301 for
the years ended December 31, 1994 and 1995, respectively.
INCOME TAXES: Income taxes are determined under the liability method as
required by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", ("SFAS 109"). Under SFAS 109, deferred tax assets and
liabilities are determined based upon differences between financial reporting
and tax basis of assets and liabilities.
RECENTLY ISSUED ACCOUNTING STANDARDS: During March 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to Be Disposed Of." This statement
establishes financial accounting and reporting standards for the impairment
of long lived assets, certain identifiable intangibles, and goodwill related
to those assets to be held and used, and for long lived assets and certain
identifiable intangibles to be disposed of. This statement is effective for
financial statements for fiscal years beginning after December 15, 1995,
although earlier application is encouraged. The Company does not expect that
the adoption of SFAS 121 will have a material effect on its financial
statements.
The FASB issued Statement of Financial Accounting Standards No. 123,
"Accounting to Stock Based Compensation" ("SFAS 123"), which will require
companies either to reflect in their financial statements or reflect as
supplemental disclosure the impact on earnings and earnings per share of the
fair value of stock based compensation using certain pricing models for the
option component of stock option plans. It is the Company's intention to
continue to account in its basic financial statements under the general
philosophy of Accounting Principles Board Opinion No. 25, as allowed under
the new standard, which measures only the intrinsic option value as
compensation. Disclosure, as required by SFAS 123, will be made commencing
with the Company's financial statements for the year ending December 31, 1996
and will reflect the impact of the compensation for options issued in 1995
and 1996 (if any) in the Notes to the Consolidated Financial Statements.
Accordingly, SFAS 123 has no impact on the financial position and results of
operations for any period described herein.
STOCK OPTION PLAN: Subsequent to balance sheet date, the Company adopted a
1996 Stock Option Plan ("Plan") in which 500,000 shares of Common Stock have
been reserved for issuance to employees, officers and directors of the
Company. At December 31, 1994 and 1995, no shares were issued in connection
with this Plan.
EARNINGS PER SHARE: Both historical and pro forma earnings per share are
computed using the weighted average number of common shares outstanding
adjusted for the issuance of shares in connection with the June 1996
financing discussed in Note 11.
F-10
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1995
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform to current year presentation.
INTERIM PERIODS PRESENTED: The interim consolidated financial statements
for the six and seven months ended June 30, 1995 and 1996 and July 31, 1995
and 1996 are unaudited. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principals
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the six and
seven month period ended June 30, 1996 and July 31, 1996, respectively, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
NOTE 4 -- BANK LINE OF CREDIT
The Company utilized a $125,000 bank line of credit bearing interest at
bank prime rate during its 1994 and 1995 operating seasons. The line of
credit expired December 31, 1995 and was not renewed by the Company. The
unpaid balance on the line of credit was $0 at December 31, 1995. Interest
expense on the line of credit was $2,980 and $4,051 for the years ended
December 31, 1994 and 1995, respectively.
NOTE 5 -- LOANS RECEIVABLE, RELATED PARTIES
At December 31, 1995, the Companies were owed $26,983, from various
parties related through common ownership and control. The loans were
non-interest bearing with no specified repayment terms.
NOTE 6 -- ACCOUNTS PAYABLE TRADE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of December 31, 1995 consists of
the following:
Accounts payable........... $348,726
Accrued expenses........... 19,448
Accrued bonus ............ 12,000
--------
Total ................. $380,174
========
NOTE 7 -- INCOME TAXES
Kat Corp., with the consent of its stockholders, elected to be taxed as an
S-Corporation for federal and state income tax purposes. As such, Kat Corp.
is not subject to federal and state corporate income taxes. Kat Corp.'s
income will, instead, be taxed to the individual stockholders. T-Kat was a C
Corporation for the year ended December 31, 1995 that had no material
operations or profitability. It also elected to be taxed as an S-Corporation
for federal and state income tax purposes effective January 1, 1996. KIP is a
Partnership. Its income will be taxed to the individual parties. No provision
for income taxes has been made for federal or state income taxes due to the
tax structure of the combined companies.
F-11
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1995
NOTE 7 -- INCOME TAXES - (Continued)
Immediately after the transfer of ownership discussed in Note 11, the
Company will no longer be treated as an S-Corporation. The accompanying
consolidated financial statements reflect a provision for income taxes on a
pro forma basis as if the Company was liable for federal, state and local
income taxes as a taxable corporate entity throughout the years presented.
The pro forma adjustments to income taxes represent the difference between
historical income taxes and the income taxes that would have been reported
had the Company filed federal, state and local income tax returns as a single
corporate entity for each of the years presented.
The following summarizes pro forma income taxes provision:
For the Year Ended
---------------------------------
1994 1995
---------- ----------
Pro forma income tax adjustment:
Current
Federal ................... $ 75,000 $ 94,500
State ..................... 24,300 30,600
--------- --------
Total ..................... $ 99,300 $125,100
======== ========
Deferred
Federal ................... (13,500) (21,000)
State ..................... (2,700) (4,500)
-------- --------
Total ..................... (16,200) (25,500)
Pro forma income tax ........... $ 83,100 $ 99,600
======== ========
The pro forma provision for income taxes differs from the amounts computed by
applying federal statutory rates due to the following:
For the Year Ended
----------------------
1994 1995
--------- --------
Pro forma provision computed at the federal statutory
rate ................................................... 34.0% 34.0%
State income taxes, net of federal tax benefit .......... 7.0% 7.0%
---- ----
Total ................................................... 41.0% 41.0%
NOTE 8 -- NOTE PAYABLE TO RELATED PARTIES
The Company is indebted to various parties related through common
ownership and control and various limited partners.
1995
----
Katmandu Investment Partners:
Demand note payable to a minority stockholder with interest at
12.5% per annum .............................................. $ 54,550
Demand note payable to a related party with interest at
12.5% per annum .............................................. 24,730
Demand notes payable to a related party with interest at
12.5% per annum .............................................. 325,878
--------
$405,158
========
Substantially all assets of the Company have been pledged as collateral
for the above borrowings.
NOTE 9 -- RELATED PARTY TRANSACTIONS
In June 1995, KIP satisfied in full its indebtedness to certain related
parties. The total amount paid was $257,865, of which $89,678 represented
accrued interest.
F-12
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1995
NOTE 9 -- RELATED PARTY TRANSACTIONS - (Continued)
KIP leases, from a related party, the pier on which the business on the
Philadelphia waterfront operates. The lease is classified as an operating
lease and expires November, 2005. The terms of the lease stipulate that the
annual minimum rent for the year ending March 31, 1996 will be $50,000.
Beginning March 1, 1997, the annual minimum rent becomes the greater of
$50,000 plus an adjustment for cost of living and four percent (4%) of the
gross business conducted on the premises.
The Company has a lease agreement with a related party for storage space.
The rent under lease is $6,000 per year in equal monthly installments. The
lease terminates December 31, 1999. Subsequent to year end, the Company
entered into a new lease with the same related party for the right to display
a sign on the building owned by the related party for $12,000 per year. The
new lease terminates in April 1997.
Rent expense is straight-lined over the life of the lease. Total rent
expense for the years ended December 31, 1994 and 1995 was $52,296 in each
year.
At December 31, 1995 future minimum lease payments under the above leases,
excluding real estate taxes and operating costs are as follows:
Year Ended December 31,
-----------------------
1996 ....................... $ 56,000
1997 ....................... 56,000
1998 ....................... 56,000
1999 ....................... 56,000
2000 ....................... 50,000
Thereafter ................. 245,833
--------
$519,833
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
Kat Corp. and KIP are guarantors of a loan payable by a related entity.
The balance of the loan at December 31, 1995 was $375,315. The Companies are
also guarantors of an equipment lease payable by the same related entity. The
balance of the lease payable at December 31, 1995 was $40,953.
KIP has pledged substantially all of its assets as guarantor of an
additional loan payable by two of its partners. The balance of the loan at
December 31, 1995 was $282,763.
During 1995 the Company entered into discussions with David Preefer and
Karen Zimmerman, holders of minority interests in each of Kat Corp., KIP and
Chinatown, with the objective to settle litigation among the parties. As of
December 31, 1995, such minority interest included in the accompanying
balance sheets was approximately $125,220, (including amounts due and notes
payable). The Company, based on advice of litigation counsel, concluded that
no material adjustment to the consolidated financial statements would result
from the resolution of this matter.
In June 1996, this matter was settled and as a result the Company repaid all
the amounts due and repurchased these minority interests. The latter was
accounted for under the purchase method of accounting as follows:
Loans, including interest of $31,284 ............ $ 85,834
Minority interest ............................... $ 40,882
--------
$126,716
Total paid ...................................... $225,000
Cost relating to acquisition of Minority Interest. $ 98,284
F-13
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1995
NOTE 11 -- SUBSEQUENT EVENTS
a) Proposed Initial Public Offering
On April 19, 1996 the Company entered into a letter of intent to offer
2,500,000 shares of Common Stock and 2,500,000 redeemable common stock
purchase warrants to purchase Common Stock.
b) June 1996 Financing
In June 1996, the Company sold $1.1 million of its 10% notes ("June 1996
Financing Notes") to accredited investors (the "June 1996 Financing").
Interest on the June 1996 Financing Notes is payable monthly in arrears. In
addition, in connection with the June 1996 Financing, the Company issued
141,666 shares of Common Stock to the purchasers of such Notes. The entire
principal amount of the June 1996 Financing Notes and accrued interest
thereon is due upon the earlier of (i) the day following the day of closing
with respect to the Company's proposed public offering or (ii) May 31, 1998.
In the event the initial pubic offering for the sale of Common Stock is more
or less than $6.00 per share, the number of shares of Common Stock issued to
the lenders will be adjusted so that the total number of shares issued to the
lenders will be equal to $850,000.
The Company used approximately $368,000 of the proceeds to repay two
related parties in full satisfaction of loans that existed at balance sheet
date. Two principal stockholders control, directly and indirectly,
approximately 95% of one entity and 85% of another entity. These two
stockholders and the entities which they control immediately contributed
their share of the proceeds from the repayment of the loans, approximately
$305,000, to the Company.
c) Loans
In April, 1996 the Company borrowed approximately $125,000 from a related
party and $105,000 from an unrelated party separate related parties. The
$125,000 loan is bearing interest at an imputed rate and is due on demand.
The $105,000 loan is bearing interest at 12% per annum. The prinicpal and
accrued interest are due April, 2000. The proceeds of the loan were used to
fund certain expenses associated with the opening of Katmandu-Philadelphia
for the 1996 season. The entire principal amount of such loans, together with
accrued interest thereon will be repaid out of the proceeds of this Offering.
d) Stock Option Plan
In April 1996, the Company adopted its 1996 Stock Option Plan covering up
to 500,000 shares of Common Stock, pursuant to which officers, directors, and
key employees are eligible to receive options. As of July 1996, options were
granted for an aggregate of 175,176 shares exercisable at a price of $6.00
per share, and vest for a period of approximately 3 to 5 years.
e) Katmandu-Trenton ("T-Kat")
In July 1996 the Company received a commitment from a bank for a $2.5
million construction loan to be used in conjunction with the development of
Katmandu-Trenton. Furthermore, in connection with development of
Katmandu-Trenton, the Company has, subsequent to year end entered into an
agreement to lease the premises from a related party. The lease for
Katmandu-Trenton is for a term of 30 years. The annual rental payable by
T-Kat under such lease is an amount equal to 2% of the gross revenues of
Katmandu-Trenton with a minimum payment of $50,000 and a maximum payment of
$100,000 which amounts are adjusted every three years to reflect increases in
the consumer price index for the Philadelphia/New Jersey region. In addition
T-Kat is obligated to pay as additional rent all real estate taxes,
assessments and utility charges applicable to such premises.
f) Stockholders' Equity
Subsequent to year end, the stockholders approved a change in the
capitalization of the Company so that the number of authorized shares of
Class A Common Stock, Common Stock and Preferred Stock are 7,551,780,
F-14
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1995
NOTE 11 -- SUBSEQUENT EVENTS - (Continued)
17,448,220 and 5,000,000, respectively. The Class A Common Stock and the
Common Stock are identical in all respects except that the Class A Common
Stock is entitled to three votes per share and the Common Stock is only
entitled to one vote per share. Immediately prior to the consummation of the
offering, the shareholders of Chinatown, Kat Corp. and T-Kat and the limited
partners of KIP will transfer their ownership interests in those entities to
the Company in a tax-free exchange pursuant to which transferors will receive
a total of 1,258,630 shares of Class A Common Stock and 60,000 shares of
Common Stock of the Company. The 60,000 shares of Common Stock are pledged in
connection with a loan payable. In addition, in connection with the June 1996
Loan, the Company issued 141,666 shares of Common Stock to the lenders. All
shares and per share amounts in the combined financial statements have been
retroactively restated to give effect to these transactions, where
applicable.
In March 1996, the Company issued 206,370 shares of Common Stock at a
price of $4.80 per share to certain employees and consultants. Compensation
expense was charged in the amount of $248,400 in the first quarter of 1996,
in connection with the shares issued to the employees, and a deferred asset
of $742,176 was recorded in connection with the shares issued to the
consultants, as their services were related to the initial public offering.
During the first half of 1996, the Company paid and/or accrued an additional
$329,692 in offering costs. Such cost are included in the balance sheet as
deferred registration costs.
g) New Lease
In July 1996, the Company entered into a new lease with a related party
for additional space as an executive office. The terms of the lease provide
for annual base rent of $50,000. The lease terminates on September 30, 2001.
F-15
<PAGE>
[This page contains five graphics. In the top left corner is a picture of
patrons dining under umberella covered tables. To the right of that picture,
is a picture of a table decorated with flowers on which different types of
food is displayed, with decking and foliage in the background. Below that is
a large picture of the multi-colored front cover of the KatManDu menu with
the KatManDu logo at the top. In the bottom right corner is a picture of food
presented on a plate. Above this picture is a caption which reads "Classic
KatManDu dining." Above that picture, in the center of the left border of the
page is a picture of a flower and coconuts.
<PAGE>
=============================================================================
No Underwriter, dealer, salesman or any other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company or any Underwriter. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any date
subsequent to the date hereof. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities offered hereby by
anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
------
TABLE OF CONTENTS
Page
----
Prospectus Summary ........................... 3
The Company .................................. 8
Reorganization and Final Partnership and
S Corporation Distributions ................. 8
Risk Factors ................................. 9
Use of Proceeds .............................. 19
Capitalization ............................... 21
Dilution ..................................... 22
Dividend Policy .............................. 23
Selected Financial Data ...................... 24
Management's Discussion and Analysis of
Financial Condition and Plan of Operations .. 26
Business ..................................... 32
Management ................................... 40
Principal Stockholders ....................... 44
Certain Transactions ......................... 45
Description of Securities .................... 46
Shares Eligible for Future Sale .............. 49
Underwriting ................................. 50
Legal Matters ................................ 51
Experts ...................................... 51
Available Information ........................ 52
Index to Financial Statements ................ F-1
------
Until October , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
=============================================================================
<PAGE>
=============================================================================
LOGO
2,500,000 SHARES OF COMMON STOCK
AND
2,500,000 REDEEMABLE COMMON
STOCK PURCHASE WARRANTS
------
PROSPECTUS
------
NATIONAL SECURITIES
CORPORATION
, 1996
=============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1996
PROSPECTUS
LOGO
261,666 SHARES OF COMMON STOCK
This Prospectus relates to 261,666 shares (the "Shares") of common stock,
$0.001 par value per share (the "Common Stock"), of KatManDu Entertainment
Corp., a Delaware corporation (the "Company"), which are held by certain
securityholders (the "Selling Securityholders") of the Company.
The Shares offered by this Prospectus may be sold from time to time by the
Selling Securityholders, provided a current registration statement with
respect to such securities is then in effect and subject to the prior written
consent of the Representative of the Underwriters of a concurrent public
offering of the Company (described below) permitting such securities to be
sold if sold within 7 months from the date of this Prospectus. See
"Concurrent Offering" and "Plan of Distribution."
The distribution of the Shares offered hereby by the Selling
Securityholders may be effected in one or more transactions that may take
place on the over-the-counter market, including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or
more dealers for resale of such securities as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling
Securityholders.
The Selling Securityholders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
The Company will not receive any of the proceeds from the sale of the
securities by the Selling Securityholders. Expenses of this offering, other
than fees and expenses of counsel to the Selling Securityholders and selling
commissions, will be paid by the Company. See "Plan of Distribution."
Application will be made to list the Common Stock on the American Stock
Exchange ("AMEX") under the symbol KAT.
On the date of this Prospectus, a registration statement filed under the
Securities Act with respect to an underwritten public offering by the Company
of 2,500,000 shares of Common Stock and 2,500,000 Redeemable Common Stock
Purchase Warrants ("Warrants") and up to 375,000 additional shares of Common
Stock and 375,000 Warrants to cover over-allotments, if any, was declared
effective by the Securities and Exchange Commission (the "Commission"). The
Company will receive net proceeds of approximately $12,767,500 from the sale
of the shares of Common Stock and Warrants included in the underwritten
public offering, and will receive approximately $1,990,125 in additional net
proceeds if the over-allotment option is exercised in full after payment of
underwriting discounts and commissions and estimated expenses of the
underwritten public offering. Sales of securities by the Selling
Securityholders or even the potential of such sales, would likely have an
adverse affect on the market price of the Common Stock and Warrants. See
"Concurrent Offering."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 11.
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATES SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities offered hereby(1) ..................... 261,666 Shares of Common Stock at an assumed initial public
offering price of $6.00 per Share
Common Stock to be outstanding after this
offering:
Common Stock (2)(3) ......................... 2,908,036 shares
Class A Stock ............................... 1,258,630 shares
Warrants .................................... 2,500,000 warrants
Voting Rights .................................... Holders of Common Stock and Class A Stock (collectively, the
"Common Shares") are entitled to one vote per share and three
votes per share, respectively. Immediately after this offering,
holders of Common Stock and Class A Stock will have
approximately 43.51% and 56.49%, respectively, of the combined
voting power of all outstanding Common Shares. Following this Offering,
Messrs. Silver and Harting, the principal stockholders of the Company, will
own and/or control approximately 60.5% of the combined voting power of the
outstanding Common Shares. See "Risk Factors - Control by Existing
Management; Effects of Disproportionate Voting Rights", Principal
Stockholders" and "Description of Securities."
Proposed AMEX Symbols
Common Stock to be outstanding after this
Offering .................................. KAT
Warrants to be outstanding after the Offering KAT WS
Use of Proceeds .................................. None of the proceeds of this offering will go to the Company.
The net proceeds from the concurrent offering will be used
by the Company to finance the development and opening of
KatManDu-Trenton and 3 to 4 other KatManDu
restaurant/nightclubs, to repay the June 1996 Financing (as
defined) and certain other funded debt and to provide working
capital. See "Use of Proceeds."
Risk Factors ..................................... None of the proceeds of this offering will go to the Company.
See "Use of Proceeds." The securities offered hereby involve
a high degree of risk. This Prospectus contains forward-looking
information which involve risks and uncertainties. The
Company's actual results could differ materially from those
anticipated by such forward-looking information as a result
of factors, including those discussed under "Risk Factors"
in this Prospectus. See "Risk Factors."
</TABLE>
- ------
(1) An additional 2,500,000 shares of Common Stock and 2,500,000 Warrants and
up to 375,000 additional shares of Common stock and 375,000 additional
Warrants to over over-allotments, if any, are being offered by the
Company in the concurrent underwritten public offering. See "Concurrent
Offering."
(2) Assumes that the shares of Common Stock registered under the Concurrent
Offering have been sold by the Company.
(3) Excludes 500,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan, of which 195,176 shares are issuable
upon exercise of outstanding options granted to officers, directors and
employees of the Company, at an exercise price of $6.00 per share. See
"Management" and "Principal Stockholders."
3
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
CONCURRENT OFFERING
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company
of 2,500,000 shares of Common Stock and 2,500,000 Warrants and up to an
additional 375,000 shares of Common Stock and 375,000 additional Warrants to
cover over-allotments, if any, was declared effective by the Commission.
Sales of securities by the Company and the Selling Securityholders, or even
the potential of such sales, would likely have an adverse affect on the
market price of the Common Stock and the Warrants. See "Risk Factors --
Shares Eligible for Future Sale."
4
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
PLAN OF DISTRIBUTION
The Shares of Common Stock offered hereby are being offered directly by
the Selling Securityholders, subject to the agreement with the Representative
of the Underwriters of the concurrent public offering that such Shares my not
be sold for a period of 7 months from the date of this Prospectus without the
prior written consent of the Representative and then only to or through the
Representative. Such Shares will be freely tradeable provided that when the
Shares are released by the Representative, a current registration statement
with respect to such Shares is then in effect. The following table sets forth
certain information regarding each of the Selling Securityholders. Except as
set forth below, to the knowledge of the Company, there is no position,
office or other material relationship between any of the Selling
Securityholders and the Company, nor have any such material relationships
existed within the past three years. Except as indicated in the footnotes of
this table, the Company believes that the persons named in the following
table have sole voting and investment power with respect to the shares of
Common Stock indicated.
<TABLE>
<CAPTION>
Shares Beneficially Number of Shares Shares Beneficially
Owned Prior to this Being Offered Owned After
Name(1) Offering For Sale(2) this Offering(2)
----------------------------------------------------- ------------------- ---------------- -------------------
<S> <C> <C> <C>
Steven Rabinovici(6)
48 Country Drive
Plainview, New York 11803 ......................... 60,000 60,000 0
Cherry Associates(3)
c/o Jack Yampolsky
1420 Walnut Street
Philadelphia, Pennsylvania 19102 .................. 60,000 60,000 0
William Harris & Co. Employee Profit Sharing Trust(3) 32,197 32,197 0
Astro Communications, Inc.(4) ....................... 12,879 12,879 0
Irving Harris Foundation(4) ......................... 12,879 12,879 0
Harris Foundation #2(4) ............................. 12,879 12,879 0
Jeffrey Markowitz
7 Kensington Road
Scarsdale, New York 10583 ......................... 12,879 12,879 0
Richard Friedman
9 Fort Royal Isle
Ft. Lauderdale, Florida 33308 ..................... 12,879 12,879 0
Universal Partners(5) ............................... 6,439 6,439 0
Lawrence Kaplan(5) .................................. 6,439 6,439 0
Stanley Kaplan(5) ................................... 6,439 6,439 0
Edmond O'Donnell(5) ................................. 6,439 6,439 0
Larry Fleischman(5) ................................. 6,439 6,439 0
Donald Tuck
6674 Northwest 24th Terrace
Boca Raton, Florida 33496 ......................... 3,220 3,200 0
Lawrence Feldman
285 Hewlett Neck Road
Woodmere, New York 11598 .......................... 6,439 6,439 0
David Wallack(6)
900 Ocean Drive
Miami Beach, Florida 33139 ........................ 3,220 3,220 0
------------------- ----------------
Total ............................................... 261,666 261,666
</TABLE>
- ------
(1) None of such persons owned 5 percent or more of the outstanding Common
Stock. Each such person, other than Steven Rabinovici and Cherry
Associates ("Cherry"), was a purchaser of one of the Company's 10% notes
issued in connection with the June 1996 Financing, which will be repaid,
together with accrued interest thereon, from the net proceeds of the
Concurrent Offering.
(2) Assumes all of the shares being registered will be sold.
6
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
The Company will not receive any of the proceeds from the sale of any of the
securities by the Selling Securityholders. The sale of the Shares may be
effected by the Selling Securityholders from time to time in transactions on
AMEX, in negotiated transactions, or a combination of such methods of sale, at
fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at negotiated prices. The
Selling Securityholders may effect such transactions by selling the securities
to or through the Representative, who may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Shares for whom it may act as agent or to whom it sells as
principal, or both (which compensation might be in excess of customary
commissions).
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with by the Company
and the Selling Securityholders.
The Selling Securityholders and any broker-dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
shares may be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act of 1933, as amended (the "Act") and any securities
purchased by them may be deemed to be underwriting commissions or discounts
under the Act.
Under applicable rules and regulations under the Securities and Exchange
Act of 1934 (the "Exchange Act"), any person engaged in the distribution of
the securities may not simultaneously engage in market-making-activities
with respect to the securities for a period of two business days prior to the
commencement of such distribution. In additional and without limiting the
foregoing, each Selling Securityholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation, Rules 10b-6, 10b-6A and 10b-7, which provisions
may limit the timing of the purchases and sales of securities by the Selling
Securityholders.
The Company has agreed to pay all fees and expenses incident to the
registration of the Shares, except selling commissions and fees and expenses
of counsel or any other professionals or other advisors, if any, to the
Selling Securityholders.
- ------
(3) Cherry is a pledgee of shares beneficially owned by Messrs. Silver and
Harting to secure their outstanding indebtedness to Cherry in the amount
of approximately $280,000. The proceeds from such sale will be used to
retire the indebtedness and the balance, if any, together with any unsold
shares will be returned to Messrs. Silver and Harting.
(4) The address for each of these Selling Stockholders is:
William Harris & Co.
2 North LaSalle Street
Chicago, Illinois 60602
(5) The address for each of these Selling Stockholders is:
150 Vanderbilt Motor Parkway
Suite 311
Hauppauge, New York 11788
(6) Mr. Rabinovici is a consultant to the Company and Mr. Wallack is a
Director of the Company.
7
<PAGE>
=============================================================================
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
No Underwriter, dealer, salesman or any other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company or any Underwriter. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any date
subsequent to the date hereof. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities offered hereby by
anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
------
TABLE OF CONTENTS
Page
----
Prospectus Summary ...........................
Concurrent Offering ..........................
Plan of Distribution .........................
The Company ..................................
Reorganization and Final Partnership and
S Corporation Distributions .................
Risk Factors .................................
Use of Proceeds ..............................
Capitalization ...............................
Dilution .....................................
Dividend Policy ..............................
Selected Financial Data ......................
Management's Discussion and Analysis of
Financial Condition and Plan of Operations ..
Business .....................................
Management ...................................
Principal Stockholders .......................
Certain Transactions .........................
Description of Securities ....................
Shares Eligible for Future Sale ..............
Legal Matters ................................
Experts ......................................
Available Information ........................
Index to Financial Statements ................ F-1
=============================================================================
<PAGE>
=============================================================================
LOGO
261,666 SHARES OF COMMON STOCK
----------
PROSPECTUS
----------
, 1996
=============================================================================
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
EXHIBIT INDEX
Exhibit
No. Description Page
----------- ------------------------------------------------ -------
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 145 of the Delaware General Corporation Law grants to the Company
the power to indemnify the officers and directors of the Company, under
certain circumstances and subject to certain conditions and limitations as
stated therein, against all expenses and liabilities incurred by or imposed
upon them as a result of suits brought against them as such officers and
directors if they act in good faith and in a manner they reasonably believe
to be in or not opposed to the best interests of the Company and, with
respect to any criminal action or proceeding, have no reasonable cause to
believe their conduct was unlawful.
The Company's certificate of incorporation provides as follows:
"NINTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
TENTH: (a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director or
officer, of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the General Corporation Law,
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that, except as
provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the General Corporation Law requires, the payment of such
expenses incurred by a director or officer (in his or her capacity as a
director or officer and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under this Section
or otherwise. The Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the Corporation with the
same scope and effect as the foregoing indemnification of directors and
officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after
a written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required,
II-1
<PAGE>
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the General Corporation
Law for the Corporation to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of
conduct set forth in the General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such applicable
standard or conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under the General Corporation Law."
Reference is made to the form of the Underwriting Agreement, filed as
Exhibit 1.1 hereto, which contains provisions for indemnification of the
Company, its directors, officers, and any controlling persons, by the
Underwriters against certain liabilities for information furnished by the
Underwriters.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the issuance and distribution of the shares of
Common Stock being registered hereunder other than underwriting commissions
and expenses, are estimated below.
Registration fee .............................. $ 15,000.00
NASD fee ...................................... 3,500.00
Printing expenses ............................. 50,000.00
Accounting fees and expenses .................. 125,000.00
Legal fees and expenses ....................... 225,000.00
State securities law fees and expenses ........ 50,000.00
Transfer agent and registrar fees and expenses 2,500.00
Miscellaneous expenses ........................ 29,500.00
-----------
Total ......................................... $500,000.00
The Selling Securityholders will not pay any of the foregoing expenses in
connection with the concurrent offering.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years the Registrant has issued the following
unregistered securities:
A. On April 1, 1996, the Company issued an aggregate of 86,370 shares of
Common Stock to James R. Bergman, Bruce Waugh, Jack Gromacki and Diane
Thomsen; and an aggregate of 120,000 shares were issued to outside
consultants, including 40,000 to Morse, Zelnick, Rose & Lander, LLP. In
addition, the Company issued 200,000 shares of Common Stock to each of S.
Lance Silver and Stuart N. Harting.
B. On June 19, 1996, the Company issued 141,666 shares of Common Stock to
14 accredited investors in connection with their purchase of the Company's
10% promissory notes, in the aggregate principal amount of $1.1 million.
Included in such shares are 3,220 shares issued to David Wallack, a Director
of the Company.
II-2
<PAGE>
C. Immediately prior to this Offering, a holding company structure will be
formalized when the Company issues 1,258,630 shares of Class A Common Stock
and 60,000 shares of Common Stock to the owners of the operating KatManDu
entities, KatManDu Investment Partners, KatManDu Corporation, T-Kat Corp. and
Chinatown Convention Center Hotel Corporation, in exchange for their
ownership interest in such entities. In connection with such transaction,
Messrs. Silver and Harting will surrender the shares of Common Stock which
they were issued in April 1996 and such shares will be cancelled.
None of the transactions described above involved public offerings of the
Registrant's securities. The transactions described in paragraphs A, B and C
above were exempt from the registration requirements of the Securities Act of
1933 (the "Act") pursuant to Section 4(2) of the Act. The transaction
described in paragraph B was also exempt from registration by reason of Rules
505 and 506 of Regulation D of the Act. All of the shares issued in the above
transactions have appropriate restrictive legends and are subject to "stop
transfer" instructions.
II-3
<PAGE>
ITEM 27. EXHIBITS
(A) EXHIBITS:
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------------ ------------------------------------------------------------------------------------ ----
<S> <C> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Exchange and Reorganization Agreement
3.1 Certificate of Incorporation of the Company
3.1a Certificate of Amendment of Certificate of Incorporation of the Company
3.1b Form of Certificate of Second Amendment of Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Specimen Stock Certificate
4.2 Form of Warrant(1)
4.3 Form of Representative's Warrant Agreement including Form of Representative's Warrant(1)
5.1 Form of Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 1996 Stock Option Plan
10.2 Form of Shareholders Agreement among S. Lance Silver, Stuart N. Harting, James R. Bergman,
Bruce Waugh, Jack Gromacki, Diane Thomsen, Steven Rabinovici, Inter-Equity Capital Partners,
LP and Morse, Zelnick, Rose & Lander, LLP
10.3 Employment Agreement between the Company and S. Lance Silver
10.4 Employment Agreement between the Company and Stuart N. Harting
10.5 Form of Warrant Agreement(1)
10.6 Form of Underwriter's Warrant
10.7 Lease for KatManDu-Philadelphia
10.8 Lease for KatManDu-Trenton
10.9 Lease with Elizabeth Restaurant Partners
10.10(a) Lease with Powerhouse
(b) Roof Lease with Powerhouse
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen, LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)
24 Power of Attorney (included in signature page hereof)
</TABLE>
- ------
(1) To be filed by amendment.
II-4
<PAGE>
ITEM 28. CERTAIN UNDERTAKINGS
A. The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(5) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 and authorized
this Amendment No. 1 to the Registration Statement to be signed on its behalf
by the undersigned, in the City of Philadelphia, State of Pennsylvania on
September , 1996.
KATMANDU ENTERTAINMENT CORP.
By: /s/ S. Lance Silver
-----------------------------------
S. Lance Silver
Co-Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signatures appears
below constitutes and appoints S. Lance Silver and Stephen A. Zelnick, and
each one of them individually, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitiution for him and in
his name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this registration
statement, and any registration statement relating to the offering hereunder
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same with the Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done and about the premises,
as fully to all intents and purpose as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirement of the Securities Act, this Amendment No. 1 to
the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ S. Lance Silver
------------------------ Co-Chairman, Chief Executive Officer,
S. Lance Silver Co-President and Director September , 1996
/s/ Stuart N. Harting
------------------------ Co-Chairman, Co-President,
Stuart N. Harting and Director September , 1996
/s/ James R. Bergman Executive Vice President-Administration,
------------------------ Chief Financial Officer, Secretary,
James R. Bergman Treasurer and Director September , 1996
/s/ Bruce Waugh
------------------------ Executive Vice President-Operations
Bruce Waugh and Director September , 1996
/s/ David Wallack
------------------------
David Wallack Director September , 1996
/s/ Jill R. Felix
------------------------
Jill R. Felix Director September , 1996
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ------------------------------------------------------------------------------------ --------
<S> <C> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Exchange and Reorganization Agreement
3.1 Certificate of Incorporation of the Company
3.1a Certificate of Amendment of Certificate of Incorporation of the Company
3.1b Form of Certificate of Second Amendment of Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Specimen Stock Certificate
4.2 Form of Warrant(1)
4.3 Form of Representative's Warrant Agreement including Form of Representative's Warrant(1)
5.1 Form of Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 1996 Stock Option Plan
10.2 Form of Shareholders Agreement among S. Lance Silver, Stuart N. Harting, James R. Bergman,
Bruce Waugh, Jack Gromacki, Diane Thomsen, Steven Rabinovici, Inter-Equity Capital Partners,
LP and Morse, Zelnick, Rose & Lander, LLP
10.3 Employment Agreement between the Company and S. Lance Silver
10.4 Employment Agreement between the Company and Stuart N. Harting
10.5 Form of Warrant Agreement(1)
10.6 Form of Underwriter's Warrant
10.7 Lease for KatManDu-Philadelphia
10.8 Lease for KatManDu-Trenton
10.9 Lease with Elizabeth Restaurant Partners
10.10(a) Lease with Powerhouse
(b) Roof Lease with Powerhouse
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen, LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)
24 Power of Attorney (included in signature page hereof)
</TABLE>
- ------
(1) To be filed by amendment.
<PAGE>
[SUBJECT TO ADDITIONAL OH&S AND CLIENT REVIEW]
2,500,000 Shares of Common Stock
and 2,500,000 Redeemable Warrants
KATMANDU ENTERTAINMENT CORP.
UNDERWRITING AGREEMENT
New York, New York
_________, 1996
NATIONAL SECURITIES CORPORATION
As Representative of the
Several Underwriters listed on Schedule A hereto
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
Ladies and Gentlemen:
Katmandu Entertainment Corp., a Delaware corporation (the "Company"),
confirms its agreement with National Securities Corporation ("National") and
each of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom National is acting as
representative (in such capacity, National shall hereinafter be referred to as
"you" or the "Representative"), with respect to the sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares ("Shares") of the Company's common stock, $.001 par
value per share ("Common Stock"), and redeemable common stock purchase warrants
(the "Redeemable Warrants"), each to purchase one share of Common Stock, set
forth in Schedule A hereto. The aggregate 2,500,000 Shares and 2,500,000
Redeemable Warrants will be separately tradeable upon issuance and are
hereinafter referred to as the "Firm Securities." Each Redeemable Warrant is
exercisable commencing on ________, 1996 [the date of the Prospectus] until
_________, 2001, unless previously redeemed by the Company, at an initial
exercise price of $ [120% of the initial public offering price per share of
Common Stock] per share of Common Stock. The Redeemable Warrants may be redeemed
by the Company, in whole but not in part, at a redemption price of $.10 per
Redeemable Warrant at any time after ___________, 199__ [18 months after the
date of the Prospectus] on thirty (30) days' prior written notice, provided that
the average closing bid price of the Common Stock equals or exceeds $[____]
[200% of the initial public offering price per share of Common
<PAGE>
Stock] per share, for any twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth trading day prior to the
notice of redemption, all in accordance with the terms and conditions of the
Warrant Agreement (herein defined).
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 375,000 shares of Common Stock and/or 375,000
Redeemable Warrants for the purpose of covering over-allotments, if any. Such
375,000 shares of Common Stock and 375,000 Redeemable Warrants are hereinafter
collectively referred to as the "Option Securities." The Company also proposes
to issue and sell to you warrants (the "Representative's Warrants") pursuant to
the Representative's Warrant Agreement (the "Representative's Warrant
Agreement") for the purchase of an additional 160,000 shares of Common Stock
and/or 160,000 Redeemable Warrants. The shares of Common Stock and Redeemable
Warrants issuable upon exercise of the Representative's Warrants are hereinafter
referred to as the "Representative's Securities." The Firm Securities, the
Option Securities, the Representative's Warrants and the Representative's
Securities (collectively, hereinafter referred to as the "Securities") are more
fully described in the Registration Statement and the Prospectus referred to
below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
a. The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-9009), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Securities under the Securities Act of 1933, as amended (the "Act"),
which registration statement and amendment or amendments have been prepared by
the Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will, if necessary, promptly file a further amendment to said registration
statement in the form heretofore delivered to the Underwriters and will not file
any other amendment thereto to which the Underwriters shall have objected in
writing after having been furnished with a copy thereof. Except as the context
may otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein (including, but not
limited to those documents or information incorporated by reference therein) and
all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430(A) of the Regulations), is hereinafter called the
"Registration Statement", and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations, is hereinafter
called the "Prospectus." For purposes hereof, "Rules and Regulations" mean the
rules and regulations adopted by the Commission under either the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
b. Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or
2
<PAGE>
Prospectus or any part of any thereof and no proceedings for a stop order
suspending the effectiveness of the Registration Statement or any of the
Company's securities have been instituted or are pending or threatened. Each of
the Preliminary Prospectus, the Registration Statement and Prospectus at the
time of filing thereof conformed with the requirements of the Act and the Rules
and Regulations, and none of the Preliminary Prospectus, the Registration
Statement or Prospectus at the time of filing thereof contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements made in reliance upon
and in conformity with written information furnished to the Company with respect
to the Underwriters by or on behalf of the Underwriters expressly for use in
such Preliminary Prospectus, Registration Statement or Prospectus or any
amendment thereof or supplement thereto.
c. When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in strict conformity with information
furnished to the Company in writing by or on behalf of any Underwriter expressly
for use in the Preliminary Prospectus, Registration Statement or Prospectus or
any amendment thereof or supplement thereto.
d. Each of the Company and its Subsidiaries has been duly
organized and is validly existing as a corporation in good standing under the
laws of the state of its incorporation. Except as set forth in the Prospectus,
neither the Company nor its Subsidiaries owns an interest in any corporation,
partnership, trust, joint venture or other business entity. Each of the Company
and its Subsidiaries is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations requires such qualification or
licensing. The Company owns, directly or indirectly, one hundred percent (100%)
of the outstanding capital stock of its Subsidiaries, and all of such shares
have been validly issued, are fully paid and non-assessable, were not issued in
violation of any preemptive rights, and, except as set forth in the Prospectus,
are owned free and clear of any liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities of any kind
whatsoever. Each of the Company and its Subsidiaries has all requisite power and
authority (corporate and other), and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, to own or lease its properties and
conduct its business as described in the Prospectus; each of the
3
<PAGE>
Company and its Subsidiaries is and has been doing business in compliance with
all such authorizations, approvals, orders, licenses, certificates, franchises
and permits and all applicable federal, state, local and foreign laws, rules and
regulations; and neither the Company nor its Subsidiaries has received any
notice of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company or its
Subsidiaries. The disclosures in the Registration Statement concerning the
effects of federal, state, local, and foreign laws, rules and regulations on the
Company's and its Subsidiaries' businesses as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading in light of the circumstances under which they
were made.
e. The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Warrant Agreement, the Representative's Warrant Agreement and as described
in the Prospectus. The Securities and all other securities issued or issuable by
the Company conform or, when issued and paid for, will conform, in all respects
to all statements with respect thereto contained in the Registration Statement
and the Prospectus. All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable
and the holders thereof have no rights of rescission with respect thereto, and
are not subject to personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company. The Securities are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action required
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Securities to be sold by the Company hereunder, the Underwriters
or the Representative, as the case may be, will acquire good and marketable
title to such Securities free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever.
f. The consolidated financial statements of the Company and its
Subsidiaries, together with the related notes and schedules thereto, included in
the Registration Statement, each Preliminary Prospectus and the Prospectus
fairly present the financial position, income, changes in cash flow, changes in
stockholders' equity and the results of operations of the Company and its
Subsidiaries at the respective dates and for the respective periods to which
they apply and such financial statements have been prepared in conformity with
generally accepted accounting
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principles and the Rules and Regulations, consistently applied throughout the
periods involved and such financial statements as are audited have been examined
by Arthur Anderson LLP, who are independent certified public accountants within
the meaning of the Act and the Rules and Regulations, as indicated in their
report filed therewith. There has been no adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
or in the earnings, position, prospects, value, operation, properties, business,
or results of operations of the Company and its Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company and its Subsidiaries, conform in all material respects
to the descriptions thereof contained in the Registration Statement and the
Prospectus. Financial information (including, without limitation, any pro forma
financial information) set forth in the Prospectus under the headings "Summary
Financial Information," Selected Financial Data," "Capitalization," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," fairly present, on the basis stated in the Prospectus, the
information set forth therein, and have been derived from or compiled on a basis
consistent with that of the audited financial statements included in the
Prospectus; and, in the case of pro forma financial information, if any, the
assumptions used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions and
circumstances referred to therein. The amounts shown as accrued for current and
deferred income and other taxes in such financial statements are sufficient for
the payment of all accrued and unpaid federal, state, local and foreign income
taxes, interest, penalties, assessments or deficiencies applicable to the
Company and its Subsidiaries, whether disputed or not, for the applicable period
then ended and periods prior thereto; adequate allowance for doubtful accounts
has been provided for unindemnified losses due to the operations of the Company
and its Subsidiaries; and the statements of income do not contain any items of
special or nonrecurring income not earned in the ordinary course of business,
except as specified in the notes thereto.
g. Each of the Company and its Subsidiaries (i) has paid all
federal, state, local, and foreign taxes for which it is liable, including, but
not limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has
furnished all information returns it is required to furnish pursuant to the
Code, (ii) has established adequate reserves for such taxes which are not due
and payable, and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
h. No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the Firm
Securities and the Option Securities from the Company and the purchase by the
Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
i. Each of the Company and its Subsidiaries maintains insurance
policies, including, but not limited to, general liability, product and property
insurance, which insures each of the Company, its Subsidiaries and their
respective employees, against such losses and risks generally
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insured against by comparable businesses. Neither the Company nor its
Subsidiaries (A) has failed to give notice or present any insurance claim with
respect to any matter, including but not limited to the Company's business,
property or employees, under any insurance policy or surety bond in a due and
timely manner, (B) has any disputes or claims against any underwriter of such
insurance policies or surety bonds or has failed to pay any premiums due and
payable thereunder, or (C) has failed to comply with all conditions contained in
such insurance policies and surety bonds. There are no facts or circumstances
under any such insurance policy or surety bond which would relieve any insurer
of its obligation to satisfy in full any valid claim of the Company or its
Subsidiaries.
j. There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
or its Subsidiaries which (i) questions the validity of the capital stock of the
Company, this Agreement, the Warrant Agreement or the Representative's Warrant
Agreement, or of any action taken or to be taken by the Company pursuant to or
in connection with this Agreement, the Warrant Agreement or the Representative's
Warrant Agreement, (ii) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all material respects),
or (iii) might materially and adversely affect the condition, financial or
otherwise, or the earnings, position, prospects, stockholders' equity, value,
operation, properties, business or results of operations of the Company and its
Subsidiaries taken as a whole.
k. The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement,
the Warrant Agreement and the Representative's Warrant Agreement and to
consummate the transactions provided for in this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement; and this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement have each been duly
and properly authorized, executed and delivered by the Company. Each of this
Agreement, the Warrant Agreement and the Representative's Warrant Agreement
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, and none of the Company's
issue and sale of the Securities, execution or delivery of this Agreement, the
Warrant Agreement or the Representative's Warrant Agreement, its performance
hereunder and thereunder, its consummation of the transactions contemplated
herein and therein, or the conduct of its business as described in the
Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of either the Company or its Subsidiaries pursuant to
the terms of (i) the certificate of incorporation or by-laws of either the
Company or its Subsidiaries, (ii) any license, contract, collective bargaining
agreement, indenture, mortgage, deed of trust, lease, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which either the Company or its Subsidiaries is a party or by
which either the Company or its Subsidiaries is or may be bound or to which
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any of their respective properties or assets (tangible or intangible) is or may
be subject, or any indebtedness, or (iii) any statute, judgment, decree, order,
rule or regulation applicable to either the Company or its Subsidiaries of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over either the Company or its Subsidiaries or any of their
respective activities or properties.
l. No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement,
the Warrant Agreement and the Representative's Warrant Agreement and the
transactions contemplated hereby and thereby, including without limitation, any
waiver of any preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the Securities, except such
as have been or may be obtained under the Act or may be required under state
securities or Blue Sky laws in connection with the Underwriters' purchase and
distribution of the Firm Securities and the Option Securities, and the
Representative's Warrants to be sold by the Company hereunder.
m. All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which either the Company or its Subsidiaries is a
party or by which either of them may be bound or to which any of their
respective assets, properties or business may be subject have been duly and
validly authorized, executed and delivered by the Company or its Subsidiaries,
as the case may be, and constitute the legal, valid and binding agreements of
the Company or its Subsidiaries, as the case may be, enforceable against each of
them in accordance with their respective terms. The descriptions in the
Registration Statement of agreements, contracts and other documents are accurate
and fairly present the information required to be shown with respect thereto by
Form SB-2, and there are no contracts or other documents which are required by
the Act to be described in the Registration Statement or filed as exhibits to
the Registration Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
n. Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company
nor its Subsidiaries has (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any change in the debt (long or short term) or liabilities or material adverse
change in or affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of either the Company or its
Subsidiaries.
o. Except as otherwise disclosed in the Registration Statement and
Prospectus, no default exists in the due performance and observance of any term,
covenant or condition of any license, contract, collective bargaining agreement,
indenture, mortgage, installment sale
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agreement, lease, deed of trust, voting trust agreement, stockholders agreement,
partnership agreement, note, loan or credit agreement, purchase order, or any
other agreement or instrument evidencing an obligation for borrowed money, or
any other material agreement or instrument to which either the Company or its
Subsidiaries is a party or by which either the Company or its Subsidiaries may
be bound or to which the property or assets (tangible or intangible) of either
the Company or its Subsidiaries is subject or affected.
p. Except as otherwise disclosed in the Registration Statement and
Prospectus, each of the Company and its Subsidiaries has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
either the Company or its Subsidiaries by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against either the Company or its Subsidiaries pending
before the National Labor Relations Board, or any comparable foreign agency, or
any lockout, strike, picketing, boycott, dispute, slowdown or stoppage pending
or threatened against or involving either the Company or its Subsidiaries, or
any predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of either the Company or its Subsidiaries, and
no collective bargaining agreement or modification thereof is currently being
negotiated by either the Company or its Subsidiaries. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of either the Company or its Subsidiaries. No labor
dispute with the employees of either the Company or its Subsidiaries exists, or,
is imminent.
q. Neither the Company nor its Subsidiaries maintains, sponsors or
contributes to any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a "multiemployer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Neither the Company nor its Subsidiaries maintains or contributes, now
or at any time previously, to a defined benefit plan, as defined in Section
3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company or its Subsidiaries to any tax
penalty on prohibited transactions and which has not adequately been corrected.
Each ERISA Plan is in compliance with all reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
Neither the Company nor its Subsidiaries has ever completely or partially
withdrawn from a "multiemployer plan."
r. Neither the Company, its Subsidiaries, nor any of their
respective employees, directors, stockholders, partners, or affiliates (within
the meaning of the Rules and Regulations) of any of the foregoing has taken or
will take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the Exchange
Act,
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or otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities or otherwise.
s. Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
either the Company or its Subsidiaries, are in dispute so far as known by the
Company or are in any conflict with the right of any other person or entity and
any dispute or conflict described in the Prospectus does not, and will not, have
an adverse effect on the ability of the Company and the Subsidiaries to conduct
their respective businesses as presently conducted or proposed to be conducted.
Each of the Company and its Subsidiaries (i) owns or has the right to use, free
and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever, all
patents, trademarks, service marks, trade names and copyrights, technology and
licenses and rights with respect to the foregoing, used in the conduct of its
business as now conducted or proposed to be conducted without infringing upon or
otherwise acting adversely to the right or claimed right of any person,
corporation or other entity under or with respect to any of the foregoing and
(ii) is not obligated or under any liability whatsoever to make any payment by
way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
t. Except as otherwise disclosed in the Registration Statement and
Prospectus, each of the Company and its Subsidiaries owns and has the
unrestricted right to use all trade secrets, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "intellectual
property") that are material to the development, manufacture, operation and sale
of all products and services sold or proposed to be sold by either the Company
or its Subsidiaries, free and clear of and without violating any right, lien, or
claim of others, including without limitation, former employers of its
employees; provided, however, that the possibility exists that other persons or
entities, completely independently of either the Company or its Subsidiaries, or
any of their respective employees or agents, could have developed trade secrets
or items of technical information similar or identical to those of either the
Company or its Subsidiaries. Neither the Company nor its Subsidiaries is aware
of any such development of similar or identical trade secrets or technical
information by others.
u. Each of the Company and its Subsidiaries has taken reasonable
security measures to protect the secrecy, confidentiality and value of its
intellectual property in all material respects.
v. Each of the Company and its Subsidiaries has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus to be owned or leased by it,
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind
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whatsoever, other than those referred to in the Prospectus and liens for taxes
not yet due and payable.
w. Arthur Anderson LLP, whose report is filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
x. The Company has caused to be duly executed legally binding and
enforceable agreements ("Lock-up Agreements") pursuant to which each of the
officers and directors of the Company, all holders of 1% or more of the Common
Stock issued and outstanding on the effective date of the Registration
Statement, and all holders of options, warrants or other securities exchangeable
or exercisable for or convertible into 1% or more of the Common Stock issued and
outstanding on the effective date of the Registration Statement has agreed (i)
not to, directly or indirectly, issue, offer, offer to sell, sell, grant any
option for the sale or purchase of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein for a period of not less than thirteen (13) months (or seven
(7) months in the case of the securities described in Schedule C hereto)
following the effective date of the Registration Statement without the prior
written consent of the Representative and the Company and (ii) to waive all
rights to request or demand the registration pursuant to the Act of any
securities of the Company which are registered in the name of or beneficially
owned by any such holder. The Company has also used its best efforts to cause
all holders of less than 1% of the Common Stock issued and outstanding on the
effective date of the Registration Statement and all holders of options,
warrants or other securities convertible, exercisable or exchangeable for less
than 1% of the Common Stock issued and outstanding on the effective date of the
Registration Statement to enter into Lock-up Agreements. During the thirteen
(13) month period commencing on the effective date of the Registration
Statement, the Company shall not, without the prior written consent of the
Representative, sell, contract or offer to sell, issue, transfer, assign,
pledge, distribute, or otherwise dispose of, directly or indirectly, any shares
of Common Stock or any options, rights or warrants with respect to any shares of
Common Stock, except up to 500,000 shares of Common Stock reserved for grants of
options under the Company's stock option plan as described in the Prospectus.
The Company will cause the Transfer Agent (as hereinafter defined) to mark an
appropriate legend on the face of stock certificates representing all of such
securities and to place "stop transfer" orders on the Company's stock ledgers.
y. There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, its Subsidiaries, or any of their respective officers,
directors, stockholders, partners, employees or affiliates, that may affect the
Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
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z. The Common Stock has been approved for listing on the American
Stock Exchange ("AMEX") and the Boston Stock Exchange ("BSE").
aa. None of the Company, its Subsidiaries, nor any of their
respective officers, employees, agents or any other person acting on behalf of
either the Company or its Subsidiaries has, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of either the Company or its Subsidiaries (or assist
either the Company or its Subsidiaries in connection with any actual or proposed
transaction) which (a) might subject either the Company or its Subsidiaries, or
any other such person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign), (b) if not given in
the past, might have had a material adverse effect on the assets, business or
operations of either the Company or its Subsidiaries, or (c) if not continued in
the future, might adversely affect the assets, business, condition, financial or
otherwise, earnings, position, properties, value, operations or prospects of
either the Company or its Subsidiaries. The Company's and its Subsidiaries'
internal accounting controls are sufficient to cause each of the Company and its
Subsidiaries to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
bb. Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company or of its Subsidiaries, or any "affiliate"
or "associate" (as these terms are defined in Rule 405 promulgated under the
Rules and Regulations) of any of the foregoing persons or entities has or has
had, either directly or indirectly, (i) an interest in any person or entity
which (A) furnishes or sells services or products which are furnished or sold or
are proposed to be furnished or sold by either the Company or its Subsidiaries,
or (B) purchases from or sells or furnishes to either the Company or its
Subsidiaries any goods or services, or (ii) a beneficiary interest in any
contract or agreement to which the Company or its Subsidiaries is a party or by
which it may be bound or affected. Except as set forth in the Prospectus under
"Certain Transactions," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company or its
Subsidiaries, and any officer, director, or 5% or greater securityholder of the
Company or its Subsidiaries, or any partner, affiliate or associate of any of
the foregoing persons or entities.
cc. Any certificate signed by any officer of the Company or its
Subsidiaries, and delivered to the Underwriters or to Underwriters' Counsel (as
defined herein) shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
dd. The minute books of each of the Company and its Subsidiaries
have been made available to the Underwriters and contain a complete summary of
all meetings and actions of the directors (including committees thereof) and
stockholders of each of the Company and its
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Subsidiaries and reflect all transactions referred to in such minutes accurately
in all material respects.
ee. Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights (except for adjustments pursuant to stock splits, stock
dividends, recapitalizations and similar events) with respect to any securities
of the Company.
ff. (A) Each of the Company and its Subsidiaries is in compliance
with all federal, state, local or foreign laws, common law, rules, codes,
administrative orders or regulations relating to pollution or protection of
human health, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, all laws, common law, rules, codes, administrative
orders and regulations relating to the release or threatened release of
chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws") and (B) to the best of the Company's knowledge, there are
no events or circumstances that could form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting either the Company or its
Subsidiaries relating to any Hazardous Materials or the violation of any
Environmental Laws. The Company has no reason to believe that it will not
receive all necessary and required approvals, authorizations, validations and
certifications from the EPA and other applicable regulatory authorities to
enable the Company to commence full operations as contemplated in the
Registration Statement and the Prospectus.
gg. In the ordinary course of its business, each of the Company
and its Subsidiaries conducts a periodic review of the effect of Environmental
Laws on the business, operations and properties of the Company and its
Subsidiaries, in the course of which it identifies and evaluates associated
costs and liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties). On the
basis of such review, each of the Company and its Subsidiaries has reasonably
concluded that such associated costs and liabilities would not, singly or in the
aggregate, have a material adverse effect on the Company or its Subsidiaries.
hh. The Company has as of the effective date of the Registration
Statement entered into employment agreements with S. Lance Silver and Stuart N.
Harting in the forms filed as Exhibits 10.3 and 10.4 to the Registration
Statement and (ii) purchased term key-man life insurance on the lives of each of
Messrs. Silver and Harting in the amount of $1,000,000 each, which policies name
the Company as the sole beneficiary.
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ii. As of the date hereof, the Company does not have more than
such number of shares of Common Stock issued and outstanding as are described on
page 4 of the Prospectus (including securities with equivalent rights as the
Common Stock and shares of Common Stock, or such equivalent securities, issuable
upon exercise of any and all options, warrants and other contract rights and
securities convertible directly or indirectly into shares of Common Stock or
such equivalent securities), including any shares of Common Stock issuable upon
the settlement, judgment or other resolution of the dispute described in the
Prospectus under "Business - Legal Proceedings".
jj. Each of the Company and its Subsidiaries confirms as of the
date hereof that it is in compliance with all provisions of Section 1 of Laws of
Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with
Cuba, and each of the Company and its Subsidiaries further agrees that if it or
any affiliate commences engaging in business with the government of Cuba or with
any person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever date is
later, or if the information reported or incorporated by reference in the
Prospectus, if any, concerning the Company's, its Subsidiaries' or any
affiliate's, business with Cuba or with any person or affiliate located in Cuba
changes in any material way, the Company will provide the Department notice of
such business or change, as appropriate, in a form acceptable to the Department.
kk. The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
ll. Each of the Company and its Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
mm. The Company has entered into a warrant agreement substantially
in the form filed as Exhibit [4.3] to the Registration Statement (the "Warrant
Agreement") with the Representative and Continental Stock Transfer & Trust
Company, as Warrant Agent, in form and substance satisfactory to the
Representative, with respect to the Redeemable Warrants.
nn. Prior to ___________, 1996, the Company's business was
operated by [KatManDu Corp. and Katmandu Investment Partnership] (the
"Predecessors"). The [Exchange Agreement] entered into as of ______, 1996, (i)
has been duly authorized, executed and delivered by the parties thereto and
constitutes a valid and binding obligation of each of the parties thereto
enforceable in accordance with the terms thereof and (ii) conveys from the
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Predecessors to the Company all right, title and interest to the assets and
businesses of the Predecessors relating to KatManDu-Philadelphia and
KatManDu-Trenton as described in the Prospectus. The Company represents and
warrants that all representations and warranties of the Company contained herein
shall be true, complete and correct with respect to the Predecessors prior to
the Reorganization as described in the Prospectus.
2. Purchase, Sale and Delivery of the Securities.
a. On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_________ [90% of the initial public offering price] per Share and $________
[90% of the initial public offering price] per Redeemable Warrant, that number
of Firm Securities set forth in Schedule A opposite the name of such
Underwriter, subject to such adjustment as the Representative in its sole
discretion shall make to eliminate any sales or purchases of fractional shares,
plus any additional number of Firm Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 11 hereof.
b. In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 375,000 shares of Common Stock at a price of $______ per share of
Common Stock and/or an additional 375,000 Redeemable Warrants at a price of
$_______ per Redeemable Warrant. The option granted hereby will expire
forty-five (45) days after (i) the date the Registration Statement becomes
effective, if the Company has elected not to rely on Rule 430A under the Rules
and Regulations, or (ii) the date of this Agreement if the Company has elected
to rely upon Rule 430A under the Rules and Regulations, and may be exercised in
whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representative to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option Securities. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representative, but shall not
be later than three (3) full business days after the exercise of said option,
nor in any event prior to the Closing Date, as hereinafter defined, unless
otherwise agreed upon by the Representative and the Company. Nothing herein
contained shall obligate the Underwriters to make any over-allotments. No Option
Securities shall be delivered unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
c. Payment of the purchase price for, and delivery of certificates
for, the Firm Securities shall be made at the offices of the Representative at
1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or at such other
place as shall be agreed upon by the Representative and the Company. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on
___________, 1996 or at such other time and date as shall be agreed upon by the
Representative and the Company, but not less than three (3) nor more than five
(5) full business days after the effective date of the Registration Statement
(such time and date of payment and
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<PAGE>
delivery being herein called the "Closing Date"). In addition, in the event that
any or all of the Option Securities are purchased by the Underwriters, payment
of the purchase price for, and delivery of certificates for, such Option
Securities shall be made at the above-mentioned office of the Representative or
at such other place as shall be agreed upon by the Representative and the
Company on each Option Closing Date as specified in the notice from the
Representative to the Company. Delivery of the certificates for the Firm
Securities and the Option Securities, if any, shall be made to the Underwriters
against payment by the Underwriters, severally and not jointly, of the purchase
price for the Firm Securities and the Option Securities, if any, to the order of
the Company for the Firm Securities and the Option Securities, if any, by New
York Clearing House funds. In the event such option is exercised, each of the
Underwriters, acting severally and not jointly, shall purchase that proportion
of the total number of Option Securities then being purchased which the number
of Firm Securities set forth in Schedule A hereto opposite the name of such
Underwriter bears to the total number of Firm Securities, subject in each case
to such adjustments as the Representative in its discretion shall make to
eliminate any sales or purchases of fractional shares. Certificates for the Firm
Securities and the Option Securities, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two (2) business days prior to the Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
d. On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which Representative's Warrants shall entitle the holders thereof to
purchase an aggregate of 160,000 shares of Common Stock and/or 160,000
Redeemable Warrants. The Representative's Warrants shall be exercisable for a
period of four (4) years commencing one (1) year from the effective date of the
Registration Statement at a price equaling one hundred twenty percent (120%) of
the respective initial public offering price of the Shares and the Redeemable
Warrants. The Representative's Warrant Agreement and form of Warrant Certificate
shall be substantially in the form filed as Exhibit [4.2] to the Registration
Statement. Payment for the Representative's Warrants shall be made on the
Closing Date.
3. Public Offering of the Shares and Redeemable Warrants. As soon after
the Registration Statement becomes effective as the Representative deems
advisable, the Underwriters shall make a public offering of the Shares and
Redeemable Warrants (other than to residents of or in any jurisdiction in which
qualification of the Shares and Redeemable Warrants is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
respective public offering price after distribution of the Shares and Redeemable
Warrants has been completed to such extent as the Representative, in its sole
discretion deems advisable. The Underwriters may enter into one of more
agreements as the Underwriters, in each of their sole discretion, deem advisable
with one or more broker-dealers who shall act as dealers in connection with such
public offering.
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<PAGE>
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
a. The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
and Redeemable Warrants by the Underwriters of which the Representative shall
not previously have been advised and furnished with a copy, or to which the
Representative shall have objected or which is not in compliance with the Act,
the Exchange Act or the Rules and Regulations.
b. As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representative and confirm the notice in writing (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose; (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
c. The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
d. The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representative with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus
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<PAGE>
to which the Representative or Orrick, Herrington & Sutcliffe ("Underwriters'
Counsel") shall object.
e. The Company shall endeavor in good faith, in cooperation with
the Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
f. During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
g. As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
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<PAGE>
h. During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
i. concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the form
furnished to the Company's stockholders and certified by the Company's principal
financial or accounting officer;
ii. concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public accountants;
iii. as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv. as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or any
securities exchange;
v. every press release and every material news item or article of
interest to the financial community in respect of the Company, or its affairs,
which was released or prepared by or on behalf of the Company; and
vi. any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the Representative
may request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
i. The Company will maintain a transfer agent and warrant agent
("Transfer Agent") and, if necessary under the jurisdiction of incorporation of
the Company, a Registrar (which may be the same entity as the Transfer Agent)
for its Common Stock and Redeemable Warrants.
j. The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representative may request.
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<PAGE>
k. On or before the effective date of the Registration Statement,
the Company shall provide the Representative with true original copies of duly
executed, legally binding and enforceable Lock-up Agreements. The Company will
also use its best efforts to cause all holders of less than 1% of the Common
Stock issued and outstanding on the effective date of the Registration Statement
and all holders of options, warrants or other securities convertible,
exercisable or exchangeable for less than 1% of the Common Stock issued and
outstanding on the effective date of the Registration Statement to enter into
Lock-up Agreements. During the thirteen (13) month period commencing on the
effective date of the Registration Statement, the Company shall not, without the
prior written consent of the Representative, sell, contract or offer to sell,
issue, transfer, assign, pledge, distribute, or otherwise dispose of, directly
or indirectly, any shares of Common Stock or any options, rights or warrants
with respect to any shares of Common Stock, except pursuant to options, rights
or warrants existing on the effective date of the Registration Statement;
provided, however, that the Company and any subsidiaries or affiliates thereof
may sell or offer for sale any of their securities without the consent of the
Representative in connection with (i) any merger or acquisition transaction,
joint venture or other "corporate partnering" transaction entered into by any of
the Company and its subsidiaries or affiliates and (ii) up to 269,604 shares of
Common Stock reserved for grants of options under the Company's stock option
plan as described in the Prospectus; provided, further, however, that the number
of shares available for issuance under the Company's stock option plan shall be
reduced on a one-for-one basis by any shares or convertible securities issuable
in connection with any settlement, judgment or other resolution of the dispute
described in the Prospectus under "Business - Legal Proceedings" which includes
the grant, issuance, sale or other transfer of securities. On or before the
Closing Date, the Company shall deliver instructions to the Transfer Agent
authorizing it to place appropriate legends on the certificates representing the
securities subject to the Lock-up Agreements and to place appropriate stop
transfer orders on the Company's ledgers.
l. None of the Company, its Subsidiaries, nor any of their
respective officers, directors, stockholders, nor any of their respective
affiliates (within the meaning of the Rules and Regulations) will take, directly
or indirectly, any action designed to, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
m. The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
n. The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
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<PAGE>
o. The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 6(l) and 6(m) hereof.
p. The Company shall cause the Common Stock and Redeemable
Warrants to be quoted on NSM and BSE and, for a period of seven (7) years from
the date hereof, use its best efforts to maintain the NSM and BSE listings of
the Common Stock and the Redeemable Warrants to the extent outstanding.
q. For a period of five (5) years from the Closing Date, upon the
Representative's written request, the Company shall furnish to the
Representative at the Company's sole expense, (i) daily consolidated transfer
sheets relating to the Common Stock and Redeemable Warrants (ii) the list of
holders of all of the Company's securities and (iii) a Blue Sky "Trading Survey"
for secondary sales of the Company's securities prepared by counsel to the
Company.
r. As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than seven (7) years.
s. The Company hereby agrees that it will not, for a period of
thirteen (13) months from the effective date of the Registration Statement,
adopt, propose to adopt or otherwise permit to exist any employee, officer,
director, consultant or compensation plan or similar arrangement permitting (i)
the grant, issue, sale or entry into any agreement to grant, issue or sell any
option, warrant or other contract right (x) at an exercise price that is less
than the fair market value on the date of grant or sale or (y) to any of its
executive officers or directors or to any holder of 5% or more of the Common
Stock, except as provided in subsection (ii) of this subparagraph; (ii) the
maximum number of shares of Common Stock or other securities of the Company
purchasable at any time pursuant to options or warrants issued by the Company to
exceed the aggregate 500,000 shares (subject to reduction pursuant to Section
4(k) herein) reserved for future issuance under the Company's 1996 Stock Option
Plan described in footnote one (1) to the "Prospectus Summary - The Offering"
section of the Prospectus; (iii) the payment for such securities with any form
of consideration other than cash or a full recourse promissory note payable to
the Company secured by the securities; or (iv) the existence of stock
appreciation rights, phantom options or similar arrangements.
t. Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representative and
Underwriters' Counsel, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than
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trade releases issued in the ordinary course of the Company's business
consistent with past practices with respect to the Company's operations.
u. For a period equal to the lesser of (i) seven (7) years from
the date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 (or other appropriate form) for the
registration under the Act of the Representative's Securities. The Company
further agrees to use its best efforts to file such post-effective amendments to
the Registration Statement, as may be necessary, in order to maintain its
effectiveness and to keep such Registration Statement effective while any of the
Redeemable Warrants or Representative's Warrants remain outstanding.
v. For a period of three (3) years from the effective date of the
Registration Statement, the Company hereby agrees to grant the Representative a
preferential right of first refusal on the terms and subject to the conditions
set forth in this paragraph, to act as the sole and/or managing underwriter or
placement agent with respect to any sales or distributions of securities by the
Company or any of its present or future affiliates or subsidiaries. In the event
of any such proposed offering or placement, the Company will consult, and will
cause any such present or future subsidiaries or affiliates to consult with the
Representative with regard to any such offering or placement and will offer, or
cause any of its present or future subsidiaries to offer, to the Representative
the opportunity, on terms not more favorable to the Company, or any present or
future subsidiary or affiliate thereof than they can secure elsewhere from other
non-affiliated broker-dealers (as evidenced by a bona fide engagement letter or
term sheet from such other broker-dealer), to purchase or sell any such
securities. If the Representative fails to accept in writing (by submission to
the Company of an engagement letter or other equivalent response) such proposal
made by the Company, or any present or future subsidiaries or affiliates thereof
within ten (10) business days after receipt of a notice containing such proposal
(which notice may be delivered to the Representative simultaneously), then the
Representative shall have no further claim or right with respect to the proposed
offering or placement of securities contained in such notice. If, thereafter
such proposal is modified, the Company shall again consult, and cause any
present or future subsidiary or affiliate to consult, with the Representative in
connection with such modification and shall in all respects have the same
obligations and adopt the same procedures with respect to such proposal as are
provided hereinabove with respect to the original proposal.
w. For a period of _____ (_) years after the effective date of the
Registration Statement, the Representative shall have the right to designate for
election one (1) individual to the Company's Board of Directors (the "Board").
In the event the Representative elects not to exercise such right, then it may
designate one (1) individual to attend meetings of the Company's Board. The
Company shall notify the Representative of each meeting of the Board and the
Company shall send to such individual all notices and other correspondence and
communications sent by the Company to members of the Board. Such individual
shall be reimbursed for all out-of-pocket expenses incurred in connection with
his attendance of meetings of the Board.
x. The Company agrees and covenants that it will not declare
and/or make a distribution to the stockholders and/or partners of the
Predecessors described under
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" " in excess of the lesser of (i) the aggregate undistributed taxable
income of each of the Predecessors through the date of Reorganization and (ii)
$450,000.
y. [covenant regarding intellectual property to come].
z. [subject to additional due diligence, additional covenants
may be included].
5. Payment of Expenses.
a. The Company hereby agrees to pay on each of the Closing Date
and the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing (including mailing and
handling charges), filing, delivery and mailing (including the payment of
postage with respect thereto) of the Registration Statement and the Prospectus
and any amendments and supplements thereto and the printing, mailing (including
the payment of postage with respect thereto) and delivery of this Agreement, the
Warrant Agreement, the Representative's Warrant Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
Securities including, but not limited to, (x) the purchase by the Underwriters
of the Firm Securities and the Option Securities and the purchase by the
Representative of the Representative's Warrants from the Company, (y) the
consummation by the Company of any of its obligations under this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement, and (z) resale of
the Firm Securities and the Option Securities by the Underwriters in connection
with the distribution contemplated hereby, (iv) the qualification of the
Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) advertising costs and expenses, including but not limited to costs and
expenses in connection with the "road show", information meetings and
presentations, bound volumes and prospectus memorabilia and "tomb-stone"
advertisement expenses; (vi) costs and expenses in connection with due diligence
investigations, including but not limited to the fees of any independent
counsel, expert or consultant retained, (vii) fees and expenses of the Transfer
Agent and registrar and all issue and transfer taxes, if any, (viii)
applications for assignment of a rating of the Securities by qualified rating
agencies, (ix) the fees payable to the Commission and the NASD, (x) the fees and
expenses incurred in connection with the listing of the Securities on NSM and
BSE and any other exchange, and (y) any transfer tax payable by or on behalf of
the Underwriters in connection with (A) the issuance by the Company of the
Securities, (B) the purchase by the Underwriters and the Representative of the
Firm Securities and the Option Securities and the Representative's Warrants,
respectively, from the Company, (C) the
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<PAGE>
consummation by the Company of any of its obligations under this Agreement, the
Warrant Agreement or the Representative's Warrant Agreement, or (D) resales of
the Firm Securities and the Option Securities in connection with the
distribution contemplated hereby. It is agreed that the services to be provided
under clause (iv) of the foregoing sentence shall be performed by Underwriters'
Counsel.
b. If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 or Section 12, the Company shall
reimburse and indemnify the Underwriters for all of their actual out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel, less
any amounts already paid pursuant to Section 5(c) hereof; provided, however,
that the Representative will refund to the Company any unaccounted-for portion
of any amounts already advanced by the Company to the Representative pursuant to
Section 5(c) hereof. In addition, the Company shall remain liable for all Blue
Sky counsel fees and disbursements, expenses and filing fees.
c. The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering contemplated herein, a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Firm Securities, $35,000 of which has been paid to date. In the event the
Representative elects to exercise the over-allotment option described in Section
2(b) hereof, the Company agrees to pay to the Representative on the Option
Closing Date (by certified or bank cashier's check or, at the Representative's
election, by deduction from the proceeds of the offering) a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds received by
the Company from the sale of the Option Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
a. The Registration Statement shall have become effective not
later than 12:00 P.M., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representative,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Shares and
Redeemable Warrants and any price-related information previously omitted from
the effective Registration Statement pursuant to such Rule 430A shall have been
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transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period and, prior to the Closing
Date, the Company shall have provided evidence satisfactory to the
Representative of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
b. The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Representative's opinion, is material, or omits to state a fact
which, in the Representative's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
c. On or prior to each of the Closing Date and each Option Closing
Date, if any, the Representative shall have received from Underwriters' Counsel,
such opinion or opinions with respect to the organization of the Company, the
validity of the Securities, the Registration Statement, the Prospectus and other
related matters as the Representative may request and Underwriters' Counsel
shall have received such papers and information as they request to enable them
to pass upon such matters.
d. At the Closing Date, the Underwriters shall have received the
favorable opinion of Morse, Zelnick, Rose & Lander, LLP, counsel to the Company,
dated the Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
i. each of the Company and the Subsidiary (A) has been duly
organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction, (B) is duly qualified and licensed
and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of its
operations requires such qualification or licensing, and (C) has all
requisite corporate power and authority, and has obtained any and all
necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus; each
of the Company and the Subsidiary is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations; and, neither the Company nor the
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would materially adversely affect the business, operations, condition,
financial or otherwise, or the earnings, business affairs, position,
prospects, value, operation, properties, business or results of
operations of the
24
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Company and the Subsidiary taken as whole. The disclosures in the
Registration Statement concerning the effects of federal, state, local
and foreign laws, rules and regulations on each of the Company's and the
Subsidiary's businesses as currently conducted and as contemplated are
correct in all material respects and do not omit to state a fact
required to be stated therein or necessary to make the statements
contained therein not misleading in light of the circumstances in which
they were made.
ii. The Company owns, directly or indirectly, one hundred percent
(100%) of the outstanding capital stock of the Subsidiary, and all such
shares have been validly issued, are fully paid and non-assessable, were
not issued in violation of any preemptive rights and are owned free and
clear of any liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind
whatsoever;
iii. except as described in the Prospectus, neither the Company
nor the Subsidiary owns an interest in any other corporation,
partnership, joint venture, trust or other business entity;
iv. the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "CAPITALIZATION", and the Company is not a
party to or bound by any instrument, agreement or other arrangement
providing for it to issue, sell, transfer, purchase or redeem any
capital stock, rights, warrants, options or other securities, except for
this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement and as described in the Prospectus. The Securities and all
other securities issued or issuable by the Company conform in all
material respects to all statements with respect thereto contained in
the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive rights of
any holders of any security of the Company or any similar rights granted
by the Company. The Securities to be sold by the Company hereunder and
under the Warrant Agreement and the Representative's Warrant Agreement
are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the holders thereof
will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and
sale of the Securities has been duly and validly taken; and the
certificates representing the Securities are in due and proper form. The
Representative's Warrants and the Redeemable Warrants constitute valid
and binding obligations of the Company to issue and sell, upon exercise
thereof and payment therefor, the number and type of securities of the
Company called for thereby. Upon the issuance and delivery pursuant to
this Agreement of the Firm Securities and the Option Securities and the
Representative's Warrants to be sold by the Company, the Underwriters
and the Representative, respectively, will acquire good and marketable
title to the Firm Securities and the Option Securities and the
Representative's Warrants free and clear of
25
<PAGE>
any pledge, lien, charge, claim, encumbrance, pledge, security interest,
or other restriction or equity of any kind whatsoever. No transfer tax
is payable by or on behalf of the Underwriters in connection with (A)
the issuance by the Company of the Securities, (B) the purchase by the
Underwriters and the Representative of the Firm Securities and the
Option Securities and the Representative's Warrants, respectively, from
the Company, (C) the consummation by the Company of any of its
obligations under this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement, or (D) resales of the Firm
Securities and the Option Securities in connection with the distribution
contemplated hereby.
v. the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and no stop order suspending the
use of the Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof or suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or, to the best of such
counsel's knowledge, threatened or contemplated under the Act.
vi. each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto
(other than the financial statements and other financial and statistical
data included therein, as to which no opinion need be rendered) comply
as to form in all material respects with the requirements of the Act and
the Rules and Regulations.
vii. to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act
if upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and
the exhibits which have been filed are correct copies of the documents
of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or
amendment thereto of contracts and other documents to which the Company
or the Subsidiary is a party or by which it is bound, including any
document to which the Company or the Subsidiary is a party or by which
it is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate and fairly represent the
information required to be shown by Form SB-2; (C) there is no action,
arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of either the
Company or the Subsidiary which (x) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings
as are summarized in the Registration Statement are accurately
summarized in all respects), (y) questions the validity of the capital
stock of the Company or this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement, or of any action taken or to be
taken by the Company pursuant to or in connection with
26
<PAGE>
any of the foregoing; (D) no statute or regulation or legal or
governmental proceeding required to be described in the Prospectus is
not described as required; and (E) there is no action, suit or
proceeding pending, or threatened, against or affecting either the
Company or the Subsidiary before any court or arbitrator or governmental
body, agency or official (or any basis thereof known to such counsel) in
which there is a reasonable possibility of a decision which may result
in a material adverse change in the condition, financial or otherwise,
or the earnings, position, prospects, stockholders' equity, value,
operation, properties, business or results of operations of either the
Company or the Subsidiary, which could adversely affect the present or
prospective ability of the Company to perform its obligations under this
Agreement, the Warrant Agreement or the Representative's Warrant
Agreement or which in any manner draws into question the validity or
enforceability of this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement;
viii. the Company has full legal right, power and authority to
enter into each of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, and to consummate the transactions
provided for therein; and each of this Agreement, the Warrant Agreement
and the Representative's Warrant Agreement has been duly authorized,
executed and delivered by the Company. Each of this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement, assuming
due authorization, execution and delivery by each other party thereto
constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law),
and none of the Company's execution or delivery of this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement, its
performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its
business as described in the Registration Statement, the Prospectus, and
any amendments or supplements thereto, conflicts with or will conflict
with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default
under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of either the Company or the Subsidiary
pursuant to the terms of, (A) the certificate of incorporation or
by-laws of either the Company or the Subsidiary, (B) any license,
contract, collective bargaining agreement, indenture, mortgage, deed of
trust, lease, voting trust agreement, stockholders agreement, note, loan
or credit agreement or any other agreement or instrument to which either
the Company or the Subsidiary is a party or by which either of them is
or may be bound or to which any of their respective properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or
(C) any statute, judgment, decree, order, rule or regulation applicable
to either the Company or the Subsidiary of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or
body (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
27
<PAGE>
jurisdiction over either the Company or the Subsidiary or any of
their respective activities or properties.
ix. no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other
than such as may be required under Blue Sky laws, as to which no opinion
need be rendered) is required in connection with the issuance of the
Firm Securities and the Option Securities pursuant to the Prospectus and
the Registration Statement, the issuance of the Representative's
Warrants, the performance of this Agreement, the Warrant Agreement and
the Representative's Warrant Agreement, and the transactions
contemplated hereby and thereby;
x. the properties and business of each of the Company and the
Subsidiary conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus; and each of
the Company and the Subsidiary has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it,
in each case free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities
of any kind whatsoever, other than those referred to in the Prospectus
and liens for taxes not yet due and payable;
xi. neither the Company nor the Subsidiary is in breach of, or in
default under, any term or provision of any license, contract,
collective bargaining agreement, indenture, mortgage, installment sale
agreement, deed of trust, lease, voting trust agreement, stockholders'
agreement, partnership agreement, note, loan or credit agreement or any
other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which either the Company
or the Subsidiary is a party or by which either the Company or the
Subsidiary may be bound or to which the respective properties or assets
(tangible or intangible) of either the Company or the Subsidiary is
subject or affected; and neither the Company nor the Subsidiary is in
violation of any term or provision of its Articles of Incorporation or
By-Laws or in violation of any franchise, license, permit, judgment,
decree, order, statute, rule or regulation, domestic or foreign;
xii. the statements in the Prospectus under "THE COMPANY,"
"BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects;
xiii. the Securities have been accepted for quotation on AMEX;
xiv. the persons listed under the caption "PRINCIPAL STOCKHOLDERS"
in the Prospectus are the respective "beneficial owners" (as such phrase
is defined in regulation 13d-3 under the Exchange Act) of the securities
set forth opposite their respective names thereunder as and to the
extent set forth therein;
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<PAGE>
xv. none of the Company, the Subsidiary nor any of their
respective officers, stockholders, employees or agents, nor any other
person acting on behalf of either the Company or the Subsidiary has,
directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or
agent of a customer or supplier, or official or employee of any
governmental agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or
foreign) or other person who is or may be in a position to help or
hinder the business of either the Company or the Subsidiary (or assist
it in connection with any actual or proposed transaction) which (A)
might subject either the Company or the Subsidiary to any damage or
penalty in any civil, criminal or governmental litigation or proceeding,
(B) if not given in the past, might have had an adverse effect on the
assets, business or operations of the Company and the Subsidiary taken
as a whole, as reflected in any of the financial statements contained in
the Registration Statement, or (C) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the
Company and the Subsidiary taken as a whole;
xvi. no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities of
the Company in the Registration Statement, require the Company to file
any registration statement or, if filed, to include any security in such
registration statement;
xvii. except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangements or any other
arrangements, agreements, understandings, payments or issuances that may
affect the Underwriters' compensation, as determined by the NASD;
xviii. assuming due execution by the parties thereto other than
the Company, the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against the party and
any subsequent holder of the securities subject thereto in accordance
with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law);
xix. except as described in the Prospectus, neither the Company
nor the Subsidiary (A) maintains, sponsors or contributes to any ERISA
Plans, (B) maintains or contributes, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA, and (C) has
ever completely or partially withdrawn from a "multiemployer plan";
xx. the minute books of each of the Company and the Subsidiary
have been made available to the Underwriters and contain a complete
summary of all meetings and actions of the directors and stockholders of
the Company since [19__] and reflect all transactions referred to in
such minutes accurately in all material respects;
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<PAGE>
xxi. except as set forth in the Prospectus and to the best
knowledge of such counsel, no officer, director or stockholder of either
the Company or the Subsidiary, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and
Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (A) an interest in any person or entity
which (x) furnishes or sells services or products which are furnished or
sold or are proposed to be furnished or sold by either the Company or
the Subsidiary, or (y) purchases from or sells or furnishes to either
the Company or the Subsidiary any goods or services, or (B) a beneficial
interest in any contract or agreement to which either the Company or the
Subsidiary is a party or by which either of them may be bound or
affected. Except as set forth in the Prospectus under "CERTAIN
TRANSACTIONS," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among any of the Company or
the Subsidiary, and any officer, director, or 5% or greater
securityholder of any of the Company or the Subsidiary, or any affiliate
or associate of any such person or entity;
xxii. each of the Company and the Subsidiary is in compliance with
all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act
Relating to Disclosure of Doing Business with Cuba;
xxiii. none of the Company, the Subsidiary or any of their
respective affiliates shall be subject to the requirements of or shall
be deemed an "Investment Company," pursuant to and as defined under,
respectively, the Investment Company Act.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, and
representatives of the independent public accountants for the Company and its
Subsidiaries, at which conferences such counsel made inquiries of such officers,
representatives and accountants and discussed the contents of the Preliminary
Prospectus, the Registration Statement, the Prospectus, and related matters and,
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Prospectus or any amendment or supplement thereto as of the date of such opinion
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading (it being understood that such counsel need express no opinion
with respect to the financial statements and schedules and other financial and
statistical data included in the Registration Statement or the Prospectus). Such
counsel shall further state that its opinion may be relied upon by Underwriters'
Counsel in rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
the General Corporation Law of the State of Delaware, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to
30
<PAGE>
Underwriters' Counsel) of other counsel acceptable to Underwriters' Counsel,
familiar with the applicable laws; (B) as to matters of fact, to the extent they
deem proper, on certificates and written statements of responsible officers of
each of the Company and its Subsidiaries and certificates or other written
statements of officers of departments of various jurisdictions having custody of
documents respecting the corporate existence or good standing of the Company,
provided that copies of any such statements or certificates shall be delivered
to Underwriters' Counsel if requested. The opinion of such counsel for the
Company shall state that the opinion of any such other counsel (including the
opinion described in paragraph (e) of this Section) is in form satisfactory to
such counsel and that the Representative, Underwriters' Counsel and they are
each justified in relying thereon. Any opinion of counsel for the Company and
its Subsidiaries (including the opinion described in paragraph (e) of this
Section) shall not state that it is to be governed or qualified by, or that it
is otherwise subject to, any treatise, written policy or other document relating
to legal opinions, including, without limitation, the Legal Opinion Accord of
the ABA Section of Business Law (1991) or any comparable state accord.
e. At the Closing Date, the Underwriters shall have received the
favorable opinion of ____________ [patent counsel], counsel to the Company and
the Subsidiaries, dated the Closing Date, addressed to the Underwriters and to
Underwriters' Counsel and in form and substance satisfactory to Underwriters'
Counsel, to the effect set forth in Schedule B hereof.
f. At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinions of Morse, Zelnick, Rose & Lander, LLP and
__________, each addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of such Option Closing Date
the statements made them in their respective opinions delivered on the Closing
Date.
g. On or prior to each of the Closing Date and each Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
h. Prior to each of the Closing Date and each Option Closing Date,
if any, (i) there shall have been no adverse change nor development involving a
prospective change in the condition, financial or otherwise, earnings, position,
value, properties, results of operations, prospects, stockholders' equity or the
business activities of the Company and its Subsidiaries taken as a whole,
whether or not in the ordinary course of business, from the latest dates as of
which such condition is set forth in the Registration Statement and Prospectus;
(ii) there shall have been no transaction, not in the ordinary course of
business, entered into by either the Company or its Subsidiaries, from the
latest date as of which the financial condition of the Company and its
Subsidiaries is set forth in the Registration Statement and Prospectus which is
adverse to the Company and its Subsidiaries taken as a whole; (iii) except as
otherwise disclosed in the Registration Statement and Prospectus, neither the
Company nor its Subsidiaries shall be in default under any provision of any
instrument relating to any outstanding indebtedness; (iv) except as otherwise
disclosed in the Registration Statement and Prospectus, neither the Company
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<PAGE>
nor its Subsidiaries shall have issued any securities (other than the
Securities) or declared or paid any dividend or made any distribution in respect
of its capital stock of any class and there has not been any change in the
capital stock or any change in the debt (long or short term) or liabilities or
obligations of either the Company or its Subsidiaries (contingent or otherwise);
(v) no material amount of the assets of either the Company or its Subsidiaries
shall have been pledged or mortgaged, except as set forth in the Registration
Statement and Prospectus, (vi) except as otherwise disclosed in the Registration
Statement and Prospectus, no action, suit or proceeding, at law or in equity,
shall have been pending or threatened (or circumstances giving rise to same)
against either the Company or its Subsidiaries, or affecting any of their
respective properties or businesses before or by any court or federal, state or
foreign commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may adversely affect the business, operations,
earnings, position, value, properties, results of operations, prospects or
financial condition or income of the Company and its Subsidiaries taken as a
whole; and (vii) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
i. At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed by
the principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
i. The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at
or prior to such Closing Date or Option Closing Date, as the case may
be;
ii. No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for
that purpose have been instituted or are pending or, to the best of each
of such person's knowledge, after due inquiry, are contemplated or
threatened under the Act;
iii. The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the Preliminary
Prospectus or any supplement thereto included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and
iv. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) neither the
Company nor its Subsidiaries has incurred up to and including the
Closing Date or the Option Closing Date, as the case
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may be, other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent; (b) neither the
Company nor its Subsidiaries has paid or declared any dividends or other
distributions on its capital stock; (c) neither the Company nor its
Subsidiaries has entered into any transactions not in the ordinary
course of business; (d) there has not been any change in the capital
stock or long-term debt or any increase in the short-term borrowings
(other than the issuance of capital stock pursuant to the exercise of
outstanding stock options described in the Prospectus and any increase
in the short-term borrowings in the ordinary course of business) of
either the Company or its Subsidiaries; (e) neither the Company nor its
Subsidiaries has sustained any loss or damage to any of their respective
properties or assets, whether or not insured; (f) there is no litigation
which is pending or threatened (or circumstances giving rise to same)
against any of the Company or its Subsidiaries or any affiliated party
of any of the foregoing which is required to be set forth in an amended
or supplemented Prospectus which has not been set forth; and (g) there
has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(j) are to such documents as amended and supplemented at the date of such
certificate.
j. By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
k. At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Arthur Anderson LLP:
i. confirming that they are independent certified public
accountants with respect to the Company and its Subsidiaries within the
meaning of the Act and the applicable Rules and Regulations;
ii. stating that it is their opinion that the consolidated
financial statements and supporting schedules of the Company and its
Subsidiaries included in the Registration Statement comply as to form in
all material respects with the applicable accounting requirements of the
Act and the Rules and Regulations thereunder and that the Representative
may rely upon the opinion of Arthur Anderson LLP with respect to the
consolidated financial statements and supporting schedules included in
the Registration Statement;
iii. stating that, on the basis of a limited review which included
a reading of the latest available unaudited interim financial statements
of each of the Company and its Subsidiaries, a reading of the latest
available minutes of the stockholders and board of directors and the
various committees of the boards of directors of each of the Company and
its Subsidiaries, consultations with officers and other employees of
each of the
33
<PAGE>
Company and its Subsidiaries responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has come
to their attention which would lead them to believe that (A) the
unaudited consolidated financial statements and supporting schedules of
the Company and its Subsidiaries included in the Registration Statement
do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or are
not fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the
audited consolidated financial statements of the Company and its
Subsidiaries included in the Registration Statement, or (B) at a
specified date not more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in the capital
stock or long-term debt of either the Company or its Subsidiaries, or
any decrease in the stockholders' equity or net current assets or net
assets of either the Company or its Subsidiaries as compared with
amounts shown in the June 31, 1996 balance sheet included in the
Registration Statement, other than as set forth in or contemplated by
the Registration Statement, or, if there was any change or decrease,
setting forth the amount of such change or decrease, and (C) during the
period from ________, 1996 to a specified date not more than five (5)
days prior to the effective date of the Registration Statement, there
was any decrease in net revenues, net earnings or increase in net
earnings per common share of either the Company or its Subsidiaries, in
each case as compared with the corresponding period beginning ________,
199___, other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the amount
of such decrease;
iv. setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of the
Company and its Subsidiaries taken as a whole (including a break-down of
commercial paper and notes payable to banks);
v. stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company and its
Subsidiaries set forth in the Prospectus in each case to the extent that
such amounts, numbers, percentages, statements and information may be
derived from the general accounting records, including work sheets, of
the Company and its Subsidiaries and excluding any questions requiring
an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in the
letter and found them to be in agreement;
vi. statements as to such other matters incident to the
transaction contemplated hereby as the Representative may request.
l. At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Arthur Anderson LLP a letter, dated as of
the Closing Date or the Option Closing Date, as the case may be, to the effect
that they reaffirm that statements made in the letter furnished pursuant to
subsection (l) of this Section, except that the specified date referred to shall
be a date not more than five (5) days prior to the Closing Date or the Option
Closing
34
<PAGE>
Date, as the case may be, and, if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that they have carried out
procedures as specified in clause (v) of subsection (l) of this Section with
respect to certain amounts, percentages and financial information as specified
by the Representative and deemed to be a part of the Registration Statement
pursuant to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (v).
m. On each of the Closing Date and each Option Closing Date, if
any, there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
n. No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
o. On or before the Closing Date, the Company shall have executed
and delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit [4.2] to the Registration Statement,
in final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
p. On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for listing on NSM and BSE, subject to
official notice of issuance.
q. On or before the Closing Date, there shall have been delivered
to the Representative all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
r. On or before the Closing Date, the Company shall have executed
and delivered to the Representative and the Transfer Agent the Warrant Agreement
substantially in the form filed as Exhibit [4.3] to the Registration Statement,
in final form and substance satisfactory to the Representative.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
a. The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the
35
<PAGE>
Act or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, suits and litigation in respect
thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Securities; or
(iii) in any application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, NSM, BSE or any other
securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (in the case of the Prospectus, in the light of the circumstances
under which they were made), unless such statement or omission was made in
reliance upon and in strict conformity with written information furnished to the
Company with respect to any Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, or in any
application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
b. Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Firm Securities and the Option Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
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<PAGE>
c. Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any claim, action, suit,
investigation, inquiry, proceeding or litigation, such indemnified party shall,
if a claim in respect thereof is to be made against one or more indemnifying
parties under this Section 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been prejudiced
in any material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense thereof within a reasonable
time after notice of commencement thereof, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense thereof on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one claim, action, suit,
investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction arising out of the same general allegations
or circumstances. Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim, action,
suit, investigation, inquiry, proceeding or litigation effected without its
written consent; provided, however, that such consent was not unreasonably
withheld. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit,
investigation, inquiry, proceeding or litigation in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim, action, suit,
investigation, inquiry, proceeding or litigation), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit, investigation,
inquiry, proceeding or litigation and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
d. In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and
37
<PAGE>
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 7 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified, on the other hand, in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company is the contributing party and the Underwriters are
the indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Firm Securities
and the Option Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Firm Securities and the Option Securities purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 7, each person, if any, who controls the Company within the meaning of
the Act, each officer of the Company who has signed the Registration Statement,
and each director of the Company shall have the same rights to contribution as
the Company, subject in each case to this subsection (d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this subsection
(d), notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this subsection (d), or to the extent
that such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
38
<PAGE>
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Sections 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this Section 9, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representative of telegrams to securities
dealers releasing such securities for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
a. Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has disrupted, or in the
Representative's opinion will in the immediate future disrupt, the financial
markets; or (ii) if any material adverse change in the financial markets shall
have occurred; or (iii) if trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the NASD, the Boston Stock Exchange, any
over-the-counter market, the Commission or any other government authority having
jurisdiction, or if minimum or maximum prices for trading shall have been fixed,
or maximum ranges for prices for securities shall have been required on the
over-the-counter market, by the NASD or by order of the Commission or any other
government or other authority having jurisdiction; or (iv) if trading of any of
the securities of the Company shall have been suspended, or any of the
securities of the Company shall have been delisted, on any exchange or in any
over-the-counter market; or (v) if the United States shall have become involved
in a war or major hostilities, or if there shall have been an escalation in an
existing war or major hostilities or a national emergency shall have been
declared in the United States; or (vi) if a banking moratorium has been declared
by a state or federal authority; or (vii) if a moratorium in foreign exchange
trading has been declared; or (viii) if the Company shall have sustained a loss
material or substantial to the Company by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in the Representative's opinion,
make it inadvisable to proceed with the offering, sale and/or delivery of the
Securities; or (ix) if there shall have been such a material adverse change in
the conditions or prospects of the Company, or such material adverse change in
the general market, political or economic conditions, in the United States or
39
<PAGE>
elsewhere, that, in each case, in the Representative's judgment, would make it
inadvisable to proceed with the offering, sale and/or delivery of the Securities
or (x) if S. Lance Silver or Stuart N. Harting shall no longer serve the Company
in his present capacity.
b. If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
(less amounts previously paid pursuant to Section 5(c) above). Notwithstanding
any contrary provision contained in this Agreement, if this Agreement shall not
be carried out within the time specified herein, or any extension thereof
granted by the Representative, by reason of any failure on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement by
it to be performed or satisfied (including, without limitation, pursuant to
Section 6 or Section 12) then, the Company shall promptly reimburse and
indemnify the Representative for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to Section 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees (such fees not to
exceed $40,000) and disbursements, expenses and filing fees. Notwithstanding any
contrary provision contained in this Agreement, any election hereunder or any
termination of this Agreement (including, without limitation, pursuant to
Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 5 and Section 7 shall not be in
any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representative
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representative shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be
purchased on an Option Closing Date, the Underwriters may at the
Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option
Securities from the Company on such date).
40
<PAGE>
No action taken pursuant to this Section 11 shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Representative shall have the right to postpone the
Closing Date for a period not exceeding seven (7) days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to Section 5,
Section 7 and Section 10 hereof. No action taken pursuant to this Section 12
shall relieve the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154, Attention: Steven A. Rothstein, Chairman, with
a copy to Orrick, Herrington & Sutcliffe, 666 Fifth Avenue, New York, New York
10103, Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be
directed to the Company at 415 N. Columbus Blvd., Philadelphia, Pennsylvania
19123, Attention: S. Lance Silver and Stuart N. Harting, Co-Chairmen and Chief
Executive Officers, with copies to Morse, Zelnick, Rose & Lander, LLP, 450 Park
Avenue, New York, New York 10022, Attention: Stephen A. Zelnick, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to be
a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
41
<PAGE>
17. Entire Agreement; Amendments. This Agreement, the Warrant Agreement
and the Representative's Warrant Agreement constitute the entire agreement of
the parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representative
and the Company.
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
KATMANDU ENTERTAINMENT CORP.
By:
---------------------------------------
S. Lance Silver
Co-Chairman, Chief Executive Officer
and Co-President
By:
---------------------------------------
Stuart N. Harting
Co-Chairman and Co-President
Confirmed and accepted as of the date first above written.
NATIONAL SECURITIES CORPORATION
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By:
-----------------------------------
Steven A. Rothstein
Chairman
42
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Shares Number of Redeemable
Name of Underwriters to be Purchased Warrants to be Purchased
- -------------------- ---------------- ------------------------
<S> <C> <C>
National Securities Corporation.............
Total....................................... 2,500,000 2,500,000
========= =========
</TABLE>
A-1
<PAGE>
SCHEDULE B
[FORM OF INTELLECTUAL PROPERTY OPINION]
___________________, 1996
NATIONAL SECURITIES CORPORATION
1001 Fourth Avenue
Seattle, Washington 98154
Re: Public Offering of KatManDu Entertainment Corp.
Gentlemen:
We have acted as special counsel to KATMANDU ENTERTAINMENT
CORP., a Delaware corporation (the "Company"), in connection with the entering
into by the Company of that certain Underwriting Agreement by and between
National Securities Corporation ("National"), as representative of the several
underwriters named in Schedule A thereto, and the Company, dated
_______________, 1996 (the "Underwriting Agreement"). This opinion is provided
to you pursuant to Section 6(e) of the Underwriting Agreement.
For the purpose of rendering the opinions set forth below we
have reviewed the following (collectively, the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain Registration Statement filed July 26, 1996,
together with any and all amendments thereof exhibits thereto
(collectively, the "Registration Statement");
(iii) a search of the United States Patent and Trademark
Office records relevant to ownership of any and all:
patents and patent applications (including, without
limitation, the patents and patent applications listed
on Schedule A annexed hereto and hereby incorporated
by reference herein (collectively, the "Patents")),
and trademarks, trademark applications, service marks
and service mark applications (collectively, the
"Marks") (including, without limitation, the
A-1
<PAGE>
Marks listed on Schedule B annexed hereto and hereby
incorporated by reference herein (collectively, the
"Trademarks")),
owned, purportedly owned or licensed by the Company
(including, those patents, patent applications and Marks
licensed, without limitation, pursuant to the licenses listed
on Schedule C annexed hereto and hereby incorporated by
reference herein (collectively, the "Licenses")), conducted by
______________________________ and certified as true and
correct as of _______________________, 1996 (no earlier than 5
days prior to the date of the Closing (as defined in the
Underwriting Agreement));
(v) a search of the United States Copyright Office records
relevant to ownership of any and all copyrighted material
(including, without limitation, the copyright in, or license
permitting the Company's actual use of, the material licensed
or otherwise distributed by the Company and listed on Schedule
D annexed hereto and hereby incorporated by reference herein
(collectively, the "Copyrighted Material")), owned,
purportedly owned or licensed by the Company conducted by
_____________________ and certified as true and correct as of
__________________, 1996 (no earlier than 5 days prior to the
date of the Closing);
(vi) an intellectual property litigation search with respect
to all Patents, Trademarks, Licenses and Copyrighted Material,
listed on Schedules A, B, C and D, respectively;
(vii) a search of the Uniform Commercial Code ("UCC")
recordation offices, in the following jurisdictions --
[________________, _____________ and _______], with respect to
the following two categories of general intangibles:
(a) the intellectual property general intangibles of
the Company, including, without limitation, the
Company's patents, patent applications, inventions,
know how, trademarks, service marks, copyrights,
service and trade names, intellectual property
licenses and other rights, and
(b) the intellectual property general intangibles
licensed to the Company, including, without
limitation, the patents, patent applications,
inventions, know how, trademarks, service marks,
copyrights, service and trade names and other
intellectual property rights licensed to the Company
pursuant to the Licenses (listed on Schedule C),
said search certified to us as complete and accurate by
________________ and current through ________________________,
1996 (no earlier than 5 days prior to the date of the Closing)
and said jurisdictions being the only jurisdictions in which
filing of UCC financing statements or other documents may be
filed to effectively evidence a security or other interest in
said general intangibles; and
A-2
<PAGE>
(viii) any and all records, documents, instruments and
agreements in our possession or under our control relating to
the Company.
We have also examined such corporate records, documents,
instruments and agreements, and inquired into such other matters, as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
Whenever our opinion herein is qualified by the phrase "to the best of our
knowledge" or "to the best of our knowledge, after due inquiry," such language
means that, based upon (i) our inquiries of officers of the Company, (ii) our
review of the Documents, and (iii) our review of such other corporate records,
documents, instruments and agreements described in the first sentence of this
paragraph, we believe that such opinions are factually correct.
To the best of our knowledge, as to all matters of fact
represented to you by the Company, we advise you that nothing has come to our
attention that would cause us to believe that such facts are incorrect,
incomplete or misleading or that reliance thereon is not warranted under the
circumstances. We call to your attention that our opinion is limited to such
facts as they exist on the date hereof and do not take into account any change
of circumstances, fact or law subsequent thereto.
Based upon and subject to the foregoing, we are of the opinion
that:
1. To the best of our knowledge, after due inquiry,
except as described in the Registration Statement, the Company
owns or has the right to use, free and clear of all liens,
encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever,
(i) all patents and patent applications (including,
without limitation, the Patents),
(ii) all trademarks and service marks (including,
without limitation, the Trademarks),
(iii) all copyrights (including, without limitation,
the Copyrighted Material),
(iv) all service and trade names,
(v) all intellectual property licenses (including,
without limitation, the Licenses), and
(vi) all technology
used in, contemplated to be used in or required for, the
conduct of the Company's business.
A-3
<PAGE>
2. To the best of our knowledge, after due inquiry,
the Company possesses all material intellectual property
licenses or rights used in, or required for, the conduct of
its business (including, the Licenses and without limitation,
any such licenses or rights described in the Registration
Statement as being owned, possessed or licensed by the
Company, as the case may be), such licenses and rights are in
full force and effect, and the Company's products, methods and
services do not infringe any unlicensed intellectual property
of any third parties.
3. To the best of our knowledge, after due inquiry,
there is no claim or action, pending, threatened or potential,
which affects or could affect the rights of the Company with
respect to any trademarks, service marks, copyrights, service
names, trade names, patents, patent applications or licenses
used in, or required for, the conduct of the Company's
business and all trademarks, service marks, copyrights, trade
names, and patents owned or licensed to the Company are valid.
4. To the best of our knowledge, after due inquiry,
there is no intellectual property based claim or action,
pending, threatened or potential, which affects or could
affect the rights of the Company with respect to any products,
services, processes or licenses, including, without
limitation, the Licenses used in the conduct of the Company's
business.
5. To the best of our knowledge, after due inquiry,
except as described in the Registration Statement, the Company
is not under any obligation to pay royalties or fees to any
third party with respect to any material, technology or
intellectual properties developed, employed, licensed or used
by the Company.
6. To the best of our knowledge, after due inquiry,
the statements in the Registration Statement under the
headings, "Risk Factors - Patents, Trademarks and Proprietary
Information" and "Business - Patents, Trademarks and
Proprietary Information", are accurate in all material
respects, fairly represent the information disclosed therein
and do not omit to state any fact necessary to make the
statements made therein complete and accurate.
7. To the best of our knowledge, after due inquiry,
the statements in the Registration Statement and the
Prospectus do not contain any untrue statement of a material
fact with respect to the intellectual property position of the
Company, or omit to state any material fact relating to the
intellectual property position of the Company which is
required to be stated in the Registration Statement and the
Prospectus or is necessary to make the statements therein not
misleading.
We call your attention to the fact that the members of this
firm are licensed to practice law in the State of ______________ and before the
United States Patent and Trademark Office as Registered Patent Attorneys.
Accordingly, we express no opinion with respect to the laws, rules and
regulations of any jurisdictions other than the State of ___________ and the
United States of America.
A-4
<PAGE>
The opinions expressed herein are for the sole benefit of, and
may be relied upon only by, the several Underwriters named in Schedule A to the
Underwriting Agreement and Orrick, Herrington & Sutcliffe.
Very truly yours,
A-5
<PAGE>
SCHEDULE C
[Shareholders subject to 7 year lock-up agreement]
Name of Shareholder Number of Shares
------------------- ----------------
A-6
<PAGE>
EXCHANGE AND REORGANIZATION AGREEMENT
AGREEMENT, dated as of the ____ st day of _____, 1996, by and among
KATMANDU ENTERTAINMENT CORP. ("KEC"), a Delaware corporation having an address
at 415 North Columbus Boulevard, Philadelphia, Pennsylvania 19123; KATMANDU
INVESTMENT PARTNERS ("KIP"), a Pennsylvania limited partnership having an
address at 415 North Columbus Boulevard, Philadelphia, Pennsylvania 19123;
CHINATOWN CONVENTION CENTER HOTEL CORPORATION ("Chinatown"), a Pennsylvania
corporation having an address at 415 North Columbus Boulevard, Philadelphia,
Pennsylvania 19123; KATMANDU CORPORATION ("Kat Corp."), a Pennsylvania
corporation having an address at 415 North Columbus Boulevard, Philadelphia,
Pennsylvania 19123; T-KAT CORPORATION ("T-KAT"), a New Jersey corporation having
an address at 415 North Columbus Boulevard, Philadelphia, Pennsylvania 19123; S.
LANCE SILVER ("Silver") having an address at 8 Shawnee Court, Medford, New
Jersey 08055; STUART N. HARTING ("Harting") having an address at 600 Coles Mill
Road, Haddonfield, New Jersey 08033; the S. LANCE SILVER TRUST (the "Silver
Trust") having an address c/o S. Lance Silver, Trustee, 8 Shawnee Court,
Medford, New Jersey 08055; and the STUART N. HARTING TRUST (the "Harting Trust")
having an address c/o Stuart N. Harting, Trustee, 600 Coles Mill Road,
Haddonfield, New Jersey 08033.
W I T N E S S E T H
WHEREAS, Chinatown is the general partner of KIP, owning a 1% general
partnership interest therein; and
WHEREAS, Silver and Harting own all of the issued and outstanding stock
of Chinatown; and
WHEREAS, the Silver Trust and the Harting Trust own all of the limited
partnership interests in KIP; and
WHEREAS, KIP is the owner of the restaurant located on Pier 25 on the
Delaware River waterfront, 415 N. Columbus Boulevard, Philadelphia,
Pennsylvania, operated under the name "KatManDu" ("KatManDu-Philadelphia"); and
WHEREAS, Kat Corp. is the holder of the liquor license for
KatManDu-Philadelphia and is the operator of KatManDu-Philadelphia pursuant to a
management agreement, dated March 1, 1991, between Kat Corp. and KIP; and
WHEREAS, Silver and Harting own all of the issued and outstanding stock
of T-KAT; and
WHEREAS, T-KAT was formed for the purpose of developing, owning and
operating a KatManDu restaurant/nightclub similar to KatManDu-Philadelphia
on the Delaware River waterfront in Trenton, Mercer County, New Jersey
("KatManDu-Trenton"); and
WHEREAS, Silver and Harting each presently owns 200,000 shares of the
Common Stock of KEC, par value $.001 per share (the "Common Stock"); and
WHEREAS, KEC has filed an amended registration statement on Form SB-2
with the Securities and Exchange Commission (the "SEC") for the purpose of
offering and selling to the public (the "Offering") 2,500,000 shares of its
common stock, $.001 par value (the "Common Stock") and 2,500,000 Redeemable
Common Stock Purchase Warrants (the "Redeemable Warrants"); and
<PAGE>
WHEREAS, the KEC Common Stock being offered to the public in connection
with the Offering will represent approximately forty (60%) per cent of the total
issued and outstanding capital stock of KEC at the time of the Offering; and
WHEREAS, immediately prior to the date on which the Offering is
declared effective by the SEC (the "Effective Date"), (i) each of Silver,
Harting, the Silver Trust and the Harting Trust will transfer all of their
respective rights, title and interests in and to Chinatown, KIP, Kat Corp. and
T-KAT in exchange for an aggregate of 1,258,630 shares of KEC Class A Common
Stock, par value $.001 per share (the "Class A Stock") and 60,000 shares of KEC
Common Stock and immediately thereafter KEC will liquidate Chinatown and KIP and
Kat Corp. and T-KAT will survive as wholly-owned subsidiaries of KEC with Kat
Corp. owning and operating KatManDu-Philadelphia and T-KAT owning and operating
KatManDu-Trenton; and
WHEREAS, the Class A Stock and the Common Stock are identical in all
respects except that the holders of the Class A Stock are entitled to three (3)
votes per share and the holders of the Common Stock are entitled to one (1) vote
per share; and
WHEREAS, as a result of the transactions described herein, Silver,
Harting, the Silver Trust, the Harting Trust and the purchasers of Common Stock
in the Offering will, in the aggregate, own in excess of 80% of the issued and
outstanding shares of the Class A Stock and the KEC Common Stock.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
representations, warranties and covenants set forth below and other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Basic Transactions
------------------
Immediately prior to the Effective Date:
(a) each of Silver and Harting will transfer all of their right, title
and interest in and to Chinatown, representing all of the issued and outstanding
shares of Chinatown, to KEC in exchange for _____ shares of Class A Stock (____
shares each) and _____ shares of Common Stock (___ shares each), and KEC will
immediately thereafter liquidate and dissolve Chinatown;
(b) each of the Silver Trust and the Harting Trust will transfer all of
its right, title and interest in and to KIP, representing all of the limited
partnership interests in KIP, to KEC in exchange for _____ shares of Class A
Stock (____ shares each) and KEC will immediately thereafter liquidate and
dissolve KIP;
(c) each of Silver and Harting will transfer all of their right, title
and interest in and to Kat Corp., representing all of the issued and outstanding
shares of Kat. Corp., to KEC in exchange for _____ shares of Class A Stock (____
shares each) and _____ shares of Common Stock (___ shares each), and thereafter
Kat Corp. will own and operate KatManDu-Philadelphia as a wholly-owned
subsidiary of KEC;
(d) each of Silver and Harting will transfer all of their right, title
and interest in and to T-KAT, representing all of the issued and outstanding
shares of T-KAT, to KEC in exchange for _____ shares of Class A Stock (____
shares each) and ____ shares of Common Stock (___ shares each), and thereafter
T-KAT will continue to
2
<PAGE>
develop and, ultimately own and operate, KatManDu-Trenton as a wholly-owned
subsidiary of KEC.
2. Tax Considerations
------------------
It is the intent of the parties hereto that:
(a) the transaction described in paragraph (a) of Section 1 of this
Agreement constitute and qualify as tax free reorganization described in
section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
(b) the closing of the Offering and the consummation of the
transactions described in paragraphs (a) - (d) of Section 1 are interdependent
transactions and are to be considered as component parts of the same transaction
effected pursuant to Section 351 of the Code so that, upon consummation of the
Offering and the transactions described in Section 1 hereof, Silver, Harting,
the Silver Trust and the Harting Trust together with purchasers of KEC Common
Stock pursuant to the Offering will be in "control" of KEC for purposes of
section 368(c) of the Code; and
(c) The parties hereto will report the transactions described in
Section 1 hereof for federal, state and local income tax purposes consistent
with the provisions of this Section 2 and will timely file all such returns,
forms, statements and agreements as may be required by the Internal Revenue
Service (the "IRS") on such basis. The provisions of this Section 2 shall
survive the closing of the Offering and the transactions described herein.
3. Representations and Warranties
------------------------------
(a) Each of Silver, Harting, the Silver Trust and the Harting
Trust (each a "Transferor" and, collectively, the "Transferors") on his or its
own behalf and not on behalf of any other Transferor represents and warrants as
follows:
(i) Each Transferor is the legal and equitable owner of his or
its respective interests in each of Chinatown, KIP, Kat Corp.
and T-KAT and that such interests, on the date the exchanges
described in Section 1 hereof are consummated, will be owned
free and clear of all mortgages, liens, pledges and other
security interests.
(ii) Each Transferor has the full power and authority to
execute and deliver this Agreement and to perform his or its
obligations hereunder, that he or it has duly executed and
delivered this Agreement and that this Agreement constitutes a
valid and legally binding obligation as to such
Transferor, enforceable in accordance with its terms.
(iii) That neither the execution and the delivery of this
Agreement by such Transferor, nor the consummation of
3
<PAGE>
the transactions contemplated hereby by such Transferor, will
(A) violate any statute, regulation, rule, judgment, order,
decree, stipulation, injunction, charge, or other restriction
of any government, governmental agency or court to which such
Transferor is subject or (B) conflict with, result in a breach
of or constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate,
modify, cancel, or require any notice under any contract,
agreement, instrument of indebtedness, security interest or
other arrangement to which he or it may be a party or by which
he or it is bound or to which any of his or its assets is
subject.
(b) Each of Kat Corp., KEC and T-KAT, on its own behalf and
not on behalf of any other entity, represent and warrant as follows:
(i) It is a corporation duly organized, validly existing and
in good standing under the laws of the state of its
incorporation.
(ii) It has the full power and authority to execute and
deliver this Agreement and to perform its obligations
hereunder, that this Agreement has been duly executed and
delivered, and that this Agreement constitutes a valid and
legally binding obligation, enforceable in accordance with its
terms and conditions.
(iii) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby
will (A) violate any statute, regulation, rule, judgment,
order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency or court to
which it may be subject or any provision of its charter or
By-laws or (B) conflict with, result in a breach of,
constitute a default under, result in acceleration of, create
in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of
indebtedness, security interest, or other arrangement to which
it may be a party or by which it may be bound or to which any
of its assets is subject and which will have a material
adverse effect on them.
4
<PAGE>
(c) KEC represents and warrants that the shares of its Common
Stock to be issued pursuant to this Agreement, at the time of such
issuance, will be free and clear of any restrictions on transfer (other than
restrictions under the Securities Act of 1933 and state securities laws and
restrictions under the Underwriters Agreement executed in connection with the
Offering) claims, taxes, security interests, options, warrants, rights,
contracts, calls, commitments, equities and demands.
(d) Kat Corp. represents and warrants that it is the holder of
a valid and existing liquor license for KatManDu-Philadelphia. Such license is
free from all defects, liens, mortgages, pledges and other security interests.
(e) T-KAT represents and warrants that it is the lessee under
a legal, valid, binding and enforceable lease for the premises known as the
Cooper Iron Works Building located on the Delaware River waterfront in Trenton,
New Jersey and has the right to occupy such premises and to conduct therein a
restaurant/nightclub facility.
(f) KIP represents and warrants as follows:
(i) it is a limited partnership duly organized, validly
existing, and in good standing under the laws of Pennsylvania
and is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction in which it is
conducting business.
(ii) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will
(A) violate any statute, regulation, rule judgment, order,
decree, stipulation, injunction, charge, or other restriction
of any government, governmental agency or court to which it is
subject or any provision of its limited partnership agreement
or (B) conflict with, result in a breach of, constitute a
default under, result in acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or
require any notice under any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement
or mortgage for borrowed money, instrument of indebtedness,
security interest, or other arrangement to which it may be a
party or by which it may
5
<PAGE>
be bound or to which any of its assets is subject and which
will have a material adverse effect on them.
(iii) It owns or leases all of the tangible and intangible
assets necessary for the conduct of the business conducted by
KatManDu-Philadelphia, other than the liquor license relevant
thereto. Each such tangible asset is free from defects, has
been maintained in accordance with normal industry practice,
and is in good operating condition and repair (subject to
normal wear and tear). It is the lessee under a legal, valid,
binding and enforceable lease for the premises on which it
conducts the operations of KatManDu-Philadelphia at Pier 25,
415 N. Columbus Boulevard, Philadelphia, Pennsylvania and has
the right to occupy such premises and to conduct therein the
operations of KatManDu-Philadelphia.
(g) All of the representations, warranties and covenants set
forth in this Section 3 shall be true as of the date hereof and as of the date
the transactions described in Section 1 hereof are consummated.
(h) Each party hereto indemnifies and holds each other party
hereto harmless from any and all losses, damages, costs (including, but not
limited to, reasonable attorneys fees), claims and/or liabilities arising,
directly or indirectly, from a breach of any representations, warranties or
covenants made by such indemnifying party as set forth herein.
4. Conditions and Obligations to Closing
-------------------------------------
(a) The obligation of KEC to consummate the transactions to be
performed by it under this Agreement is subject to the following conditions:
(i) The representations and warranties set forth in Section 3
above made by the parties hereto other than KEC shall be true
and correct in all material respects at and as of the date the
transactions described in Section 1 hereof are consummated;
(ii) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign
jurisdiction wherein an unfavorable judgment, order, decree,
stipulation, injunction or charge would (A) prevent
consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by
this Agreement to be rescinded following
6
<PAGE>
consummation or (C) have an adverse effect on the right of KEC
to own and control Kat Corp. and T-KAT or have an adverse
effect on the right of Kat Corp. to own, operate or control
KatManDu-Philadelphia and the right of T-KAT to develop, own,
operate or control KatManDu-Trenton; and
(iii) the Offering shall have been declared effective by the
SEC.
KEC may waive any condition specified in this Section 4(a), other than
the condition set forth in clause (iii) thereof, if it executes a writing so
stating at or prior to the closing of the transactions described in Section 1
hereof.
(b) The obligation of each Transferor to consummate the
transactions to be performed by such Transferor under this Agreement is subject
to the following conditions:
(i) The representations and warranties set forth in Section
3 above made by the parties hereto other than such Transferor
shall be true and correct in all material respects at and as
of the date the transactions described in Section 1 hereof
are consummated.
(ii) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign
jurisdiction wherein an unfavorable judgment, order, decree,
stipulation, injunction or charge would (A) prevent
consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation or (C)
have an adverse effect on the right of such Transferor to own
or control the shares of KEC Common Stock issued pursuant to
this Agreement; and
(iii) the Offering shall have been declared effective by the
SEC.
A Transferor may waive any condition specified in this Section 4(b),
other than the condition set forth in clause (iii) thereof, if such Transferor
executes a writing so stating at or prior to the closing the transactions
described in Section 1 hereof.
5. Miscellaneous
-------------
(a) This Agreement shall not confer any rights or remedies upon any
person other than the parties and their respective successors and permitted
assigns.
7
<PAGE>
(b) This Agreement (including the documents referred to herein)
constitutes the entire agreement among the parties with respect to the matters
set forth herein, and supersedes any prior understandings, agreements, or
representations by or among the parties, written or oral, that may have related
in any way to the subject matter hereof.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties named herein and their respective successors and permitted assigns.
No party may assign either this Agreement or any of his, her or its rights,
interests, or obligations hereunder without the prior written approval of the
other parties hereto.
(d) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument. A facsimile, telecopy or other reproduction of this
Agreement may be executed by one or more parties hereto, and an executed copy of
this Agreement may be delivered by one or more parties hereto by facsimile or
similar instantaneous electronic transmission device pursuant to which the
signature of or on behalf of such party can be seen, and such execution and
delivery shall be considered valid, binding and effective for all purposes. At
the request of any party hereto, all parties hereto agree to execute an original
of this Agreement as well as any facsimile, telecopy or other reproduction
hereof.
(e) The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
(f) All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient at the
address set forth following the name of such person in the preamble of this
Agreement. Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual and/or entity for whom it is intended.
Any party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
parties notice in the manner herein set forth.
(g) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Delaware.
(h) No Amendment of any provisions of this Agreement shall be valid
unless the same shall be in writing and signed by the parties hereto. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default,
8
<PAGE>
misrepresentation, or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such occurrence.
(i) Each party hereto acknowledges and agrees that the other parties
would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each party hereto agrees that the other parties
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the parties and the matter.
9
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
KATMANDU ENTERTAINMENT CORP.
By: ______________________________
Name:
Title:
KATMANDU CORPORATION
By: ______________________________
Name:
Title:
T-KAT CORP.
By: ______________________________
Name:
Title:
KATMANDU INVESTMENT PARTNERS
By: Chinatown Convention Center Hotel
Corporation, General Partner
By: ______________________________
Name:
Title:
CHINATOWN CONVENTION CENTER
HOTEL CORPORATION
By: ______________________________
Name:
Title:
S. LANCE SILVER TRUST
By: ______________________________
Name:
Title:
10
<PAGE>
STUART N. HARTING TRUST
By: ______________________________
Name:
Title:
------------------------------
S. LANCE SILVER
------------------------------
STUART N. HARTING
11
<PAGE>
Exhibit 3.1b
Certificate of Amendment
of
Certificate of Incorporation
of
KatManDu Entertainment Corp.
(Pursuant to Chapter 1, Title 8 of the General Corporation Law of the
State of Delaware)
It is hereby certified that:
FIRST: The name of the Corporation is KatManDu Entertainment Corp.
SECOND: The Certificate of Incorporation was filed with the Office of
the Secretary of State on March 28, 1996.
THIRD: The Amendment of the Certificate of Incorporation of the
Corporation effected by this Certificate of Amendment is to reclassify its
capital stock.
FOURTH: To accomplish the foregoing amendment, ARTICLE FOURTH relating
to the number, class and par value of the shares the Corporation is authorized
to issue is amended to read as follows:
FOURTH: The aggregate number of shares of all classes of
capital stock which the Corporation shall have authority to issue is
30,000,000 shares, consisting of (a) 17,448,220 shares of common stock,
par value $.001 per share (the "Common Stock"), (b) 7,551,780 shares of
Class A Common Stock, par value $.001 per share (the "Class A Common
Stock") and (c) 5,000,000 shares of preferred stock, par value $.001
per share (the "Preferred Stock").
1. Common Stock and Class A Common Stock.
(a) The Common Stock and Class A Common Stock shall be of
equal rank and shall entitle the holders therof to the same rights and
privileges, except as hereinafter expressly provided.
(b) The holders of Class A Common Stock shall be entitled
to three votes per share, and the holders of Common Stock shall be
entitled to one vote per share both classes voting as one class on all
matters to be voted on by shareholders, including the election of
directors, except as otherwise provided by law.
(c) The holders of the Common Stock and the Class A Common
Stock shall be entitled to dividends when, as and if declared by the
Board of Directors in equal amounts per share and without preference or
priority of either class of stock over the other.
<PAGE>
(d) In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or
involuntary, all assets and funds of the Corporation available for
distribution, after any distributions and payments due to holders of
Preferred Stock, shall be distributed and paid over to the holders of
the Common Stock and Class A Common Stock in equal amounts per share
and without preference or priority of either class of stock over the
other.
(e) The Class A Common Stock shall not be transferable
without conversion into Common Stock, except to the spouse or lineal
descendants of the holder. Upon any other transfer, each share of Class
A Common Stock shall automatically convert into one share of Common
Stock.
(f) Each share of Class A Common Stock shall be
convertible at the option of the holder thereof into one share of
Common Stock at any time. Shares of the Class A Common Stock
surrendered for conversion or otherwise acquired by the Corporation
shall be canceled according to law and shall no be reissued.
2. Preferred Stock.
The Preferred Stock may be issued, from time to time, in
one or more series with such designations, preferences and relative
participating optional or other special rights and qualifications,
limitations or restrictions thereof, as shall be stated in the
resolutions adopted by the Board of Directors providing for the
issuance of such Preferred Stock or series thereof; and the Board of
Directors is hereby expressly vested with authority to fix such
designations, preferences and relative participating optional or other
special rights or qualifications, limitations or restrictions for each
series, including, but not by way of limitation, the power to affix the
redemption and liquidation preferences, the rate of dividends payable
and the time for and the priority of payment thereof and to determine
whether such dividends shall be cumulative or not and to provide for
and affix the terms of conversion of such Preferred Stock or any series
thereof into Common Stock of the Corporation and fix the voting power,
if any, of Preferred Stock or any series thereof.
3. Denial of Preemptive Rights.
No holder of any of the shares of the stock of the
corporation, whether now or hereafter authorized and issued, shall be
entitled as of right to purchase or subscribe for (1) any unissued
stock of any class, or (2) any additional shares of any class to be
issued by reason of any increase of the authorized capital stock of the
corporation of any class, or (3) bonds, certificates of indebtedness,
debentures or other securities convertible into stock of the
corporation, or carrying any right to purchase stock of any class, but
any such unissued stock or such additional authorized issue of any
stock or of other securities convertible into stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant to
resolution of the Board of Directors to such persons, firms,
corporations or associations and upon such terms as may be deemed
advisable by the Board of Directors in the exercise of its discretion.
FIFTH: The foregoing Amendment of the Certificate of Incorporation of
the Corporation was authorized by the vote at a meeting of the Board of
Directors of the Corporation followed by the affirmative vote by the holders of
a majority of the votes of all of the outstanding shares of the Corporation
entitled to vote on said Amendment of the Certificate of Incorporation.
<PAGE>
IN WITNESS WHEREOF, the undersigned has subscribed this document on the
date set forth below and does hereby affirm under penalties of perjury, that the
statements contained therein have been examined by the undersigned and are true
and correct.
Dated: September , 1996
----------------------------
S. Lance Silver,
Co-President
<PAGE>
BY-LAWS OF
KatManDu Entertainment Corp.
(A Delaware Corporation)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK.
Every holder of stock in the corporation shall be entitled to have a
certificate signed by, or in the name of, the corporation by the Chairman or
Vice-Chairman of the Board of Directors, if any, or by the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the corporation certifying the number of shares
owned by him in the corporation. Any and all signatures on any such certificate
may be facsimiles. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Board of Directors may require the owner of any lost, stolen
or destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of any such new certificate.
2. FRACTIONAL SHARE INTEREST.
The corporation may, but shall not be required to, issue fractions of a
share. If the corporation does not issue fractions of a share, it shall (i)
arrange for the disposition of fractional interests by those entitled thereto,
(ii) pay in cash the fair value of fractions of a share as of the time when
those entitled to receive such fractions are determined, or (iii) issue scrip or
warrants in registered or bearer form which shall entitle the holder to receive
a certificate for a full share upon the surrender of such scrip or warrants
aggregating a full share. A certificate for a fractional share shall, but scrip
or warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing full
shares before a specified date, or subject to the conditions that the shares for
which scrip or warrants are exchangeable may be sold by the corporation and the
proceeds thereof
<PAGE>
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
3. STOCK TRANSFERS.
Upon compliance with provisions restricting the transfer or
registration of transfer of shares of stock, if any, transfers or registration
of transfers of shares of stock of the corporation shall be made only on the
stock ledger of the corporation by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Secretary of the corporation or with a transfer agent or a registrar, if
any, and on surrender of the certificate or certificates for such shares of
stock properly endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS.
For the purpose of determining the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or the allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the
directors may fix, in advance, a record date, which shall not be more than sixty
days nor less than ten days before the date of such meeting, nor more than sixty
days prior to any other action. If no record date is fixed, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held, the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at any meeting of stockholders shall apply to any
adjournment of the meeting, provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
5. MEANING OF CERTAIN TERMS,
As used herein in respect of the right to notice of a meeting of
stockholders or a waiver thereof or to participate or vote thereat or to consent
or dissent in writing in lieu of a meeting, as the case may be, the term "share"
or "shares" or "share of stock" or "shares of stock" or "stockholder" or
"stockholders" refers to an outstanding share or shares of stock and to a holder
or holders of record of outstanding shares of stock when the corporation is
authorized to issue only one class of shares of stock, and said reference is
also intended to include any outstanding share or shares of stock and any holder
or holders of record of outstanding shares of stock of any class upon which or
upon whom the certificate of incorporation confers such rights where there are
two or more classes or series of shares of stock or upon which or upon whom the
General Corporation Law confers such rights notwithstanding that the certificate
of incorporation may provide for more than one class or series of shares of
stock, one or more of which are limited or denied such rights thereunder,
provided, however, that no such right shall vest in the event of an increase or
a decrease in the authorized number of shares of stock of any class or series
which is otherwise denied voting rights under the provisions of the certificate
of incorporation, except as any provision of law may otherwise require.
-2-
<PAGE>
6. STOCKHOLDER MEETINGS.
-TIME-. The annual meeting shall be held on the date and at the time
fixed, from time to time by the directors provided that the first annual meeting
shall be held on a date within 13 months after the organization of the
corporation and each successive annual meeting shall be held on a date within 13
months after the date of the preceding annual meeting. A special meeting shall
be held on the date and at the time fixed by the directors.
-PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware as the directors may from time to
time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
-CALL. Annual meetings and special[ meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
-NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given stating the place, date and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include or be
accompanied by any additional statement information or documents prescribed by
the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given personally
or by mail, not less than 10 days nor more than 60 days before the date of the
meeting unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the Corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid in the United States mail. If a meeting is adjourned to
another time, not more than 30 days hence, and/or to another place and if an
announcement of the adjourned time and/or place is made at the meeting it shall
not be necessary to give notice of the adjourned meeting unless the directors
after adjournment fix a new record date for the adjourned meeting. Notice need
not be given to any stockholder who submits a written waiver of notice signed by
him before or after the time stated therein. Attendance of a stockholder at a
meeting of stockholders shall constitute a waiver of notice of such meeting
except when the stockholder attends the meeting for the express purpose of
objecting at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
-STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholder arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder for any purpose germane to the meeting, during
ordinary business hours for a period of at least ten days prior to the meeting
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
-3-
<PAGE>
-CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
-PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duty executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
-INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.
-QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
-VOTING. Each share of stock shall entitle the holder thereof to one
vote. In the election of directors, a plurality of the votes cast shall elect.
Any other action shall be authorized by a majority of the votes cast except
where the General Corporation Law prescribes a different percentage of votes
and/or a different exercise of voting power, and except as may be otherwise
prescribed by the provisions of the certificate of incorporation and these
By-Laws. In the election of directors, and for any other action, voting need not
be by ballot.
7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
miminum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
-4-
<PAGE>
In order to determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of record
seeking to have the stockholders authorize or take corporate action by written
consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. Such notice shall specify the action sought to
be consented to by stockholders. The Board of Directors shall promptly, but in
all events within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed by
the Board of Directors within 10 days after the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposal to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or any officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Any such delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
applicable law, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close of
business on the date on which the Board of Directors adopts the resolution
taking such prior action.
In the event of the delivery of a written consent or consents
purporting to authorize or take corporate action and/or related revocations
(each such written consent and related revocation is referred to in this Section
7 as a "Consent"), the Secretary shall provide for the safekeeping of such
Consent and shall immediately appoint duly qualified and objective inspectors to
conduct, as promptly as practical, such reasonable ministerial review as they
deem necessary or appropriate for the purpose of ascertaining the sufficiency
and validity of such Consent and all matters incident thereto, including,
without limitation, whether holders of shares having the requisite voting power
to authorize or take the action specified in the Consent have given consent. If
after such investigation the Secretary shall determine that the Consent is
valid, that fact shall be certified on the records of the corporation kept for
the purpose of recording the proceedings of meetings of stockholders, and the
Consent shall be filed in such records, at which time the Consent shall become
effective as stockholder action.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER.A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The number
of directors shall be not less than two nor more than nine as may be fixed, from
time to time, by resolution of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors
-5-
<PAGE>
who are elected at an annual meeting of stockholders, and directors who are
elected in the interim to fill vacancies and newly created directorships, shall
hold office until the next annual meeting of stockholders and until their
successors are elected and qualified or until their earlier resignation or
removal. In the interim between annual meetings of stockholders or of special
meetings of stockholders called for the election of directors and/or for the
removal of one or more directors and for the filling of any vacancy in that
connection, newly created dictatorships and any vacancies in the Board of
Directors, including unfilled vacancies resulting from the removal of directors
for cause or without cause may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum, or by the sole
remaining director.
4. MEETINGS.
-TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
-PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
-CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
-NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
-QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these By-Laws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
-CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
-6-
<PAGE>
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designated one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of one or more
Presidents, one or more Secretaries, one or more Treasurers, and, if deemed
necessary, expedient, or desirable by the Board of Directors, one or more Chief
Executive Officers, one or more Chairmen of the Board, a Vice-Chairman of the
Board, an Executive Vice-President, one or more other Vice-Presidents, one or
more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers with such titles as the resolution of the Board of Directors choosing
them shall designate. Except as may otherwise be provided in the resolution of
the Board of Directors choosing an officer, no officers other than the Chairman
or Chairmen of the Board, as the case may be, or Vice-Chairman of the Board, if
any, need be a director. Any number of offices may be held by the same person,
as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
-7-
<PAGE>
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BY- LAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter or repeal
these By-Laws and to adopt new By-Laws may be exercised by the Board of
Directors or by the stockholders.
-8-
<PAGE>
KMD
KatManDu Entertainment Corp.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN
DEFINITIONS
COMMON STOCK CUSIP 486004 10 4
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.001 PER
SHARE, OF
KatManDu Entertainment Corp.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate is not valid unless countersigned by the Transfer Agent
and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[seal]
James R. Bergman Stuart N. Harting
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(JERSEY CITY, N.J.) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
<PAGE>
The following abbreviations, when used in the inscription of the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- Custodian
-------------- ---------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
-----------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- ------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
----------------------------------------
---------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE, GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
[MORSE, ZELNICK, ROSE & LANDER, LLP LETTERHEAD]
(212) 838-8040
__________ _____, 1996
KatManDu Entertainment Corp.
415 North Columbus Boulevard
Philadelphia, PA 19123
Dear Sirs:
We have acted as counsel to KatManDu Entertainment Corp., a Delaware
corporation (the "Company"), in connection with the preparation of a
registration statement on Form SB-2 (the "Registration Statement") filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), to register the offering by (a) the Company of (i)
2,500,000 shares of its common stock, par value $.001 per share (the "Common
Stock") (and the offering of an additional 375,000 shares if the over-allotment
option is exercised in full); (ii) 2,500,000 Redeemable Common Stock Purchase
Warrants (the "Redeemable Warrants") to purchase shares of Common Stock (and the
offering of an additional 375,000 Redeemable Warrants if the over-allotment
option is exercised in full); (iii) 2,500,000 shares of Common Stock underlying
the Redeemable Warrants (and the offering of an additional 375,000 shares of
Common Stock if the over-allotment option is exercised in full); (iv) Common
Stock Purchase Warrants (the "Representative's Warrants") to purchase 250,000
shares of Common Stock and 250,000 Redeemable Warrants; (v) 250,000 shares of
Common Stock underlying the Representative's Warrants; (vi) 250,000 Redeemable
Warrants underlying the Representative's Warrants; and (vii) 250,000 shares of
Common Stock underlying the Redeemable Warrants which underlie the
Representative's Warrants; and (b) certain shareholders of 261,666 shares of
Common Stock. We will also act as counsel for any and all amendments to the (a)
Registration Statement and (b) any Registration Statements pursuant to Rule
462(b) of the Act for additional shares of Common Stock, Redeemable Warrants,
Common Stock underlying Redeemable Warrants, Representative's Warrants, Common
Stock underlying Representative's Warrants, Redeemable Warrants underlying
Representative's Warrants and Common Stock underlying Redeemable Warrants
underlying Representative's Warrants.
In this regard, we have reviewed the Certificate of Incorporation of
the Company, as amended, resolutions adopted by the Company's Board of
Directors, the Registration Statement, the proposed form of the Redeemable
Warrants and the Representative's Warrants, the other exhibits to the
Registration Statement and such other records, documents, statutes and decisions
as we have deemed relevant in rendering this opinion. Based upon the foregoing,
we are of the opinion that:
<PAGE>
Each share of Common Stock, the Redeemable Warrants (including the
Redeemable Warrants underlying the Representative's Warrants), the
Representative's Warrants, and the Common Stock underlying the Redeemable
Warrants and the Representative's Warrants (including the Common Stock
underlying the Redeemable Warrants underlying the Representative's Warrants)
being offered pursuant to the Registration Statement and all amendments thereto
and any Registration Statements pursuant to Rule 462(b) of the Act for
additional shares of Common Stock, Redeemable Warrants, Representative's
Warrants and Common Stock underlying Redeemable Warrants (including the
Reedemable Warrants underlying the Representative's Warrants) and
Representative's Warrants (including the Common Stock underlying the Redeemable
Warrants underlying the Representative's Warrants) have been duly and validly
authorized for issuance and when issued as contemplated by the Registration
Statement or upon exercise of the Redeemable Warrants or the Representative's
Warrants, will be legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and any and all amendments thereto, and any Registration
Statements pursuant to Rule 462(b) of the Act for additional shares of Common
Stock, Redeemable Warrants (including the Redeemable Warrants underlying the
Representative's Warrants), Representative's Warrants and Common Stock
underlying Redeemable Warrants and Representative's Warrant (including the
Common Stock underlying Redeemable Warrants underlying Representative's
Warrants). In giving such opinion, we do not thereby admit that we are acting
within the category of persons whose consent is required under Section 7 of the
Act or the rules or regulations of the Securities and Exchange Commission
thereunder. Members of this firm or their affiliates own an aggregate of 40,000
shares of Common Stock of the Company.
Very truly yours,
MORSE, ZELNICK, ROSE & LANDER, LLP
<PAGE>
KATMANDU ENTERTAINMENT CORP.
1996 STOCK OPTION PLAN
1. PURPOSES. The purposes of this Stock Option Plan are to attract and
retain the best qualified personnel for positions of substantial responsibility,
to provide additional incentive to the Employees of the Company or its
Subsidiaries, if any (as defined in Section 2 below), as well as other
individuals who perform services for the Company or its Subsidiaries, and to
promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options", as
defined in Section 422A of the Internal Revenue Code of 1986, as amended, or
"non-qualified stock options", at the discretion of the Board and as reflected
in the terms of the written instrument evidencing an Option.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been
appointed, or the Board of Directors of the Company, if no Committee is
appointed.
(b) "Common Stock" shall mean the Common Shares of the Company
(par value $.001 per share).
(c) "Company" shall mean Kat*Man*Du Entertainment Corp., a
Delaware corporation.
(d) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with paragraph (a) of Section 4 of the Plan, if
one is appointed.
(e) "Continuous Status as an Employee" shall mean the absence
of any interruption or termination of service as an Employee. Continuous Status
as an Employee shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board.
(f) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
<PAGE>
(h) "Incentive Stock Option" shall mean a stock option
intended to qualify as an incentive stock option within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended.
(i) "Non-qualified Stock Option" shall mean a stock option not
intended to qualify as an Incentive Stock Option.
(j) "Option" shall mean a stock option granted pursuant to the
Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(l) "Optionee" shall mean an Employee or other person who
receives an Option.
(m) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 425(e) of the Internal Revenue Code of
1986, as amended.
(n) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(o) "SEC" shall mean the Securities and Exchange Commission.
(p) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 425(f) of the Internal
Revenue Code of 1986, as amended.
3. STOCK.
Subject to the provisions of Section 11 of the Plan, the maximum
aggregate number of shares which may be optioned and sold under the Plan is
500,000 shares of Common Stock. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for further grant under the Plan.
4. ADMINISTRATION.
(a) Procedure. The Company's Board of Directors may appoint a Committee
to administer the Plan. The Committee shall consist of not less than two members
of the Board of Directors who shall administer the Plan on behalf of the Board
of Directors, subject to such terms and conditions as the Board of Directors may
prescribe. Once appointed, the Committee shall continue to serve until otherwise
directed by the Board of Directors. From time to time the Board of Directors may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause), and appoint new members in substitution
therefor, fill vacancies, however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
2
<PAGE>
If a majority of the Board of Directors is eligible to be granted
Options or has been eligible at any time within the preceding year, a Committee
must be appointed to administer the Plan. The Committee must consist of not less
than two members of the Board of Directors, all of whom are "disinterested
persons" as defined in Rule 16b-3 of the General Rules and Regulations
promulgated under the Exchange Act.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options, in accordance with Section 422 of the Internal Revenue Code of 1986,
as amended, or to grant Non-qualified Stock Options; (ii) to determine, upon
review of relevant information and in accordance with Section 8(b) of the Plan,
the fair market value of the Common Stock; (iii) to determine the exercise price
per share of Options to be granted which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the persons to whom,
and the time or times at which, Options shall be granted and the number of
shares to be represented by each Option; (v) to interpret the Plan; (vi) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to accelerate or defer (with the consent of the Optionee) the
exercise date of any Option; (ix) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an Option
previously granted by the Board; and (x) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(c) Effect of the Board's Decision. All decisions, determinations, and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. ELIGIBILITY; NON-DISCRETIONARY GRANTS.
(a) General. Incentive Stock Options may be granted only to Employees.
Non-qualified Stock Options may be granted to employees as well as directors
(subject to the limitations set forth in Section 4), independent contractors and
agents, as determined by the Board. Any person who has been granted an Option
may, if he is otherwise eligible, be granted an additional Option or Options.
The Plan shall not offer upon any Optionee any right with respect to
continuation of employment by the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
(b) Limitation on Incentive Stock Options. No Incentive Stock Option
may be granted to an Employee if, as the result of such grant, the aggregate
fair market value (determined at the time each option was granted) of the Shares
with respect to which such Incentive Stock Options are exercisable for the first
time by such Employee during any calendar year (under all such plans of the
Company and any Parent and Subsidiary) shall exceed One Hundred Thousand Dollars
($100,000).
(c) Annual Limitation on all Stock Options. No Stock Options may be
granted to any Employee in any fiscal year if as a result of such grant the
aggregate number of shares subject to options granted to such Employee that year
(under all such plans of the Company and any
3
<PAGE>
Parent or Subsidiary) exceed 100,000 shares subject to the anti-dilution
provisions of this Plan (Section 11) and/or other Plans as applicable.
(d) Non-discretionary Option Grants. Each director of the Company upon
first taking office, other than a director who is an officer, employee or
beneficial owner of 10% or more of the Company's Common Stock, shall be granted
an Option for 10,000 shares, exercisable with respect to one-half of the Shares
covered immediately upon such grant and exercisable with respect to the
remaining one-half of the Shares covered on the first anniversary of the date of
grant.
6. TERM OF THE PLAN. The Plan shall become effective upon the earlier
to occur of (i) its adoption by the Board of Directors, or (ii) its approval by
vote of the holders of a majority of the outstanding shares of the Company
entitled to vote on the adoption of the Plan. The Plan shall continue in effect
until March 1, 2006 unless sooner terminated under Section 13 of the Plan.
7. TERM OF THE OPTION. The term of each Option shall be ten (10) years
from the date of grant hereof or such shorter term as may be provided in the
instrument evidencing the Option. However, in the case of an Incentive Stock
Option granted to an Employee who, immediately before the Incentive Stock Option
is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the day of grant
thereof or such shorter time as may be provided in the instrument evidencing the
Option.
8. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant
to the exercise of an Option shall be such price as is determined by the Board,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, immediately before
the grant of such Incentive Stock Option, owns stock
representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than
one hundred ten percent (110%) of the fair market value per
Share on the date of grant, as the case may be;
(B) granted to an Employee not subject to the
provisions of Section 8(a)(i)(A), the per Share exercise price
shall be no less than one hundred percent (100%) of the fair
market value per Share on the date of grant.
(ii) In the case of a Non-qualified Stock Option:
(A) granted to an Employee, the per Share exercise
price shall be determined by the Board or the Committee, as
the case may be, in its sole discretion but in no event may
it be less than eighty-five percent (85%) of the fair market
value per Share on the date of grant;
(B) granted to a director who is not an officer,
employee, or beneficial owner of 10% or more of the Company's
Common Stock, the per Share exercise price shall be no less
than one hundred percent (100%) of the fair market value per
Share on the date of grant.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices or, if applicable, the closing price of the Common Stock on the
date of grant, as reported by the National Association of Securities Dealers
Automated Quotation (NASDAQ) System or, in the event the Common Stock is listed
on a stock exchangeable, the fair market value per Share shall be the closing
price on such exchange on the date of grant of the Option, as reported in the
Wall Street Journal.
4
<PAGE>
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option or in payment of any withholding taxes thereon, including
the method of payment, shall be determined by the Board an may consist entirely
of (i) cash, check or promissory note; (ii) other Shares of Common Stock owned
by the Employee having a fair market value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (iii) an assignment by the Employee of the net proceeds to be
received from a registered broker upon the sale of the Shares or the proceeds of
a loan from such broker in such amount; or (iv) any combination of such methods
of payment, or such other consideration and method of payment for the issuance
of Shares to the extent permitted under New York Law and meeting rules and
regulations of the SEC to plans meeting the requirements of Section 16(b)(3) of
the Exchange Act.
9. EXERCISE OF OPTION.
(a) Procedure or Exercise; Rights as a Stockholder. Any option granted
hereunder shall be exercisable at such times and subject to such conditions as
may be determined by the Board, including performance criteria with respect to
the Company and/or the Optionee, and as such shall be perishable under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
instrument evidencing the Option by the person entitled to exercise the Option
and full payment for the Shares with respect to which the Option is exercised
has been received by the Company. Full payment may, as authorized by the Board,
consist of any consideration and method of payment allowable under Section 8(c)
of the Plan; it being understood that the Company shall take such action as may
be reasonably required to permit use of an approved payment method. Until the
issuance, which in no event will be delayed more than thirty (30) days from the
date of the exercise of the Option, (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the Company)
of the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee. If any Employee ceases to
serve as an Employee, he may, but only within thirty (30) days (or such other
period of time not exceeding three (3) months as is determined by the Board)
after the date he ceases to be an Employee of the Company, exercise his Option
to the extent that he was entitled to exercise it as of the date of such
termination. To the extent that he was not entitled to exercise the Option at
the date of such termination, or if he does not exercise such Option (which he
was entitled to exercise) within the time specified herein, the Option shall
terminate.
5
<PAGE>
(c) Notwithstanding the provisions of Section 9(b) above, in the event
an Employee is unable to continue his employment with the Company as a result of
his total and permanent disability (as defined in Section 105(d)(4) of the
Internal Revenue Code of 1986, as amended), he may, buy only within three (3)
months (or such other period of time not exceeding twelve (12) months as is
determined by the Board) from the date of disability, exercise his Option to the
extent he was entitled to exercise it at the date of such disability. To the
extent that he was not entitled to exercise it at the date of such disability,
or if he does not exercise such Option (which he was entitled to exercise)
within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death
an Employee of the Company and who shall have been in
Continuous Status as an Employee since the date of grant of
the Option, the Option may be exercised, at any time within
twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to
exercise that would have accrued had the Optionee continued
living one (1) month after the date of death; or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Board)
after the termination of Continuous Status as an Employee, the
Option may be exercised, at any time within three (3) months
following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination.
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
any required action by the Stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split or the payment of a stock dividend with
respect to the Common Stock or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
6
<PAGE>
In the event of the proposed dissolution or liquidation of the Company,
or in the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation, the
Board of Directors of the Company shall, as to outstanding Options, either (i)
make appropriate provision for the protection of any such outstanding Options by
the substitution on an equitable basis of appropriate stock of the Company or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to one share of Common Stock of the Company; provided, only
that the excess of the aggregate fair market value of the shares subject to the
Options immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to such Options immediately before such substitution over the purchase
price thereof, or (ii) upon written notice to an Optionee, provide that all
unexercised Options must be exercised within a specified number of days of the
date of such notice or they will be terminated. In any such case, the Board of
Directors may, in its discretion, advance the lapse of any waiting or
installment periods and exercise dates.
12. TIME FOR GRANTING OPTIONS. The date of grant of an Option shall,
for all purposes, be the date on which the Board makes the determination
granting such Option. Notice of the determination shall be given to each person
to whom an Option is so granted within a reasonable time after the date of such
grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) The Board may amend or terminate the Plan from time to time in such
respects as the Board may deem advisable; provided, however, that the following
revisions or amendments shall require approval of the holders of a majority of
the outstanding shares of the Company entitled to vote:
(i) any increase in the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 11 of the
Plan;
(ii) any change in the designation of the class of persons eligible to
be granted options; or
(iii) any material increase in the benefits accruing to participants
under the Plan.
(b) Stockholder Approval. If any amendment requiring stockholder
approval under Section 13(a) of the Plan is made, such stockholder approval
shall be solicited as described in Section 17(a) of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance
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<PAGE>
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if in the
opinion of counsel for the Company, such a representation is required by, or
appropriate under, any of the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Continuation of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. If such stockholder approval is obtained at
a duly held stockholders' meeting, it may be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company entitled to
vote thereon. The approval of such stockholders of the Company shall be (1)
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder, or (2) solicited after the
Company has furnished in writing to the holders entitled to vote substantially
the same information concerning the Plan as that which would be required by the
rules and regulations in effect under Section 14(a) of the Exchange Act at the
time such information is furnished.
18. OTHER PROVISIONS. The Stock Option Agreement authorized under the
Plan shall contain such other provisions, including, without limitations,
restrictions upon the exercise of the Option, as the Board of Directors of the
Company shall deem advisable. Any Incentive Stock Option Agreement shall contain
such limitations and restrictions upon the exercise of the Incentive Stock
Option as shall be necessary in order that such option will be an Incentive
Stock Option as defined in Section 422A of the Internal Revenue Code of 1986, as
amended.
19. INDEMNIFICATION OF BOARD. In addition to such other rights of
indemnification as they may have as directors or as members of the Board, the
members of the Board shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action suit or
8
<PAGE>
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under
or in connection without the Plan or any Option granted thereunder, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding that such
Board member is liable for negligence or misconduct in the performance of his
duties, provided that within sixty (60) days after institution of any such
action, suit or proceeding a Board member shall, in writing, offer the Company
the opportunity, at its own expense, to handle and defend the same.
20. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
21. COMPLIANCE WITH EXCHANGE ACT RULE 16b-3. With respect to persons
subject to Section 16 of the Exchange Act, transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of the Plan or
action by the Board fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Board.
22. SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
23. HEADINGS, ETC., NO PART OF PLAN. Headings of Articles and Sections
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
9
<PAGE>
AGREEMENT, dated as of the 1st day of April, 1996, by and among S.
LANCE SILVER ("Silver"), STUART N. HARTING ("Harting"), JAMES R. BERGMAN
("Bergman"), BRUCE WAUGH ("Waugh"), DAVID R. GROMACKI ("Gromacki"), DIANE
THOMSEN ("Thomsen"), STEVEN RABINOVICI ("Rabinovici"), INTEREQUITY CAPITAL
PARTNERS, LLP ("InterEquity") and MORSE, ZELNICK, ROSE & LANDER, LLP ("MZRL").
W I T N E S S E T H
WHEREAS, each of the parties hereto is a shareholder of KatManDu
Entertainment Corp. ("KEC"), a Delaware corporation, owning the number of shares
of KEC common stock, par value $.001 per share (the "Common Stock") set forth
opposite his, her or its name on Schedule A annexed hereto and made a part
hereof; and
WHEREAS, Bergman, Waugh, Gromacki, Thomsen, Rabinovici, InterEquity and
MZRL (collectively referred to herein as the "Other Shareholders") have each
agreed to grant to Silver and Harting, jointly, the right to vote the shares of
Common Stock which they own.
NOW, THEREFORE, in consideration of the premises set forth above and
the mutual agreements, representations and warranties set forth herein and other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Voting of KEC Common Stock.
---------------------------
(a) For as long as they own shares of KEC Common Stock, the
Other Shareholders agree that:
(i) At any special or annual meeting of shareholders of KEC at
which Directors are to be elected or in connection with a solicitation of
consents through which Directors are to be elected, they each shall vote (or
give a written consent with respect to) all of their shares of KEC Common Stock
as directed by Silver and Harting.
(ii) At any special or annual meeting of shareholders of KEC
at which it is proposed to remove Directors from office, or in connection with a
solicitation of consents through which Directors are to be removed from office,
they each shall vote (or give a written consent with respect to) all of their
shares of KEC Common Stock as directed by Silver and Harting.
(iii) At any special or annual meeting of the shareholders of
KEC or in connection with the solicitation of consents on any matter other than
the election or removal of
<PAGE>
Directors, they each shall vote (or give a written consent with respect
to) all of their shares of KEC Common Stock in accordance with the instructions
of Silver and Harting.
(b) In the event Silver and Harting shall not have given any
instructions with respect to matters referred to in Section 1(a) hereof, then,
and in such event, the Other Shareholders shall be free to vote their shares of
KEC Common Stock in any manner that they so choose.
2 Proxy. In order to insure their obligations under Section 1 hereof,
-----
the Other Shareholders shall simultaneously herewith deliver to Silver and
Harting his, her or its, as the case may be, irrevocable proxy with respect to
all of the shares of KEC Common Stock owned by such Other Shareholder from time
to time in the form annexed hereto as Exhibit A (the "Proxy"); it being agreed
that the Proxy shall be revoked immediately upon the termination of this
Agreement.
3. Restrictive Legend.
-------------------
3.1 Legend on Stock Certificates. Each certificate evidencing shares o
----------------------------
KEC Common Stock held by the Other Shareholders shall contain the following
legend:
THE RIGHT OF THE HOLDER OF THIS CERTIFICATE
TO VOTE THE SHARES REPRESENTED HEREBY MAY BE
RESTRICTED IN CERTAIN RESPECTS AS PROVIDED IN THE
TERMS OF A SHAREHOLDERS AGREEMENT DATED AS OF APRIL
1, 1996, A COPY OF WHICH IS ON FILE AT THE OFFICES OF
THE COMPANY AT 415 NORTH COLUMBUS BOULEVARD,
PHILADELPHIA, PENNSYLVANIA 19123.
3.2 Removal of Legend. The foregoing legend, or pertinent portions
------------------
thereof, shall be removed by KEC, through delivery of a replacement certificate
not bearing such legend, if the provisions of this Agreement which are the
subject of such legend shall have terminated in accordance with their terms.
4. Termination.
------------
4.1 Change in Control. This Agreement shall terminate and be of no
------------------
further force and effect after a "Change in Control" shall have occurred. A
Change of Control will be deemed to have occurred if following: (a) a tender or
exchange offer for voting securities of KEC, (b) a proxy contest for the
election of Directors of KEC, or (c) a merger or consolidation or sale of all or
substantially all of the business or assets of KEC, the persons constituting the
Board of Directors of KEC immediately prior to the initiation of such event
cease to constitute a majority of the Board of Directors of KEC upon the
occurrence of such event or within one year after such event.
4.2 Bankruptcy. This Agreement shall terminate and be of no further
-----------
force and effect at such time as: (a) KEC, pursuant to Title 11 of the U.S. Code
or any similar federal or state law
2
<PAGE>
for the relief of debtors ("Bankruptcy Law") (i) commences a voluntary case or
proceeding, (ii) consents to the entry of an order for relief against it in an
involuntary case or proceeding, (iii) consents to the appointment of a receiver,
trustee or similar official of it or for all or substantially all of its
property, or (iv) makes a general assignment for the benefit of its creditors;
or (b) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (i) is for relief against KEC in an involuntary case or
proceeding, (ii) appoints a receiver, trustee or similar official for KEC or for
all or substantially all of its property, or (iii) orders the liquidation of KEC
and the order or decree remains unstayed and in effect for 90 days.
4.3 Events Relating to Silver and Harting.
--------------------------------------
(a) If at any time the shares of KEC Common Stock owned,
directly and indirectly, by Silver and Harting and any trusts of which they are
trustees and any other entities in which they own, directly or indirectly, in
excess of 50% of the equity interests, in the aggregate shall represent less
than 35% of the then outstanding shares of KEC Common Stock then, and in such
event, this Agreement shall terminate and be of no further force and effect.
(b) Upon the death and/or "disability" (as defined in the
Employment Agreements executed by Silver and KEC, and Harting and KEC,
respectively) of both Silver and Harting this Agreement shall terminate and be
of no further force and effect.
4.4 Sale By Other Shareholder. If an Other Shareholder shall sell or
-------------------------
otherwise transfer his, her or its shares of Common Stock to a person other than
(i) an Other Shareholder (ii) the spouse, ancestor or lineal descendant of an
Other Shareholder (including the transferor Other Shareholder) and (iii) in the
case of an Other Shareholder who is not a natural person, any partner or
shareholder of such Other Shareholder, this Agreement shall terminate
and be of no further force or effect with respect to the shares of Common Stock
so transferred.
4.5 Other Events of Termination.
---------------------------
(a) If the Board of Directors of KEC shall have approved or
recommended acceptance of (i) a tender or exchange offer for voting securities
of KEC or (ii) a merger or consolidation of KEC (each being hereinafter referred
to as an "Approved Transaction"), then and in such event, the Other Shareholders
may tender, exchange, sell or otherwise dispose of any and all of their shares
of KEC Common Stock in the manner provided for in such Approved Transaction.
(b) If immediately after the consummation of an Approved
Transaction, the persons constituting the Board of Directors immediately prior
thereto cease to constitute a majority of the Board of Directors of such
successor corporation as shall have been contemplated by such Approved
Transaction, then, and in such event, this Agreement shall terminate and be of
no further force and effect.
3
<PAGE>
5. Miscellaneous.
--------------
5.1 Notice. Any notice, request, instruction or other document to be
-------
given hereunder by any party to any of the other parties shall be in writing and
shall be deemed to have been duly given when delivered personally or five (5)
days after dispatch by registered or certified mail, postage prepaid, return
receipt requested, to the party to whom the same is so given or made at the
address of such party as set forth on Schedule A annexed hereto and made a part
hereof or to such other address as the one party shall specify to the other
parties in writing.
5.2 Successors and Assigns.
----------------------
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, except that no party may assign or otherwise transfer any of
its rights under this Agreement without the prior written consent of the other
parties hereto.
(b) All of the terms, covenants and agreements contained in
this Agreement are solely for the benefit of the parties hereto, and their
respective successors and assigns, and no other parties (including, without
limitation, any other stockholder or creditor of KEC, or any director, officer
or employee of KEC) are intended to be benefited by, or entitled to enforce,
this Agreement.
5.3 Entire Agreement; Amendment.
---------------------------
(a) This Agreement and the other instruments and agreements
referred to herein embody the entire agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior agreements with
respect thereto.
(b) No failure or delay by any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
(c) Since a breach of certain provisions of this Agreement
could not adequately be compensated by money damages, any party shall be
entitled, in addition to any other right or remedy available to such party, to
an injunction restraining such breach or a threatened breach and to specific
performance of any such provisions of this Agreement, and in either case no bond
or other security shall be required in connection therewith.
5.4 Choice of Law. This Agreement shall be construed in accordance with
-------------
and governed by the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such state.
4
<PAGE>
5.5 No Partnership. No partnership, joint venture or joint undertaking
--------------
is intended to be, or is, formed between any of the parties hereto by reason of
this Agreement or the transactions contemplated herein.
5.6 Counterparts and Headings. This Agreement may be executed in two or
-------------------------
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument. All headings (including,
without limitation, Article headings and Section titles) are inserted for
convenience of reference only and shall not affect its meaning or
interpretation.
5.7 Severability. If and to the extent that any court of competent
------------
jurisdiction holds any provision (or any part thereof) of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
____________________________________
S. LANCE SILVER
____________________________________
STUART N. HARTING
____________________________________
JAMES R. BERGMAN
____________________________________
BRUCE WAUGH
____________________________________
DAVID R. GROMACKI
____________________________________
DIANE THOMSEN
____________________________________
STEVEN M. RABINOVICI
INTEREQUITY CAPITAL PARTNERS, LLP
By: __________________________________
MORSE, ZELNICK, ROSE & LANDER, LLP
By: __________________________________
5
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
KNOW ALL MEN BY THESE PRESENTS that I, ______________________ do hereby
constitute and appoint S. Lance Silver and Stuart N. Harting, jointly or the
survivor of them (the "Appointee"), as my agent to attend any annual or special
meetings of the shareholders of KatManDu Entertainment Corp., a Delaware
corporation (the "Company"), and any continuation or adjournment thereof, and
said Appointee shall have full power to vote all shares of common stock, par
value $.001 per share, of the Company ("Common Stock") which are held by me,
from time to time, including, without limitation, shares of Common Stock,
acquired by me after the date hereof (the "Shares") for me and to act for me and
in my name, place and stead, in the same manner, to the extent, and with all
powers I would possess if personally executing such document or present at such
meeting, giving to said Appointee full power of substitution and revocation. The
Appointee shall by this appointment have all voting and consensual rights and
powers pertaining to the Shares as if he were the record and beneficial owner of
such Shares.
This proxy is given in consideration of the execution by the Company of
an Agreement, dated as of April 1, 1996, by and among the Company and the
Appointee and certain Other Shareholders (as defined therein) which by its terms
is an agreement made pursuant to the provisions of Section 212 of the Delaware
General Corporation Law.
THIS PROXY IS IRREVOCABLE and shall survive until termination of the
agreement, dated as of April 1, 1996, among the undersigned, the appointees and
other shareholders, pursuant to which this Irrevocable Proxy has been granted
as set forth therein.
Dated: ______________________
_______________________________
In Presence of:
_____________________________
Witness
6
<PAGE>
SCHEDULE A
Name and Address Number of Shares
- ---------------- ----------------
S. Lance Silver 659,315
8 Shawnee Court
Medford, New Jersey 08033
Stuart N. Harting 659,315
600 Coles Mill Road
Haddonfield, New Jersey 08033
James R. Bergman 34,620
910 South Delhi Street
Philadelphia, Pennsylvania 19147
Bruce Waugh 34,620
487 Rick Road
Southhampton, Pennsylvania 18966
David R. Gromacki 13,845
15 High Street
Moorestown, New Jersey 08057
Diane Thomsen 3,285
2848 Magee Street
Philadelphia, Pennsylvania 19149
Steve Rabinovici 60,000
48 Country Drive
Plainview, New York 11803
InterEquity Capital Partners, LLP 20,000
220 Fifth Avenue
New York, New York 10001
Morse, Zelnick, Rose & Lander, LLP 40,000
450 Park Avenue - Suite 902
New York, New York 10022
7
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this
____ day of _________, 1996, by and between KATMANDU ENTERTAINMENT CORP., a
Delaware Corporation (the "Company"), and S. LANCE SILVER (the "Executive"). The
Agreement shall become effective as of the date on which the Registration
Statement on Form SB-2 with respect to the Company's initial public offering
shall be deemed effective by the Securities and Exchange Commission (the
"Effective Date").
W I T N E S S E T H:
WHEREAS, the Company believes that it would benefit from the
application of the Executive's particular and unique skill, experience and
background to the management and operation of the Company, and wishes to employ
the Executive as Chief Executive Officer ("CEO") and Co-President of the
Company; and
WHEREAS, the parties desire by this Agreement to set forth the
terms and conditions of the employment relationship between the Company and the
Executive.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants in this Agreement, the Company and the Executive agree as
follows:
1. Employment and Duties. The Company hereby employs the
Executive as CEO and Co-President on the terms and conditions provided in
this Agreement and Executive
-1-
<PAGE>
agrees to accept such employment subject to the terms and conditions of this
Agreement. The Executive shall perform the duties and responsibilities as are
customary for the officer of a corporation in such positions, and shall perform
such other duties and responsibilities as are reasonably determined from time to
time by the Board of Directors of the Company (the "Board"). The Executive shall
be based at the Company's offices in Philadelphia, Pennsylvania or such other
place that shall constitute the Company's headquarters, although he may perform
such duties and responsibilities, consistent with his obligations hereunder,
from any other location, and except for business travel incident to his
employment under this Agreement, the Company agrees the Executive shall not be
required to relocate.
2. Term. The term of this Agreement shall be for three years
(the "Initial Term"), commencing on the Effective Date, and expiring on the day
preceding the third anniversary of the Effective Date (the "Termination Date"),
unless extended by mutual agreement of the parties or earlier terminated in
accordance with the terms of this Agreement.
3. Compensation. As compensation for performing the services
required by this Agreement, and during the term of this Agreement, the Executive
shall be compensated as follows:
(a) Base Compensation. The Company shall pay to the
Executive an annual salary ("Base Compensation") of $150,000, payable in equal
installments pursuant to the Company's customary payroll procedures in effect
for its executive personnel at the time of payment, but in no event less
frequently than monthly, subject to withholding for applicable federal, state,
and local taxes. The Executive shall be entitled to increases in Base
Compensation and bonuses with respect to each fiscal year during the term of
this Agreement, to be determined
-2-
<PAGE>
by the Compensation Committee of the Board based on periodic reviews of the
Executive's performance conducted on at least an annual basis. The Executive's
Base Compensation shall not be reduced during the term of this Agreement.
(b) Incentive Compensation. In addition to Base
Compensation, the Executive shall receive additional compensation ("Incentive
Compensation"). The Incentive Compensation shall be pursuant to short-term
and/or long-term incentive compensation programs which shall be established by
the Compensation Committee of the Board. For purposes of this Agreement, the
Executive's "Pro Rata Share" of Incentive Compensation for any fiscal year of
the Company shall be a fraction whose numerator shall be equal to the number of
months (or parts of months) during which the Executive was actually employed by
the Company during any such fiscal year and whose denominator shall be the total
number of months in such fiscal year.
4. Employee Benefits. During the term of this Agreement and
subject to the limitations set forth in this Section 4, the Executive and his
eligible dependents shall have the right to participate in any retirement plans
(qualified and non-qualified), pension, insurance, health, disability or other
benefit plan or program that has been or is hereafter adopted by the Company (or
in which the Company participates), according to the terms of such plan or
program, on terms no less favorable than the most favorable terms granted to
senior executives of the Company.
5. Vacation and Leaves of Absence. The Executive shall be
entitled to the normal and customary amount of paid vacation provided to senior
executive officers of the Company, but in no event less than 25 days during each
12 month period, beginning on the Effective Date of this Agreement. Any vacation
days that are not taken in a given 12 month period shall not accrue or carry
over from year to year. Upon any termination of this Agreement
-3-
<PAGE>
for any reason whatsoever, accrued and unused vacation for the year in which
this Agreement terminates will be paid to the Executive within 10 days of such
termination based on his annual rate of Base Compensation in effect on the date
of such termination. In addition, the Executive may be granted leaves of absence
with or without pay for such valid and legitimate reasons as the Board in its
sole and absolute discretion may determine, and is entitled to the same sick
leave and holidays provided to other senior executive officers of the Company.
6. Expenses.
(a) Business Expenses. The Executive shall be promptly
reimbursed against presentation of vouchers or receipts for all reasonable and
necessary expenses incurred by him in connection with the performance of
business-related duties.
(b) Automobile Expense. During the term of this Agreement,
in order to facilitate the performance of the Executive's duties hereunder, and
otherwise for the convenience of the Company, the Company shall provide the
Executive with an automobile allowance of $750 per month.
7. Indemnification. The Company shall (and is hereby obligated
to) indemnify (including advance payment of expenses, which such expenses shall
include without limitation attorneys' fees) the Executive in each and every
situation where (i) the Company is obligated to make such indemnification
pursuant to applicable law and the relevant portions of the Company's
Certificate of Incorporation and By-Laws, and (ii) the Company, under applicable
law, is not obligated, but is nevertheless permitted or empowered, to make such
indemnification.
8. Termination and Termination Benefits.
(a) Termination by the Company.
-4-
<PAGE>
(i) With Cause. The Company may terminate this Agreement
prior to its expiration date only with "cause" by action of the Board. For
purposes of this subsection 8(a)(i), "cause" shall mean (1) the continuing
willful failure by the Executive to substantially perform his duties hereunder
for any reason other than total or partial incapacity due to physical or mental
illness, (2) gross negligence or malfeasance on the part of the Executive in the
performance of his duties hereunder, and (3) the conviction of the Executive, by
a court of competent jurisdiction, of a felony. Termination pursuant to this
subsection 8(a)(i) shall be effective immediately upon giving the Executive
written notice thereof and the reason or reasons therefor with respect to
clauses (2) and (3) above, and 15 days after written notice thereof from the
Board to the Executive specifying the acts or omissions constituting the failure
and requesting that they be remedied with respect to clause (1) above, but only
if the Executive has not cured such failure within such 15 day period. In the
event of a termination pursuant to this subsection 8(a)(i), the Executive shall
be entitled to payment of his Base Compensation and the benefits pursuant to
Section 4 hereof up to the effective date of such termination.
(ii) Disability. If due to illness, physical or mental
disability, or other incapacity, the Executive shall fail, for a total of any
six consecutive months ("Disability"), to substantially perform the principal
duties required by this Agreement, the Company may terminate this Agreement upon
30 days' written notice to the Executive. In such event, the Executive shall be
(A) paid his Base Compensation until the Termination Date and his Pro Rata Share
of any Incentive Compensation payable to him for the year in which the
termination occurs, and (B) provided with employee benefits pursuant to Section
4, to the extent available, until the Termination Date; provided, however, that
any compensation to be paid to the Executive
-5-
<PAGE>
pursuant to this subsection 8(a)(ii) shall be offset against any payments
received by the Executive pursuant to any policy of disability insurance the
premiums of which are paid for by the Company.
(b) Termination by the Executive. The Executive may
terminate this Agreement for "good reason" upon 30 days' written notice to the
Company (during which period the Executive shall, if requested in writing by the
Company, continue to perform his duties as specified under this Agreement). For
purposes of this Agreement, if the Executive's employment is terminated by the
Company without cause (as such term is defined in subsection 8(a)(i) above) it
shall be deemed as though the Executive terminated this Agreement for "good
reason" under this subsection 8(b). In such event, the Executive shall be paid
his Base Compensation up to the effective date of such termination and his full
share of any Incentive Compensation payable to him for the year in which the
termination occurs. For purposes of the Executive's termination of this
Agreement for "good reason" under this subsection 8(b), "good reason" includes
without limitation (A) the Company's failure to make any of the payments or
provide any of the benefits to the Executive under this Agreement, and (B) the
Company's material breach of any provision of this Agreement. In addition, it
shall, at the option of the Executive, be deemed as though the Executive
terminated this Agreement for "good reason" pursuant to this subsection 8(b) in
the event that Stuart N. Harting, the Company's Co-President, terminates his
Employment Agreement with the Company for "good reason" pursuant to subsection
8(b) of such Employment Agreement.
(c) Additional Termination Compensation. In the event of a
termination of this Agreement pursuant to subsection 8(b) above, the Company, in
addition to paying the Executive his Base Compensation and Incentive
Compensation as hereinabove
-6-
<PAGE>
provided, shall make the following payment (hereinafter "Termination
Compensation") to the Executive: a lump sum payment equal to the lesser of (A)
24 months' Base Compensation, or (B) the Base Compensation that the Executive
would have received during the remaining portion of the Initial Term, if any.
Payment of Termination Compensation to the Executive shall occur no later than
14 days following the effective date of the Executive's termination.
(d) Death Benefit. Notwithstanding any other provision of
this Agreement, this Agreement shall terminate on the date of the Executive's
death. In such event the Executive's estate shall be paid his Base Compensation
for the remainder of the month in which such termination occurs and his Pro Rata
Share of any Incentive Compensation payable to him for the year in which such
termination occurs.
(e) No Mitigation. The Executive shall not be required to
mitigate the amount of any payments provided for by this Agreement by seeking
employment or otherwise, nor shall the amount of any payment or benefit provided
in this Agreement be reduced by any compensation or benefit earned by the
Executive after termination of his employment.
9. Company Property. All food and beverage preparation,
menu-related, advertising, promotional, sales, suppliers', manufacturers' and
other materials or articles or information, including without limitation data
processing reports, customer sales analyses, invoices, price lists or
information, samples, or any other materials or data of any kind furnished to
the Executive by the Company or developed by the Executive on behalf of the
Company or at the Company's direction or for the Company's use or otherwise in
connection with the Executive's employment hereunder, are and shall remain the
sole and confidential property of the Company; if
-7-
<PAGE>
the Company requests the return of such materials at any time during or at or
after the termination of the Executive's employment, the Executive shall
immediately deliver the same to the Company.
10. Covenant Not To Compete.
(a) No Solicitation or Competition. During the
effectiveness of this Agreement and for a period of one year after termination
of the Executive's employment with the Company for any reason other than
termination by the Company without cause or termination by the Executive for
good reason, the Executive shall not, directly or indirectly, solicit, induce,
encourage or attempt to influence any client, customer, employee, consultant,
independent contractor, salesman or supplier of the Company to cease to do
business or terminate his employment with the Company, and shall not engage in
(as a principal, partner, director, officer, agent, employee, consultant or
otherwise) or be financially interested in any business operating anywhere
within a 50 mile radius of any of the Company's restaurant, bar and night-club
units which is involved in business activities which are in competition with the
business activities carried on by the Company, or being definitively planned by
the Company, at the time of the termination of Executive's employment. However,
nothing contained in this Section 10 shall prevent the Executive from holding
for investment no more than five percent (5%) of any class of equity securities
of a company whose securities are publicly traded or from engaging in any real
estate-related activities that are not in competition with the business
activities of the Company.
(b) Confidentiality of Company Property. During the
effectiveness of this Agreement and at all times thereafter, the Executive shall
not use for his personal benefit, or disclose, communicate or divulge to, or use
for the direct or indirect benefit of any person, firm, association or company
other than the Company, any material referred to in Section 9 above.
-8-
<PAGE>
(c) Saving Clause. If the period of time or the area
specified in subsection (a) above should be adjudged unreasonable in any
proceeding, then the period of time shall be reduced by such number of months or
the area shall be reduced by the elimination of such portion thereof or both so
that such restrictions may be enforced in such area and for such time as is
adjudged to be reasonable. If the Executive violates any of the restrictions
contained in the foregoing subsection (a), the restrictive period shall not run
in favor of the Executive from the time of the commencement of any such
violation until such time as such violation shall be cured by the Executive to
the satisfaction of Company.
11. Miscellaneous.
(a) Integration; Amendment. This Agreement constitutes
the entire agreement between the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior
understandings and agreements between the parties with respect to the matters
set forth herein. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties.
(b) Severability. If any part of this Agreement is
contrary to, prohibited by, or deemed invalid under applicable law or
regulations, such provision shall be inapplicable and deemed omitted to the
extent so contrary, prohibited, or invalid, but the remainder of this Agreement
shall not be invalid and shall be given full force and effect so far as
possible.
(c) Waivers. The failure or delay of any party at any
time to require performance by the other party of any provision of this
Agreement, even if known, shall not affect the right of such party to require
performance of that provision or to exercise any right, power, or remedy
hereunder, and any waiver by any party of any breach of any provision of this
Agreement shall not be construed as a waiver of any continuing or succeeding
breach of such provision, a waiver of the provision itself, or a waiver of any
right, power, or
-9-
<PAGE>
remedy under this Agreement. No notice to or demand on any party in any case
shall, of itself, entitle such party to the other or further notice or demand in
similar or other circumstances.
(d) Power and Authority. The Company represents and
warrants to the Executive that it has the requisite corporate power, to enter
into this Agreement and perform the terms hereof; and that the execution,
delivery and performance of this Agreement by it has been duly authorized by all
appropriate corporate action; and this Agreement represents the valid and
legally binding obligation of the Company and is enforceable against it in
accordance with its terms.
(e) Burden and Benefit; Survival. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, personal and legal representatives, successors and
assigns. In addition to, and not in limitation of anything contained in this
Agreement, it is expressly understood and agreed that the Company's obligation
to pay Termination Compensation as set forth herein shall survive any
termination of this Agreement.
(f) Governing Law; Headings. This Agreement and its
construction, performance, and enforceability shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania.
Headings and titles herein are included solely for convenience and shall not
affect, or be used in connection with, the interpretation of this Agreement.
-10-
<PAGE>
(g) Notices. All notices called for under this Agreement
shall be in writing and shall be deemed given upon receipt if delivered
personally or by facsimile transmission and followed promptly by mail, or mailed
by registered or certified mail (return receipt requested), postage prepaid, to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of a change of address
shall be effective only upon receipt thereof):
If to the Executive:
S. Lance Silver
8 Shawnee Court
Medford, New Jersey 08055
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<PAGE>
with a copy to:
S. Lance Silver, Esquire
Wolf, Block, Schorr and Solis-Cohen
Twelfth Floor, Packard Building
Philadelphia, Pennsylvania 19102-2678
If to the Company:
Katmandu Entertainment Corp.
417 North Columbus Boulevard
Philadelphia, Pennsylvania 19123
Attention: Board of Directors
with a copy to:
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attention: Howard Morse, Esquire
or to any other address or addressee as any party entitled to receive notice
under this Agreement shall designate, from time to time, to others in the manner
provided in this subsection 11(g) for the service of Notices.
Any notice delivered to the party hereto to whom it is
addressed shall be deemed to have been given and received on the day it was
received; provided, however, that if such day is not a business day then the
notice shall be deemed to have been given and received on the business day next
following such day. Any notice sent by facsimile transmission shall be deemed to
have been given and received on the business day next following the day of
transmission.
(h) Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which
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<PAGE>
federal banks are or may elect to be closed, then the final day shall be deemed
to be the next day which is not a Saturday, Sunday or such holiday.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
ATTEST: KATMANDU ENTERTAINMENT CORP.
______________________ By: _____________________________
Name:
Title:
______________________ _________________________________
S. Lance Silver
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<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this
____ day of _________, 1996, by and between KATMANDU ENTERTAINMENT CORP., a
Delaware Corporation (the "Company"), and STUART N. HARTING (the "Executive").
The Agreement shall become effective as of the date on which the Registration
Statement on Form SB-2 with respect to the Company's initial public offering
shall be deemed effective by the Securities and Exchange Commission (the
"Effective Date").
W I T N E S S E T H:
WHEREAS, the Company believes that it would benefit from the
application of the Executive's particular and unique skill, experience and
background to the management and operation of the Company, and wishes to employ
the Executive as Co-President of the Company; and
WHEREAS, the parties desire by this Agreement to set forth the
terms and conditions of the employment relationship between the Company and the
Executive.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants in this Agreement, the Company and the Executive agree as
follows:
1. Employment and Duties. The Company hereby employs the
Executive as Co-President on the terms and conditions provided in this
Agreement and
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Executive agrees to accept such employment subject to the terms and conditions
of this Agreement. The Executive shall perform the duties and responsibilities
as are customary for the officer of a corporation in such position, and shall
perform such other duties and responsibilities as are reasonably determined from
time to time by the Board of Directors of the Company (the "Board"). The
Executive shall be based at the Company's offices in Philadelphia, Pennsylvania
or such other place that shall constitute the Company's headquarters, although
he may perform such duties and responsibilities, consistent with his obligations
hereunder, from any other location, and except for business travel incident to
his employment under this Agreement, the Company agrees the Executive shall not
be required to relocate.
2. Term. The term of this Agreement shall be for three years
(the "Initial Term"), commencing on the Effective Date, and expiring on the day
preceding the third anniversary of the Effective Date (the "Termination Date"),
unless extended by mutual agreement of the parties or earlier terminated in
accordance with the terms of this Agreement.
3. Compensation. As compensation for performing the services
required by this Agreement, and during the term of this Agreement, the Executive
shall be compensated as follows:
(a) Base Compensation. The Company shall pay to the
Executive an annual salary ("Base Compensation") of $150,000, payable in equal
installments pursuant to the Company's customary payroll procedures in effect
for its executive personnel at the time of payment, but in no event less
frequently than monthly, subject to withholding for applicable federal, state,
and local taxes. The Executive shall be entitled to increases in Base
Compensation and bonuses with respect to each fiscal year during the term of
this Agreement, to be determined
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by the Compensation Committee of the Board based on periodic reviews of the
Executive's performance conducted on at least an annual basis. The Executive's
Base Compensation shall not be reduced during the term of this Agreement.
(b) Incentive Compensation. In addition to Base
Compensation, the Executive shall receive additional compensation ("Incentive
Compensation"). The Incentive Compensation shall be pursuant to short-term
and/or long-term incentive compensation programs which shall be established by
the Compensation Committee of the Board. For purposes of this Agreement, the
Executive's "Pro Rata Share" of Incentive Compensation for any fiscal year of
the Company shall be a fraction whose numerator shall be equal to the number of
months (or parts of months) during which the Executive was actually employed by
the Company during any such fiscal year and whose denominator shall be the total
number of months in such fiscal year.
4. Employee Benefits. During the term of this Agreement and
subject to the limitations set forth in this Section 4, the Executive and his
eligible dependents shall have the right to participate in any retirement plans
(qualified and non-qualified), pension, insurance, health, disability or other
benefit plan or program that has been or is hereafter adopted by the Company (or
in which the Company participates), according to the terms of such plan or
program, on terms no less favorable than the most favorable terms granted to
senior executives of the Company.
5. Vacation and Leaves of Absence. The Executive shall be
entitled to the normal and customary amount of paid vacation provided to senior
executive officers of the Company, but in no event less than 25 days during each
12 month period, beginning on the Effective Date of this Agreement. Any vacation
days that are not taken in a given 12 month period shall not accrue or carry
over from year to year. Upon any termination of this Agreement
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<PAGE>
for any reason whatsoever, accrued and unused vacation for the year in which
this Agreement terminates will be paid to the Executive within 10 days of such
termination based on his annual rate of Base Compensation in effect on the date
of such termination. In addition, the Executive may be granted leaves of absence
with or without pay for such valid and legitimate reasons as the Board in its
sole and absolute discretion may determine, and is entitled to the same sick
leave and holidays provided to other senior executive officers of the Company.
6. Expenses.
(a) Business Expenses. The Executive shall be promptly
reimbursed against presentation of vouchers or receipts for all reasonable and
necessary expenses incurred by him in connection with the performance of
business-related duties.
(b) Automobile Expense. During the term of this Agreement,
in order to facilitate the performance of the Executive's duties hereunder, and
otherwise for the convenience of the Company, the Company shall provide the
Executive with an automobile allowance of $750 per month.
7. Indemnification. The Company shall (and is hereby obligated
to) indemnify (including advance payment of expenses, which such expenses shall
include without limitation attorneys' fees) the Executive in each and every
situation where (i) the Company is obligated to make such indemnification
pursuant to applicable law and the relevant portions of the Company's
Certificate of Incorporation and By-Laws, and (ii) the Company, under applicable
law, is not obligated, but is nevertheless permitted or empowered, to make such
indemnification.
8. Termination and Termination Benefits.
(a) Termination by the Company.
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(i) With Cause. The Company may terminate this Agreement
prior to its expiration date only with "cause" by action of the Board. For
purposes of this subsection 8(a)(i), "cause" shall mean (1) the continuing
willful failure by the Executive to substantially perform his duties hereunder
for any reason other than total or partial incapacity due to physical or mental
illness, (2) gross negligence or malfeasance on the part of the Executive in the
performance of his duties hereunder, and (3) the conviction of the Executive, by
a court of competent jurisdiction, of a felony. Termination pursuant to this
subsection 8(a)(i) shall be effective immediately upon giving the Executive
written notice thereof and the reason or reasons therefor with respect to
clauses (2) and (3) above, and 15 days after written notice thereof from the
Board to the Executive specifying the acts or omissions constituting the failure
and requesting that they be remedied with respect to clause (1) above, but only
if the Executive has not cured such failure within such 15 day period. In the
event of a termination pursuant to this subsection 8(a)(i), the Executive shall
be entitled to payment of his Base Compensation and the benefits pursuant to
Section 4 hereof up to the effective date of such termination.
(ii) Disability. If due to illness, physical or mental
disability, or other incapacity, the Executive shall fail, for a total of any
six consecutive months ("Disability"), to substantially perform the principal
duties required by this Agreement, the Company may terminate this Agreement upon
30 days' written notice to the Executive. In such event, the Executive shall be
(A) paid his Base Compensation until the Termination Date and his Pro Rata Share
of any Incentive Compensation payable to him for the year in which the
termination occurs, and (B) provided with employee benefits pursuant to Section
4, to the extent available, until the Termination Date; provided, however, that
any compensation to be paid to the Executive
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<PAGE>
pursuant to this subsection 8(a)(ii) shall be offset against any payments
received by the Executive pursuant to any policy of disability insurance the
premiums of which are paid for by the Company.
(b) Termination by the Executive. The Executive may
terminate this Agreement for "good reason" upon 30 days' written notice to the
Company (during which period the Executive shall, if requested in writing by the
Company, continue to perform his duties as specified under this Agreement). For
purposes of this Agreement, if the Executive's employment is terminated by the
Company without cause (as such term is defined in subsection 8(a)(i) above) it
shall be deemed as though the Executive terminated this Agreement for "good
reason" under this subsection 8(b). In such event, the Executive shall be paid
his Base Compensation up to the effective date of such termination and his full
share of any Incentive Compensation payable to him for the year in which the
termination occurs. For purposes of the Executive's termination of this
Agreement for "good reason" under this subsection 8(b), "good reason" includes
without limitation (A) the Company's failure to make any of the payments or
provide any of the benefits to the Executive under this Agreement, and (B) the
Company's material breach of any provision of this Agreement. In addition, it
shall, at the option of the Executive, be deemed as though the Executive
terminated this Agreement for "good reason" pursuant to this subsection 8(b) in
the event that S. Lance Silver, the Company's CEO and Co-President,
terminates his Employment Agreement with the Company for "good reason" pursuant
to subsection 8(b) of such Employment Agreement.
(c) Additional Termination Compensation. In the event of
a termination of this Agreement pursuant to subsection 8(b) above, the Company,
in addition to paying the Executive his Base Compensation and Incentive
Compensation as hereinabove
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provided, shall make the following payment (hereinafter "Termination
Compensation") to the Executive: a lump sum payment equal to the lesser of (A)
24 months' Base Compensation, or (B) the Base Compensation that the Executive
would have received during the remaining portion of the Initial Term, if any.
Payment of Termination Compensation to the Executive shall occur no later than
14 days following the effective date of the Executive's termination.
(d) Death Benefit. Notwithstanding any other provision
of this Agreement, this Agreement shall terminate on the date of the Executive's
death. In such event the Executive's estate shall be paid his Base Compensation
for the remainder of the month in which such termination occurs and his Pro Rata
Share of any Incentive Compensation payable to him for the year in which such
termination occurs.
(e) No Mitigation. The Executive shall not be required
to mitigate the amount of any payments provided for by this Agreement by seeking
employment or otherwise, nor shall the amount of any payment or benefit provided
in this Agreement be reduced by any compensation or benefit earned by the
Executive after termination of his employment.
9. Company Property. All food and beverage preparation,
menu-related, advertising, promotional, sales, suppliers', manufacturers' and
other materials or articles or information, including without limitation data
processing reports, customer sales analyses, invoices, price lists or
information, samples, or any other materials or data of any kind furnished to
the Executive by the Company or developed by the Executive on behalf of the
Company or at the Company's direction or for the Company's use or otherwise in
connection with the Executive's employment hereunder, are and shall remain the
sole and confidential property of the Company; if
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<PAGE>
the Company requests the return of such materials at any time during or at or
after the termination of the Executive's employment, the Executive shall
immediately deliver the same to the Company.
10. Covenant Not To Compete.
(a) No Solicitation or Competition. During the
effectiveness of this Agreement and for a period of one year after termination
of the Executive's employment with the Company for any reason other than
termination by the Company without cause or termination by the Executive for
good reason, the Executive shall not, directly or indirectly, solicit, induce,
encourage or attempt to influence any client, customer, employee, consultant,
independent contractor, salesman or supplier of the Company to cease to do
business or terminate his employment with the Company, and shall not engage in
(as a principal, partner, director, officer, agent, employee, consultant or
otherwise) or be financially interested in any business operating anywhere
within a 50 mile radius of any of the Company's restaurant, bar and night-club
units which is involved in business activities which are in competition with the
business activities carried on by the Company, or being definitively planned by
the Company, at the time of the termination of Executive's employment. However,
nothing contained in this Section 10 shall prevent the Executive from holding
for investment no more than five percent (5%) of any class of equity securities
of a company whose securities are publicly traded or from engaging in any real
estate-related activities that are not in competition with the business
activities of the Company.
(b) Confidentiality of Company Property. During the
effectiveness of this Agreement and at all times thereafter, the Executive shall
not use for his personal benefit, or disclose, communicate or divulge to, or use
for the direct or indirect benefit of any person, firm, association or company
other than the Company, any material referred to in Section 9 above.
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<PAGE>
(c) Saving Clause. If the period of time or the area
specified in subsection (a) above should be adjudged unreasonable in any
proceeding, then the period of time shall be reduced by such number of months or
the area shall be reduced by the elimination of such portion thereof or both so
that such restrictions may be enforced in such area and for such time as is
adjudged to be reasonable. If the Executive violates any of the restrictions
contained in the foregoing subsection (a), the restrictive period shall not run
in favor of the Executive from the time of the commencement of any such
violation until such time as such violation shall be cured by the Executive to
the satisfaction of Company.
11. Miscellaneous.
(a) Integration; Amendment. This Agreement constitutes
the entire agreement between the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior
understandings and agreements between the parties with respect to the matters
set forth herein. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties.
(b) Severability. If any part of this Agreement is
contrary to, prohibited by, or deemed invalid under applicable law or
regulations, such provision shall be inapplicable and deemed omitted to the
extent so contrary, prohibited, or invalid, but the remainder of this Agreement
shall not be invalid and shall be given full force and effect so far as
possible.
(c) Waivers. The failure or delay of any party at any
time to require performance by the other party of any provision of this
Agreement, even if known, shall not affect the right of such party to require
performance of that provision or to exercise any right, power, or
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<PAGE>
remedy hereunder, and any waiver by any party of any breach of any provision of
this Agreement shall not be construed as a waiver of any continuing or
succeeding breach of such provision, a waiver of the provision itself, or a
waiver of any right, power, or remedy under this Agreement. No notice to or
demand on any party in any case shall, of itself, entitle such party to the
other or further notice or demand in similar or other circumstances.
(d) Power and Authority. The Company represents and
warrants to the Executive that it has the requisite corporate power, to enter
into this Agreement and perform the terms hereof; and that the execution,
delivery and performance of this Agreement by it has been duly authorized by all
appropriate corporate action; and this Agreement represents the valid and
legally binding obligation of the Company and is enforceable against it in
accordance with its terms.
(e) Burden and Benefit; Survival. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, personal and legal representatives, successors and
assigns. In addition to, and not in limitation of anything contained in this
Agreement, it is expressly understood and agreed that the Company's obligation
to pay Termination Compensation as set forth herein shall survive any
termination of this Agreement.
(f) Governing Law; Headings. This Agreement and its
construction, performance, and enforceability shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania.
Headings and titles herein are included solely for convenience and shall not
affect, or be used in connection with, the interpretation of this Agreement.
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(g) Notices. All notices called for under this Agreement
shall be in writing and shall be deemed given upon receipt if delivered
personally or by facsimile transmission and followed promptly by mail, or mailed
by registered or .ertified mail (return receipt requested), postage prepaid, to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of a change of address
shall be effective only upon receipt thereof):
If to the Executive:
Stuart N. Harting
600 Coles Mill Road
Haddonfield, New Jersey 08033
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<PAGE>
with a copy to:
S. Lance Silver, Esquire
Wolf, Block, Schorr and Solis-Cohen
Twelfth Floor, Packard Building
Philadelphia, Pennsylvania 19102-2678
If to the Company:
Katmandu Entertainment Corp.
417 North Columbus Boulevard
Philadelphia, Pennsylvania 19123
Attention: Board of Directors
with a copy to:
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attention: Howard Morse, Esquire
or to any other address or addressee as any party entitled to receive notice
under this Agreement shall designate, from time to time, to others in the manner
provided in this subsection 11(g) for the service of Notices.
Any notice delivered to the party hereto to whom it is
addressed shall be deemed to have been given and received on the day it was
received; provided, however, that if such day is not a business day then the
notice shall be deemed to have been given and received on the business day next
following such day. Any notice sent by facsimile transmission shall be deemed to
have been given and received on the business day next following the day of
transmission.
(h) Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which
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federal banks are or may elect to be closed, then the final day shall be deemed
to be the next day which is not a Saturday, Sunday or such holiday.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
ATTEST: KATMANDU ENTERTAINMENT CORP.
______________________ By: _____________________________
Name:
Title:
______________________ ________________________________
Stuart N. Harting
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OH&S DRAFT
- --------------------------------------------------------------------------------
KATMANDU ENTERTAINMENT CORP.
AND
NATIONAL SECURITIES CORPORATION
----------
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of ________, 1996
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______, 1996
between KATMANDU ENTERTAINMENT CORP., a Delaware corporation (the "Company"),
and NATIONAL SECURITIES CORPORATION (hereinafter referred to variously as a
"Holder" or the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative
warrants ("Warrants") to purchase up to an aggregate of 250,000 shares of Common
Stock, $0.001 par value, of the Company and/or 250,000 redeemable common stock
purchase warrants of the Company ("Redeemable Warrants"), each Redeemable
Warrant to purchase one additional share of Common Stock; and
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Company and the several Underwriters listed therein to act as
the Representative in connection with the Company's proposed public offering of
up to 2,500,000 shares of Common Stock and 2,500,000 Redeemable Warrants (the
"Public Warrants") at a public offering price of $____ per share of Common Stock
and $___ per Public Warrant (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the Representative
acting as the Representative pursuant to the Underwriting Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of an aggregate sixteen dollars ($16.00),
the agreements herein set forth and other good and valuable consideration,
hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Representative (or its designees) is hereby
granted the right to purchase, at any time from _______, 199_, until 5:30 p.m.,
New York time, on _______, 200_, up to an aggregate of 250,000 shares of Common
Stock and/or 250,000 Redeemable Warrants at an initial exercise price (subject
to adjustment as provided in Section 8 hereof) of $____ per share of Common
Stock and $____ per Redeemable Warrant, subject to the terms and conditions of
this Agreement. One Redeemable Warrant is exercisable to purchase one additional
share of Common Stock at an initial exercise price of $_____ from _______, 199_
until 5:30 p.m. New York time on _______, 200_, at which time the Redeemable
Warrants shall expire. Except as set forth herein, the shares of Common Stock
and the Redeemable Warrants issuable upon exercise of the Warrants are in all
respects identical to the shares of Common Stock and the Public Warrants being
purchased by the Underwriters for resale to the public pursuant to the terms and
provisions of the Underwriting Agreement. The shares of Common Stock and the
Redeemable Warrants issuable upon exercise of the Warrants are sometimes
hereinafter referred to collectively as the "Securities."
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
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3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially are
exercisable at an aggregate initial exercise price (subject to adjustment as
provided in Section 8 hereof) per share of Common Stock and Redeemable Warrant
set forth in Section 6 hereof payable by certified or official bank check in New
York Clearing House funds, subject to adjustment as provided in Section 8
hereof. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise Price
(as hereinafter defined) for the shares of Common Stock and/or Redeemable
Warrants purchased at the Company's principal executive offices in Philadelphia,
Pennsylvania (presently located at 415 N. Columbus Blvd., Philadelphia,
Pennsylvania 19123) the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
shares of Common Stock so purchased and a certificate or certificates for the
Redeemable Warrants so purchased. The purchase rights represented by each
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock and
Redeemable Warrants underlying the Warrants). In the event the Company redeems
all of the Public Warrants (other than the Redeemable Warrants underlying the
Warrants), then the Warrants may only be exercised if such exercise is
accompanied by the simultaneous exercise of the Redeemable Warrant(s) underlying
the Warrants being so exercised. Warrants may be exercised to purchase all or
part of the shares of Common Stock together with an equal or unequal number of
the Redeemable Warrants represented thereby. In the case of the purchase of less
than all the shares of Common Stock and/or Redeemable Warrants purchasable under
any Warrant Certificate, the Company shall cancel said Warrant Certificate upon
the surrender
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thereof and shall execute and deliver a new Warrant Certificate of like tenor
for the balance of the shares of Common Stock and/or Redeemable Warrants
purchasable thereunder.
Section 3.2 Exercise by Surrender of Warrant. In addition to
the method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of shares of Common Stock equal to the quotient derived
from dividing the numerator (x) an amount equal to the difference between (A)
the sum of (1) the number of shares of Common Stock as to which the Warrants are
being exercised multiplied by the per share Market Price (as defined in Section
3.3 below), and (2) the number of Redeemable Warrants as to which the Warrants
are being exercised multiplied by the per Redeemable Warrant Market Price, and
(3) the number of shares of Common Stock issuable upon exercise of the
Redeemable Warrants underlying the Warrants being exercised multiplied by the
per share Market Price, and (B) the sum of (1) the number of Warrants which are
being exercised multiplied by the Exercise Price and (2) the number of
Redeemable Warrants included in the Warrants which are being exercised
multiplied by the exercise price per Redeemable Warrant (as calculated pursuant
to the Redeemable Warrant Agreement (hereinafter defined)) as then in effect, by
the denominator (y) the per share Market Price of the Common Stock. Solely for
the purposes of this paragraph, Market Price shall be calculated either (i) on
the date on which the form of election attached hereto is deemed to have been
sent to the Company pursuant to Section 14 hereof ("Notice Date") or (ii) as the
average of the Market Prices for each of the five trading days preceding the
Notice Date, whichever of (i) or (ii) is greater.
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Section 3.3 Definition of Market Price. [To Come]
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<PAGE>
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and/or
Redeemable Warrants and/or other securities, properties or rights underlying
such Warrants and, upon the exercise of the Redeemable Warrants, the issuance of
certificates for shares of Common Stock and/or other securities, properties or
rights underlying such Redeemable Warrants shall be made forthwith (and in any
event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock and the Redeemable Warrants underlying the Warrants and
the shares of Common Stock underlying the Redeemable Warrants (and/or other
securities, properties or rights issuable upon the exercise of the Warrants or
the Redeemable Warrants) shall be executed on behalf of the Company by the
manual or facsimile signature of the then Chairman or Vice Chairman of the Board
of Directors or President or Vice President of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer. Certificates representing the
shares of Common Stock and Redeemable
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<PAGE>
Warrants, and the shares of Common Stock underlying each Redeemable Warrant
(and/or other securities, properties or rights issuable upon exercise of the
Warrants) shall be dated as of the Notice Date (regardless of when executed or
delivered) and dividend bearing securities so issued shall accrue dividends from
the Notice Date.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers of the Representative.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $____ per share of Common Stock and $____ per Redeemable
Warrant. The adjusted exercise price shall be the price which shall result from
time to time from any and all adjustments of the initial exercise price in
accordance with the provisions of Section 8 hereof. Any transfer of a Warrant
shall constitute an automatic transfer and assignment of the registration rights
set forth in Section 7 hereof with respect to the Securities or other
securities, properties or rights underlying the Warrants.
Section 6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context or unless otherwise specified.
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7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The
Warrants, the shares of Common Stock and Redeemable Warrants issuable upon
exercise of the Warrants, the shares of Common Stock issuable upon exercise of
the Redeemable Warrants issuable upon exercise of the Warrants and any of the
other securities issuable upon exercise of the Warrants (collectively, the
"Warrant Securities") have been registered under the Securities Act of 1933, as
amended (the "Act"), pursuant to the Company's Registration Statement on Form
SB-2 (Registration No. 333- _______, or any post-effective or other available
form registration statement) (the "Registration Statement"). All of the
representations and warranties of the Company contained in the Underwriting
Agreement relating to the Registration Statement, the Preliminary Prospectus and
Prospectus (as such terms are defined in the Underwriting Agreement) and made as
of the dates provided therein, are incorporated by reference herein. The Company
agrees and covenants promptly to file post-effective amendments to such
Registration Statement as may be necessary in order to maintain its
effectiveness and otherwise to take such action as may be necessary to maintain
the effectiveness of the Registration Statement as long as any Warrants are
outstanding. In the event that, for any reason whatsoever, the Company shall
fail to maintain the effectiveness of the Registration Statement, the
certificates representing the Warrant Securities shall bear the following
legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an
exemption from registration under such Act is available.
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Section 7.2 Piggyback Registration. If, at any time commencing
after the date hereof and expiring seven (7) years thereafter, the Company
proposes to register any of its securities under the Act (other than pursuant to
Form S-4, Form S-8 or a comparable registration statement) it will give written
notice by registered mail, at least thirty (30) days prior to the filing of each
such registration statement, to the Representative and to all other Holders of
the Warrants and/or the Warrant Securities of its intention to do so. If the
Representative or other Holders of the Warrants and/or Warrant Securities notify
the Company within twenty (20) business days after receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford the Representative and such Holders of the
Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration
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statement and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the Company and counsel for the
Representative and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holders and any other Holders
of the Warrants and/or Warrant Securities who notify the Company within ten (10)
days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Intentionally omitted.
(d) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company may, at its option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities requesting such registration, repurchase (i) any and all
Warrant Securities of such Holders at the higher of the Market Price per share
of Common Stock and per Redeemable Warrant on (x) the date of the notice sent
pursuant to Section 7.3(a) or (y) the expiration of the period specified in
Section 7.4(a) and (ii) any and all Warrants of such Holders at such Market
Price less the Exercise Price of such Warrant. Such repurchase shall be in
immediately available funds and shall close within five (5) business days after
the later
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of (i) the expiration of the period specified in Section 7.4(a) or (ii) the
delivery of the written notice of election specified in this Section 7.3(d).
Section 7.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Section 7.2 or 7.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within forty-five (45) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Warrant Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 7.2 and 7.3 hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders
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within the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from such registration statement but only to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to indemnify
each of the Underwriters contained in Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3
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hereof, or permit any other registration statement to be or remain effective
during the effectiveness of a registration statement filed pursuant to Section
7.3 hereof, without the prior written consent of the Holders of the Warrants and
Warrant Securities representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
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(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriters, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder or underwriter shall reasonably request.
(k) In connection with a demand registration pursuant to
Section 7.3 hereof, the Company shall enter into an underwriting agreement with
the managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested to be included in such
underwriting, which may be the Representative. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriter(s), and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter(s). The Holders shall be parties
to any underwriting agreement relating to an underwritten sale of their Warrant
Securities and may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of such underwriter(s) shall also be made to and for the benefit of such
Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with
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the Company or the underwriter(s) except as they may relate to such Holders and
their intended methods of distribution.
(l) [Intentionally omitted.]
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean in excess
of fifty percent (50%) of the then outstanding Warrants or Warrant Securities
that (i) are not held by the Company, an affiliate, officer, creditor, employee
or agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith and (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
Section 8.2 Stock Dividends and Distributions. In case the
Company shall pay a dividend in, or make a distribution of, shares of Common
Stock or of the Company's capital stock convertible into Common Stock, the
Exercise Price shall forthwith be proportionately decreased. An adjustment made
pursuant to this Section 8.2 shall be made as of the record date for the subject
stock dividend or distribution.
Section 8.3 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Warrant Securities issuable upon the exercise at the adjusted
exercise price of each Warrant shall be adjusted to
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the nearest full amount by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Securities
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
Section 8.4 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Certificate of Incorporation of the Company as
may be amended as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value.
Section 8.5 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holder a supplemental warrant agreement providing
that the holder of each Warrant then outstanding or to be outstanding shall have
the right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of securities of the Company for which such Warrant might
have been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 8. The above
provision of this subsection shall similarly apply to successive consolidations
or mergers.
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Section 8.6 No Adjustment of Exercise Price in Certain
Cases. No adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the
Warrant Securities issuable upon the exercise of the Warrants;
(b) If the amount of said adjustment shall be less
than two cents (2(cent)) per Warrant Security, provided,
however, that in such case any adjustment that would otherwise
be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2(cent)) per
Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
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10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock or Redeemable Warrants upon the exercise of the Warrants, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
or Redeemable Warrants or other securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and payment
of the Exercise Price therefor, all shares of Common Stock, Redeemable Warrants
and other securities issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any stockholder. The Company further covenants and agrees that upon exercise of
the Redeemable Warrants underlying the Warrants and payment of the respective
Redeemable Warrant exercise price therefor, all shares of Common Stock and other
securities issuable upon such exercises shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants and Redeemable Warrants and all Redeemable Warrants underlying
the Warrants to be listed (subject to official notice of issuance) on all
securities exchanges on which the Common Stock
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or the Public Warrants issued to the public in connection herewith may then be
listed and/or quoted on AMEX or NSM.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them
to receive a dividend or distribution payable otherwise than
in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings or capital surplus
(in accordance with applicable law), as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for
shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the
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transfer books for the determination of the stockholders entitled to such
dividend, distribution, convertible or exchangeable securities or subscription
rights, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in connection
with the declaration or payment of any such dividend, or the issuance of any
convertible or exchangeable securities, or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. Redeemable Warrants.
The form of the certificate representing Redeemable Warrants
(and the form of election to purchase shares of Common Stock upon the exercise
of Redeemable Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in Exhibit "A" to the Warrant
Agreement dated as of the date hereof by and among the Company, the
Representative and Continental Stock Transfer & Trust Company, as warrant agent
(the "Redeemable Warrant Agreement"). Each Redeemable Warrant issuable upon
exercise of the Warrants shall evidence the right to initially purchase a fully
paid and non-assessable share of Common Stock at an initial purchase price of
$_____ from _______, 199_ until 5:30 p.m. New York time on _______, 200_ at
which time the Redeemable Warrants, unless the exercise period has been
extended, shall expire. The exercise price of the Redeemable Warrants and the
number of shares of Common Stock issuable upon the exercise of the Redeemable
Warrants are subject to adjustment, whether or not the Warrants have been
exercised and the Redeemable Warrants have been issued, in the manner and upon
the occurrence of the events set forth in Section 8 of the Redeemable Warrant
Agreement, which is hereby incorporated
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herein by reference and made a part hereof as if set forth in its entirety
herein. Subject to the provisions of this Agreement and upon issuance of the
Redeemable Warrants underlying the Warrants, each registered holder of such
Redeemable Warrant shall have the right to purchase from the Company (and the
Company shall issue to such registered holders) up to the number of fully paid
and non-assessable shares of Common Stock (subject to adjustment as provided
herein and in the Redeemable Warrant Agreement), free and clear of all
preemptive rights of stockholders, provided that such registered holder complies
with the terms governing exercise of the Redeemable Warrant set forth in the
Redeemable Warrant Agreement, and pays the applicable exercise price, determined
in accordance with the terms of the Redeemable Warrant Agreement. Upon exercise
of the Redeemable Warrants, the Company shall forthwith issue to the registered
holder of any such Redeemable Warrant in his name or in such name as may be
directed by him, certificates for the number of shares of Common Stock so
purchased. Except as otherwise provided in this Agreement, the Redeemable
Warrants underlying the Warrants shall be governed in all respects by the terms
of the Redeemable Warrant Agreement. The Redeemable Warrants shall be
transferable in the manner provided in the Redeemable Warrant Agreement, and
upon any such transfer, a new Redeemable Warrant Certificate shall be issued
promptly to the transferee. The Company covenants to, and agrees with, the
Holder(s) that without the prior written consent of the Holder(s), which will
not be unreasonably withheld, the Redeemable Warrant Agreement will not be
modified, amended, canceled, altered or superseded, and that the Company will
send to each Holder, irrespective of whether or not the Warrants have been
exercised, any and all notices required by the Redeemable Warrant Agreement to
be sent to holders of Redeemable Warrants.
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14. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed first-class registered or certified mail, postage
prepaid, as follows:
(a) If to the registered Holder of the Warrants, to
the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth in
Section 3 hereof or to such other address as the Company may
designate by notice to the Holders.
15. Supplements and Amendments. The Company and the
Representative may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem shall
not adversely affect the interests of the Holders of Warrant Certificates.
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close
of business on _______, 200_. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on _______, 200_.
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18. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the address set forth in Section 14 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
action, proceeding or claim. The Company, the Representative and the Holders
agree that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
19. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement and the Redeemable Warrant Agreement to the extent
portions thereof are referred to herein) contains the entire understanding
between the parties hereto with respect
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to the subject matter hereof and may not be modified or amended except by a
writing duly signed by the party against whom enforcement of the modification or
amendment is sought.
20. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole benefit of the
Company and the Representative and any other registered Holders of Warrant
Certificates or Warrant Securities.
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
KATMANDU ENTERTAINMENT CORP.
By:________________________________________
S. Lance Silver
Co-Chairman and Chief Executive Officer
By:________________________________________
Stuart N. Harting
Co-Chairman and Chief Executive Officer
Attest:
_________________
Name:
Title:
NATIONAL SECURITIES CORPORATION
By:_______________________________________
Steven A. Rothstein
Chairman
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, _______, 200_
No. W- Warrants to Purchase
____ Shares of Common Stock and/or
____ Redeemable Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ________, or
registered assigns, is the registered holder of ________ Warrants to purchase
initially, at any time from _______, 1997 until 5:30 p.m. New York time on
_______, 200_ ("Expiration Date"), up to __________ fully-paid and
non-assessable shares of common stock, $.001 par value ("Common Stock"), of
KATMANDU ENTERTAINMENT CORP., a Delaware corporation (the "Company"), and/or
_____ Redeemable Warrants of the Company (one Redeemable Warrant entitling the
owner to purchase one fully-paid and non-assessable share of Common Stock) at
the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $____ per share of Common Stock and $____ per Redeemable
Warrant upon surrender of this Warrant Certificate and payment of the Exercise
Price at an office or agency of the Company, but subject to the conditions set
forth herein and in the Representative's Warrant Agreement dated as of _______,
1996 between the Company and NATIONAL SECURITIES CORPORATION (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
A-1
<PAGE>
official bank check in New York Clearing House funds payable to the order of the
Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of __________, 1996
KATMANDU ENTERTAINMENT CORP.
By:_________________________________
Name:
Title:
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] _____________________ shares of Common Stock;
[ ] _____________________ Redeemable Warrants;
[ ] _____________________ shares of Common Stock together with an equal number
of Redeemable Warrants; or
[ ] _____________________ shares of Common Stock together with
Redeemable Warrants.
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House funds to the order of KatManDu
Entertainment Corp. in the amount of $_______________________, all in accordance
with the terms of Section 3.1 of the Representative's Warrant Agreement dated as
of _______, 199_ between KatManDu Entertainment Corp. and National Securities
Corporation. The undersigned requests that a certificate for such securities be
registered in the name of ______________________ whose address is
_________________and that such Certificate be delivered to
______________________ whose address is _____________________.
Dated:
Signature _________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
_________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] _____________________ shares of Common Stock;
[ ] _____________________ Redeemable Warrants;
[ ] _____________________ shares of Common Stock together with an equal number
of Redeemable Warrants; or
[ ] _____________________ shares of Common Stock together with
Redeemable Warrants.
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of _______, 1996 between KatManDu Entertainment Corp. and
National Securities Corporation. The undersigned requests that a certificate for
such securities be registered in the name of ______________________ whose
address is _________________and that such Certificate be delivered to
______________________ whose address is _____________________.
Dated:
Signature _________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
_________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________________ hereby sells,
assigns and transfers unto
_____________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________ Attorney,
to transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
Signature _________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
_________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-6
<PAGE>
LEASE
BETWEEN KATMANDU INVESTMENT PARTNERS AND
PIER 25 NORTH ASSOCIATES, December 15, 1990
LEASE
THIS LEASE, made originally the 15th of December, 1990, is hereby made and
reformed this 28th day of February, 1991, by and between PIER 25 NORTH
ASSOCIATES, a Pennsylvania limited partnership ("Lessor"), and KATMANDU
INVESTMENT PARTNERS, a Pennsylvania Limited Partnership ("Lessee").
ARTICLE 1
PREMISES
Section 1.1. Agreement to Lease. For and in consideration of the rents and
mutual covenants and agreements herein contained, Lessor hereby leases and
demises to Lessee, subject to the terms hereof, and Lessee hereby rents from
Lessor that certain property of Lessor situate at Delaware Avenue, south of
former Willow Street, known as Pier 25 North, in the City and County of
Philadelphia, Pennsylvania, together with all rights, privileges and easements
appurtenant thereto as more particularly described in Exhibit "A" hereto and as
shown as Parcel 1 on Exhibit "B" hereto (the "Demised Premises").
Section 1.1.1 Condition of Premises. Lessor leases the property in "as is"
condition and Lessee accepts the property with no warranties, structural or
otherwise. Lessor acknowledges that the property currently has no water, sewer,
gas, sanitary facilities or electric service and Lessee shall, at its own
expense, provide for such services to the property.
<PAGE>
Section 1.2. Delivery of Property. Lessor covenants and warrants that
actual possession of the Demised Premises shall be delivered to Lessee on
February 15, 1991 ("Commencement Date"), free and clear of all liens and
encumbrances except as set forth on Exhibit "C" hereto. Notwithstanding the
foregoing, Lessee hereby acknowledges that it is aware of the easement agreement
between Lessor as grantor and LightNet as grantee ("LightNet") recorded in Deed
Book JAP 3 page 97 et seq. in the Philadelphia County Department of Records and
agrees that, should it become necessary for LightNet to change the location of
the fiber optic cable currently installed near the southerly boundary of the
Demised Premises, Lessee shall cooperate fully with such move so long as such
move shall not unreasonably interfere with Lessee's business operations.
ARTICLE II
LESSOR'S COVENANTS ~
Section 2.1. Quiet Enjoyment. Except as expressly set forth elsewhere
herein and as long as Lessee is not in default under the terms and provisions of
this Lease, Lessor covenants that Lessee shall have and enjoy, during the Term
(hereinafter defined in Article III), quiet and undisturbed possession and
enjoyment of the Demised Premises without hindrance, ejection or molestation by
Lessor or any other party claiming through Lessor.
ARTICLE III
TERM
Section 3.1. Term. The term of this Lease (the "Term") shall
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<PAGE>
consist of the Initial Term and all Renewal Terms (as said terms are hereinafter
defined). The initial term of this Lease (the "Initial Term") shall be for a
term of Fourteen Years and Nine Months which shall commence on the Commencement
Date and shall expire at midnight on the fifteenth of November, three months
before the fifteenth anniversary of the Commencement Date, or on November 15,
2005.
Section 3.1.1. Notice to Terminate. At least 180 days prior to the
expiration of the Lease Term, Lessor shall give written notice to the Lessee
that Lessor intends to terminate the Lease. If no notice is received by Lessee
by certified mail, the lease shall continue on a year to year basis, continuing
to the following 15th of November.
Section 3.2. Renewal Periods, Year to Year. Lessor may terminate this lease
after the original 15 year term with 180 day notice for termination on the
following 15th of November. Without such written notice, this lease shall
continue in effect as a year to year lease under the same terms and conditions
contained herein. Lessee may terminate his year to year lease by written notice
under certified mail to Lessor at least 90 days prior to the next November 15th
termination date of the year to year lease.
Section 3.3. Lessor's Right to Terminate. Notwithstanding the provisions of
Section 3.2 above, Lessor shall have the right, exercisable by giving Lessee
written notice no less than one hundred twenty (120) days before, to terminate
this lease after the tenth (10th) anniversary of the Commencement Date. The
termination may take effect only after the next operating season, or at the
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<PAGE>
next November 15th, if that is more than 120 days after Lessor has delivered
certified mail notice of termination to the Lessee. This termination, prior to
the expiration of the original lease term, may be for any reason except to
replace the Lessee or their sublessee as a tenant to operate a bar/
restaurant/club or to construct or operate a bar or restaurant or club on the
premises, unless that facility is a part of a high rise building constructed on
the property. After any such termination after the tenth year and before the
expiration of the original term of this lease, no subsequent tenant may conduct
a bar or restaurant or club on the Premises without the prior written consent of
the Lessee. Should the Lessor exercise its option to terminate the lease under
this provision, Lessor shall pay as liquidated damages to Lessee the amount of
One Million Dollars ($1,000,000) in year 11 of this lease and $100,000 less in
each subsequent year. Liquidated damages for the purpose of terminating this
lease may in no circumstances be less than the total of the then current
outstanding mortgages and leasehold obligations of the Lessee then in effect
upon the Demised Premises.
ARTICLE IV
RENTAL
Section 4.1. Minimum Rent. In consideration of the current condition of the
demised premises and in consideration of the major improvements necessary for
the Lessor to be able to conduct business, Lessor agrees that the obligation to
pay rent shall commence on June 1, 1992. During the Term of this Lease,
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<PAGE>
commencing on June 1, 1992, Lessee shall pay to Lessor in lawful money of the
United States, the following annual minimum amounts ("Minimum Rent"), payable in
advance in equal monthly installments on the first day of each month, prorated
for any partial month:
Year Annual Minimum Monthly
Rent Installment
1. -0- None
2. 50,000.00 4,165.00
3. 50,000.00 4,165.00
4. 50,000.00 4,165.00
5. 50,000.00 4,165.00
6. 50,000.00 4,165.33
7-11. Base of $50,000 + COL (cap of 20%)
12-15. Base of year 7 + COL (cap of 20%)
Should Lessee not be able to open for business during 1991, because of
difficulties encountered in constructing on the site, Lessee shall pay rent as
indicated above commencing June 1, 1993.
Section 4.2. Percentaqe Rent. Beginning in year seven (7) of this lease, as
an alternative to Minimum Rent as specified above in 4.1, Lessee shall pay an
amount equal to Four (4%) Percent of the gross business conducted on the
Premises if that amount shall exceed the specified amount of minimum rent. On
the first day of December of each year, commencing in the seventh year, Lessee
shall deliver to Lessor a written statement, certified to be correct by Lessee,
showing the gross income from the Demised Premises for the preceding calendar
year. Lessee shall pay by
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<PAGE>
December 31st of that year the amount equal to our percent of gross
business (exclusive of sales taxes and any other taxes collected on behalf of
any taxing authority) which exceed the minimum rental payments paid for the
preceeding 12 months. There shall be no percentage additional rent payable for
the first six years of this lease.
Section 4.3. Payment of Rent. All Minimum Rent and Percentage Rent shall be
payable to Lessor at the address designated for notices in Section 14.1
hereof or to such other person or at such other place as Lessor shall
designate by written notice.
Section 4.4. Additional Rent. All amounts which Lessee is required to pay
pursuant to this Lease (other than Minimum and Percentage Rent), together with
every fine, penalty, interest and cost which may be added for non-payment or
late payment thereof, shall constitute additional rent ("Additional Rent"). If
Lessee shall fail to pay any Minimum Rent, Percentage Rent, Additional Rent,
imposition (hereinafter defined) or any other sum payable hereunder when the
same shall become due or shall fail to perform any other act on its part to be
made or performed under this Lease, Lessor shall have all rights, power and
remedies with respect thereto as are provided in this Lease or by law in the
case of nonpayment of any Minimum Rent or Percentage Rent which is then due and
payable, and shall, except as expressly provided herein, have the right (but not
the obligation), after thirty (30) days' notice to Lessee (except in the case of
an emergency when no notice is required), to pay or perform any act required of
Lessee under this Lease to protect the rights of the Lessor and to mitigate
damages
-6-
<PAGE>
by Lessee. Lessee shall pay to Lessor interest at the prime rate announced from
time to time by Continental Bank, Philadelphia, Pennsylvania as its prime rate
("Default Rate") on all overdue Minimum Rent or Percentage Rent from the tenth
(lOth) day following the due date for payment thereof until paid, and on all
overdue Additional Rent and other sums payable hereunder, in each case paid by
Lessor on behalf of Lessee, from the date of payment by Lessor until repaid by
Lessee. However, Lessee, in consideration of the seasonal nature of its
business, may accrue rental due for a period of four (4) months without penalty
or without threat of eviction. Lessor's rights against Lessee shall commence
only after the expiration of that four month grace period when rent is not paid
for the fifth consecutive month. Lessee shall perform all of its obligations
under this Lease at its sole cost and expense and shall pay all Minimum Rent,
Percentage Rent, Additional Rent, impositions and any other sums due hereunder
when due and payable, without notice or demand.
Section 4.5. Riqht to Examine Books. The acceptance by Lessor of payments
of Percentage Rent shall be without prejudice to Lessor's right to an
examination of Lessee's books and records of Lessee's gross income at the
Demised Premises in order to verify the amount of annual gross income received
by Lessee in and from the Demised Premises. Such right shall inure to Lessor in
the seventh year when percentage rent option shall take effect.
Section 4.6. Audit. At its option, Lessor may cause, at any reasonable time
upon five (5) days prior written notice to Lessee, a complete audit to be made
of Lessee's entire business affairs and
-7-
<PAGE>
records relating to the Demised Premises for any period within the Term hereof
in which a percentage rent may be applicable, and then only for the full records
of the preceding year's operations. Should such audit disclose a liability for
Rent which equals or exceeds ten percent (10%) of the Percentage Rent previously
paid for such period, Lessee shall promptly pay the deficiency, and, in
addition, shall pay the cost of such audit and interest at the Default Rate on
all Rent then payable, accounting from the date such Rent should have been paid.
In the event that Lessor elects to audit Lessee's books and records pursuant to
the terms of this Article IV and Lessee's records have not been maintained in
accordance with the terms of this Article and/or Lessee has failed to provide
the annual reports required pursuant to Section 4.2 above, Lessee shall be
required to pay, as Additional Rent, the cost of such audit, even if there is no
additional liability for Percentage Rent as set forth in this Section 4.6.
Section 4.7. Cost of Living Increase. At the expiration of year six of this
lease, the minimum rent for the subsequent five year period shall increase by
the Cost of Living index for the greater Philadelphia Area as determined by the
United States Department of Commerce as it shall have increased over the
preceding five year period. That figure shall become the new Minimum Rent for
the subsequent five year rental period. The new Minimum Rent shall be in effect
for the subsequent five year period, but shall in no event exceed twenty (20%)
percent over the previous minimum rent figure. The new minimum rent shall be
determined by the Lessor by April 15th of the first year of the new
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<PAGE>
five year period and Lessor shall notify Lessee by that date, in writing, of the
new Minimum Rent. Lessee shall have 60 days from the date of delivery of that
notice to pay any difference due in rent for the earlier months of the new term
and shall pay the new Minimum Rent for all subsequent months of the new five
year period in accordance with the provisions for payment of rent in Sections
4.1 through 4.6 of this Lease.
ARTICLE V
NET LEASE; TAXES AND ASSESSMENTS
Section 5.1. Net Lease.
(a) This Lease is a net lease wherein Lessee shall be liable for all taxes,
insurance and maintenance of the property throughout the term hereof, and Lessee
shall not be entitled to any abatement or reduction, set-off, counterclaim,
defense or deduction with respect to any Minimum Rent, Percentage Rent,
Additional Rent, impositions or other sums payable hereunder. Except as
specifically set forth in this Lease to the contrary, under no circumstances or
conditions, whether now existing, hereafter arising or whether beyond the
present contemplation of the parties hereto, shall Lessor be expected or
required to make any payment of any kind or be under any other obligation or
liability of any kind in connection with the Demised Premises or the performance
of Lessee of Lessee's obligations hereunder.
(b) Except as otherwise provided herein, Lessee waives all rights to any
abatement or deferment of Minimum Rent, Percentage Rent, Additional Rent,
impositions or other sums payable hereunder. However, Lessee shall have the
right to petition Lessor
-9-
<PAGE>
for abatement of one year's additional rent, by notifying Lessor of the reasons
for such petition in writing, for any one year's period during the term of this
lease, and such rental abatement maybe granted to Lessee at Lessor's sole
discretion.
Section 5.2. Taxes and Assessments; Utilities. Except as otherwise provided
herein, Lessee shall pay, prior to delinquency or the imposition of any penalty
the following (herein sometimes collectively the "impositions"): (i) all taxes,
including without limitation all real estate taxes, assessments, payments in
lieu of or in substitution of taxes, use and occupancy taxes, personal property
taxes, transit taxes, gross receipts taxes, business privilege taxes, license
and permit fees, mercantile taxes, sales taxes, levies, excises, fees, water,
sewer and other utility rates, rents and charges (and all payments in lieu or
substitution thereof) and all other governmental charges, general and special,
ordinary and extraordinary, foreseen and unforeseen of any nature whatsoever,
which are, at any time prior to or during the Term, imposed or levied upon or
assessed against or which may become a lien on, become payable out of or arise
with respect to (A) the Demised Premises or any part thereof or appurtenances
thereto or the interest of either Lessor or Lessee therein, (B) this Lease or
the leasehold estate hereby created, (C) the operation, possession or use of the
Demised Premises and such licenses, permits and franchises appurtenant to the
use of the Demised Premises, or (D) the rent or income received by or for the
account of Lessee from any subtenants; and (ii) all charges of utilities,
communications and similar services serving the Demised Premises. Lessee shall
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<PAGE>
not be required to pay any franchise, estate, inheritance, transfer, income or
similar tax of Lessor unless such tax is imposed, levied or assessed in
substitution for or in lieu of any other tax, assessment, charge or levy which
Lessee is required to pay pursuant to this Section 5.2. Lessee will furnish to
Lessor, promptly after demand therefor, proof of payment of all impositions
which are payable by Lessee. If any such imposition may legally be paid in
installments, Lessee may pay such imposition in installments; in such event,
Lessee shall be liable only for installments which become due and payable during
the Term.
ARTICLE VI
USE; IMPROVEMENTS; EASEMENTS
Section 6.1. Use and Occupancy. Lessee may use the Demised Premises solely
for a restaurant/nightclub/bar/cocktail lounge or marina apurtenant to the bar
restaurant business and for any business enterprise reasonably done in
conjunction with a bar/restaurant/club/marina and in furtherance of that
business enterprise and for no other purpose and shall, at all times, be in
compliance with applicable laws, rules and regulations including but not limited
to zoning laws and rules and regulations prescribed by the Pennsylvania Liquor
Control Board pertaining to such use. Lessee will occupy the Demised Premises
promptly upon commencement of the Term and thereafter throughout the Term Lessee
shall continuously, actively and diligently use the whole of the Demised
Premises for the purposes set forth herein and no other, in an efficient,
businesslike and reputable manner, maintaining in the Demised Premises an
adequate staff of employees and employing
-11-
<PAGE>
Lessee's best efforts and abilities to maintain the Premises. At a minimum,
Lessee shall conduct its business in the Demised Premises for the customary
operating hours for the type of business being conducted therein. The required
operating hours may be increased or reduced (and subsequent to any such increase
or reduction, may be increased or reduced, without limitation as to the number
of increases or reductions) as reasonably determined by Lessee. Any
discontinuance by Lessee in the operation of the Demised Premises for a period
of three continuous months during the months of May through September shall
constitute an event of default under this Lease.
Section 6.2. Buildinqs, Improvements and Other Property; Liquor License:
Joinder in Applications for Permits, Licenses and Tax Reductions, Etc.
(a) Lessee shall have the right, at Lessee's sole cost and expense, without
obtaining any consent from Lessor therefor, from time to time and at any time
during the Term, to erect, construct, install, attach, place or locate
any lawful building or buildings, improvements, fixtures, machinery, equipment,
apparatus, appliances, goods, chattels or other property, upon, in or on the
Demised Premises or any portion thereof, of any kind, nature or description (the
"Improvements"). Lessor agrees that Lessor shall have no right, title, ownership
or any other interest in and to the Improvements, and any and all of the same
may at any time during the Term be changed, altered, improved, demolished or
removed, notwithstanding that any of the same may be attached to the realty.
(b) Lessee agrees that, promptly after the execution of this Lease, Lessee
shall, at Lessee's sole cost and expense,
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<PAGE>
proceed with due diligence to make application to the Pennsylvania Liquor
Control Board for the issuance of a Pennsylvania Restaurant Liquor License to
Lessee, which will permit Lessee to serve liquor on the Demised Premises (the
"License"). In connection therewith, Lessee warrants and represents to Lessor
that Lessee and its principals do not have a criminal record and are United
States citizens. Lessor agrees that it shall cooperate with Lessee in its
application for the License and shall execute any forms required of Lessor by
the Pennsylvania Liquor Control Board or any other public body in connection
therewith.
(c) Lessee also agrees that, promptly after the execution of this Lease,
Lessee shall, at Lessee's sole cost and expense, proceed with due diligence to
attempt to obtain all federal, state and local governmental health, fire,
safety, building, zoning, use, amusement and similar approvals, permits and
licenses necessary to permit Lessee to construct the Improvements and to use and
operate the Demised Premises for the uses set forth in Section 6.1 above. Lessor
agrees that Lessor, at Lessee's sole cost and expense: shall, upon reasonable
request from Lessee, join with Lessee in applications for permits, licenses or
any other authorizations required by any governmental or other body claiming
jurisdiction in connection with the Improvements or work for or pertaining to
the Demised Premises; will join in reasonable applications and proceedings with
respect to any contest Lessee may desire to bring or institute for reduction of
assessments imposed by any taxing authority upon the Demised Premises; and will
join in condemnation proceedings affecting the Demised
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<PAGE>
Premises or any part thereof. Lessor agrees to execute such applications and
other documents as may be reasonably required in order to effectuate the
foregoing. It is understood and agreed that Lessor shall not be required to
incur any cost or expense in connection with any of such applications, contest
or proceedings. In the event that Lessee, for reasons other than the fault of
Lessee, is unable to obtain such required approvals, permits or licenses within
one hundred twenty (120) days after receipt of the Zoning Approval and after all
appeal periods in accordance with Section 4.1 hereof, Lessee may terminate this
Lease upon thirty (30) days written notice to Lessor thereof.
Section 6.3. Legal Requirements. Lessee, subject to its rights under
paragraph 6.8 hereof, shall comply with and cause the Demised Premises and
Improvements to comply with and shall assume and discharge all obligations and
liabilities with respect to (i) all laws, ordinances and regulations, and other
governmental rules, orders and determinations presently in effect or hereafter
enacted, made or insured, whether or not presently contemplated (collectively
"Legal Requirements") applicable to the Demised Premises and Improvements or the
ownership, operation, use or possession thereof, and (ii) the operation,
management, leasing, securing, maintenance and upkeep of the Demised Premises
and Improvements, including without limitation, all contracts ((including
insurance policies (including, without limitation, to the extent necessary to
prevent cancellation thereof and to insure full payment of any claims made under
such policies)), agreements, covenants, conditions and restrictions now or
hereafter applicable
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<PAGE>
to the Demised Premises or the ownership, operation, use or possession thereof
and all Improvements.
Section 6.4. Liens. Lessee will promptly remove and discharge any charge,
lien, security interest or encumbrance upon the Demised Premises or any Minimum
Rent, Percentage Rent, Additional Rent, imposition or other sums payable
hereunder which arises for any reason, including all liens which arise out of
the possession, use, occupancy, construction, repair or rebuilding of the
Improvements or by reason of labor or materials furnished or claimed to have
been furnished to Lessee or for the Improvements, but not including any
mortgage, charge, lien, security interest or encumbrance created by Lessor.
Nothing contained in this Lease shall be construed as constituting the consent
or request of Lessor, express or implied, to or for the performance by any
contractor, laborer, materialman, or vendor of any labor or services or for
furnishing of any materials for any construction, alteration, addition, repair
or demolition of or to the Improvements, nor as giving such contractor, laborer,
materialman or vendor any right to or basis upon which to file any lien against
the Demised Premises or the interest of Lessor or Lessee therein. Notice is
hereby given that Lessor will not be liable for any labor, services or materials
furnished or to be furnished to Lessee, or to anyone holding an interest in the
Demised Premises or any part thereof through or under Lessee, and that no
mechanic's or other liens for any such labor, services or materials shall attach
to or affect the interest of Lessor in and to the Demised Premises.
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<PAGE>
Section 6.4.1. Hypothecation of Lease. Lessee shall have the right to
hypothecate this lease for the purpose of securing financing or refinancing for
construction and operating the bar/restaurant/club on the Premises. Any
financing using the leasehold hereby created shall not exceed a total amount of
Five Hundred Thousand Dollars ($500,000). Lessor shall cooperate with said
hypothecation and shall execute any documents required for such financing.
Lessee shall further be allowed to subordinate the payment of rents to the
satisfaction of any hypothecation financing and may, should net revenues not be
sufficient to pay rentals and financing interest payments, pay interest payments
first and defer any rental payments until such operating funds shall become
available. This in no way shall relieve Lessee of the full obligation of paying
any such deferred rents when such funds become available from operations, and
such deferred rental obligations shall accrue interest payable and due to the
Lessor as additional rent at an interest rate equal to the then prime rate plus
three points. Lessor may conduct an audit and examine the Lessee's books as
provided for in 4.4 and 4.5 (above) for the purpose of determining the
availability of such deferred rental funds.
Section 6.5. Indemnification. Lessee shall defend all actions against
Lessor or any general or limited partner, officer, director, shareholder or
mortgagee of Lessor (herein, collectively, "Indemnified Parties") with respect
to, and shall pay, protect, indemnify and save harmless the Indemnified Parties
from and against, any and all liens, liabilities, losses, damages, costs,
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expenses (including reasonable attorneys' fees and expenses), causes of
action, suits, claims, demands or judgments of any nature (a) to which any
Indemnified Party is subject because of Lessor's estate in the Demised Premises
(other than any liability, loss, damage, cost, expense, cause of action, suit,
claim, demand or judgment arising from the sole negligence of such Indemnified
Party, unless such negligence occurs with the written consent or at the written
request of Lessee), or (b) arising from (i) the conduct or management of the
Demised Premises or Improvements or from any work performed thereon, (ii) injury
to or death of any person, or damage to or loss of property on the Demised
Premises or Improvements or on adjoining sidewalks, water, streets or ways, or
connected with the use, condition or occupancy of any thereof, (iii) violation
of this Lease by Lessee, (iv) any act or omission of Lessee or any occupant of
the Demised Premises or Improvements or their agents, contractors, licensees,
sublessees or invitees, (v) any contest referred to in Section 6.8, or (vi) all
obligations and liabilities assumed by Lessee pursuant to Section 6.3 hereof.
Section 6 6. Maintenance and Repair; Utilities. Lessee, at its own expense,
will operate and maintain all parts of the Demised Premises and Improvements,
including all sidewalks, walkways, docks, moorings, boat slips, waterways and
private rights of way located on or adjacent to the Demised Premises, in good
repair and condition, will take all action and will make all reasonable
structural changes, replacements and repairs which may be required to keep all
parts of the Demised Premises and the Improvements in good repair and condition.
Lessor shall not be required to
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maintain, repair or rebuild all or any part of the Demised Premises. Lessee
waives the right to (a) require Lessor to maintain, repair or rebuild all or any
part of the Demised Premises or Improvements constructed thereon, or (b) make
repairs at the expense of Lessor pursuant to any Legal Requirement, contract,
agreement, covenant, condition or restriction which is now existing or which may
hereafter arise except that Lessor shall be responsible for costs of repair and
maintenance of all water, sewer and electric lines brought to the property line
should any charges or assessments be levied by the municipal authorities or
utility providers. Lessee shall pay or cause to be paid all charges or taxes for
heat, water, sewage, gas, electricity, steam, light, telephone or any other
utility or communication service used in or rendered or supplied to the Demised
Premises or any part thereof.
Section 6.7. Utility Easements. Lessor will join in grants of easements in,
on, over, under or through the Demised Premises for electric, telephone, gas,
water, sewer and other public utilities and facilities reasonably necessary for
the operation of the Improvements on the Demised Premises. Lessee shall not
grant any such easements without the consent of Lessor, which consent may be
withheld in Lessor's sole and absolute discretion.
Section 6.8. Permitted Contests. Lessee shall not be required, nor shall
Lessor have the right, to pay, discharge or remove any tax, assessment, levy,
fee, rent (except Minimum Rent, Percentage Rent, Additional Rent or other sums
due hereunder, in each case payable to or upon the order of Lessor), charge,
lien or encumbrance, or to comply with any Legal Requirement applicable to
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the Demised Premises or the use thereof, so long as Lessee shall diligently
contest the existence, amount or validity thereof by appropriate proceedings
which shall prevent the collection of or other realization upon the tax,
assessment, levy, fee, rent, charge, lien or encumbrance so contested, and which
also shall not subject the Demised Premises or any portion thereof or any
Minimum Rent, Percentage Rent, Additional Rent or any other sums required to be
paid by Lessee hereunder, to any sale, forfeiture, attachment or loss, and which
shall not affect or delay the payment of any Minimum Rent, Percentage Rent,
Additional Rent or other sums required to be paid by Lessee hereunder; provided
that such contest shall not subject Lessor to the risk of any criminal or civil
liability. Lessee shall give such security as may be demanded by Lessor to
insure ultimate payment of such tax, assessment, levy, fee, rent, charge, lien
or encumbrance and compliance with Legal Requirements and to prevent any sale or
forfeiture of the Demised Premises or any portion thereof, any Minimum Rent,
Percentage Rent, Additional Rent or other sums required to be paid by Lessee
hereunder by reason of such non-payment or noncompliance.
Section 6.9. Failure to Open. In the event that Lessee fails to open the
Demised Premises for business on or before December 31, 1991 (the "Opening
Date"), Lessor, in addition to all other remedies of Lessor hereunder, shall
have the option of (a) terminating this Lease by giving Lessee written notice of
such termination, whereupon this Lease shall be terminated unless, by the date
of the giving of said notice, Lessee shall have opened the Demised Premises for
business.
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ARTICLE VII
ASSIGNMENT AND SUBLETTING
Section 7.1. Assignment or Sublettinq. Lessee may, with Lessor's prior
written consent, which consent shall not be unreasonably withheld, assign this
Lease or sublease the entire Demised Premises, to be used solely for the
purposes set forth in Section 6.1 above; provided, nevertheless, that the
obligations of Lessee arising hereunder shall not be terminated by such
assignment or sublease, but shall continue in full force and effect. Any such
sublease shall provide, in substance, that in the event of termination of this
Lease by Lessor under Section 13.2 hereof, the sublessee under such sublease
shall attorn as tenant to Lessor.
Section 7.2. Sublessee's Default. Should any Sublessee under written
sublease from Lessee default any provision under this lease, Lessor shall give
Lessee written notice providing 90 days for Lessee to cure any default or to
cancel the sublease. If the Lessee cures the default or cancels the sublease
within 90 days of receiving written notice of default, the lease may not be
terminated and Lessee shall be allowed to again sublease this lease to another
suitable subtenant.
ARTICLE VIII
CONDEMNATION
Section 8.1. In the event that the Demised Premises and the Improvements
or any part thereof shall be taken in condemnation proceedings or by exercise of
any right of eminent domain, Lessor and Lessee shall have the right to
participate in any condemnation proceedings for the purpose of protecting their
respective interests hereunder.
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Section 8.2. If, at any time during the Term, title to the whole or
substantially all of the Demised Premises and Improvements shall be taken by the
exercise of the right of condemnation or eminent domain or by agreement between
the Lessor, Lessee, and those authorized to exercise such right, this Lease
shall terminate and expire on the date of such taking and the Rent provided to
be paid by Lessee shall be apportioned and paid to the date of such taking. In
such event, impositions shall be apportioned only to the extent actually
collected by Lessor, and, if uncollected, Lessor shall assign to Lessee any
claim to recover such impositions. For the purposes of this Section 8.2
"substantially all of the Demised Premises and Improvements" shall be deemed to
have been taken if the portion of the Demised Premises and Improvements not so
taken, and taking into consideration the amount of the net award available for
such purpose, cannot be so repaired or reconstructed as to constitute a usable
structure for the conduct of Lessee's business permitted hereunder.
Section 8.3. In the event of the taking of the whole or substantially all
of the Demised Premises and Improvements, the rights of Lessor and Lessee to
share in the proceeds of any award received for the Demised Premises and
Improvements upon any such taking or injury shall be as follows and in the
following order of priority:
(a) Lessor shall be entitled to a sum equal to the then current fair market
value of the Demised Premises or the balance of the condemnation award,
whichever is lower.
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(b) Lessee shall next be entitled to a sum equal to the then current fair
market value of the Improvements and Lessee's leasehold estate created hereunder
or the balance of the condemnation award, whichever is lower.
(c) Lessor shall then be entitled to receive the balance, if any, of such
award.
Section 8.4. If at any time during the Term title to less than the whole or
substantially all of the Demised Premises and Improvements shall be taken as
aforesaid, Lessee shall cause its permitted assigns at their sole cost and
expense, and whether or not the condemnation proceeds, if any, shall be
sufficient for the purpose, to restore, repair, replace, rebuild or alter the
Demised Premises and Improvements as nearly as possible to their value,
condition and character immediately prior to such event and subject to the
rights of a Lessor's mortgagee, if any, all of the award or awards collected
therefor shall first be applied and paid over toward the cost of such
demolition, repair and restoration. Any balance remaining after payment of such
costs of demolition, repair and restoration shall be applied and paid over
substantially in the same manner and subject to the same conditions as those
provided in Section 8.3 hereof as such provisions relate to the portion of the
Demised Premises and Improvements so taken.
Section 8.5. Except as herein otherwise specifically provided, if title to
less than the whole or substantially all of the Demised Premises and
Improvements shall be taken or injured as aforesaid, this Lease shall continue,
and Lessee shall continue to pay in full the Rent and other charges herein
reserved without
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reduction or abatement.
Section 8.6. If the temporary use of the whole or any part of the Demised
Premises and Improvements shall be taken by any lawful power or authority, by
the exercise of the right of condemnation or eminent domain, or by agreement
between Lessee and those authorized to exercise such right, Lessee shall give
prompt notice thereof to Lessor, the Term shall not be reduced or affected in
any way, Lessee shall continue to pay in full the Rent and other charges herein
reserved, without reduction or abatement, and Lessee shall be entitled to
receive for itself any award or payment made for such use during the Term.
Section 8.7. In the case of any taking covered by the provisions of this
Article VIII, Lessor and Lessee shall be entitled to reimbursement from any
award or awards of all reasonable costs, fees and expenses incurred in the
determination and collection of any such awards.
Section 8.8. In case of any confiscation or condemnation covered by Article
VIII shall reduce the leasehold so that Lessee can not reasonably stay in
business and maintain 90% of its volume, Lessee shall have the option of
canceling this lease and shall not be liable for any future obligations under
this lease.
ARTICLE IX
MORTGAGES
Section 9.1. Lessor's Mortgages. Lessor reserves the right to grant
mortgages covering the Demised Premises and to assign its rights and the rentals
due and to become due under this Lease as
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collateral security.
ARTICLE X
INSURANCE
Section 10.1.
(a) Lessee will maintain insurance on the Demised Premises of the
following character:
(i) Insurance against loss by fire, flood, lightning and other risks which
at the time are included under "Extended Coverage Endorsements", in amounts
sufficient to prevent Lessor or Lessee from becoming a co-insurer of any loss
but in any event in amounts not less than one hundred percent (100%) of the
actual replacement value of the Improvements, exclusive of foundations and
excavations.
(ii) General public liability insurance against claims for bodily injury,
death or property damage occurring on, in or about the Demised Premises and
adjoining sidewalks and waterways, in the minimum amounts of One Million Dollars
($1,000,000) for bodily injury or death to any one person, Two Million Dollars
($2,000,000) for any one accident, and Two Million Dollars ($2,000,000) for
property damage, or in such greater amounts as are then satisfactory to Lessor.
(b) Every policy referred to in this Section 10.1 shall provide that it
will not be cancelled or amended except after thirty (30) days' written notice
to Lessor, sent by registered or certified mail, and that it shall not be
invalidated by any act or negligence of Lessor, Lessee or any person or entity
having an interest in the Demised Premises, nor by occupancy or use of the
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Demised Premises for purposes more hazardous than permitted by such policy, nor
by any foreclosure or other proceedings relating to the Demised Premises, nor by
change in title to or ownership of the Demised Premises.
(c) Lessee shall deliver to Lessor originals of the applicable insurance
policies or original or duplicate certificates of insurance, satisfactory to
Lessor, evidencing the existence of all insurance which is required to be
maintained by Lessee hereunder, such delivery to be made (i) upon delivery of
possession of the Demised Premises to Lessee; and (ii) at least thirty (30) days
prior to the expiration of any such insurance. Lessee shall not obtain or carry
separate insurance concurrent in form or contributing in the event of loss with
that required by this Section 10.1 unless Lessor is a named insured therein.
Lessee shall immediately notify Lessor whenever any such separate insurance is
obtained and shall deliver to Lessor the policies or certificates evidencing the
same. Any insurance required hereunder may be provided under blanket policies
provided that the Demised Premises and Improvements are specified therein.
(d) The requirements of this Section 10.1 shall not be construed to negate
or modify Lessee's obligations under Section 6.5.
(e) In consideration of the nature of the property being built on fill over
piers in the Delaware River waterway, Lessee shall not be required to carry
onerous insurance to insure against structural damage to the pier and pilings
caused by water and/or earthquake damage.
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ARTICLE XI
CASUALTY
Section 11.1. Substantial Casualty. If a casualty shall affect all or a
substantial portion of the Demised Premises and Improvements during the Term,
then Lessee shall, no later than ninety (90) days after such casualty, deliver
to Lessor notice of its intention to exercise one of the following options: (i)
to terminate this Lease, and this Lease shall automatically and without further
notice terminate thirty (30) days from the giving of such notice, and the
insurance proceeds shall belong to and shall be paid over to Lessor and, as a
condition to the right of Lessee to terminate this Lease, Lessee shall assign to
Lessor all of its right, title and interest in said insurance proceeds; or (ii)
restore the Demised Premises and Improvements in accordance with the following
Section 11.2.
Section 11.2. Restoration. If, after a substantial casualty, Lessee does
not give notice of its intention to terminate this Lease as provided in the
foregoing section or if the casualty is insubstantial, then this Lease shall
continue in full force and effect, except that rent shall be abated until Lessee
reopens for business, and, Lessee shall, at its expense, rebuild, replace or
repair the Demised Premises and Improvements so as to restore the Demised
Premises and Improvements to the condition and fair market value thereof
immediately prior to such occurrence.
ARTICLE XII
REPAIRS
Section 12.1. Repairs Lessee will keep or cause to be kept the
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interior and exterior of the Improvements in good, clean and sanitary condition
and shall make or cause to be made all repairs necessary to keep the same in
good condition, reasonable wear and tear excepted.
ARTICLE XIII
DEFAULTS AND REMEDIES
Section 13.1. Events of Default. The happening of any one or more of the
following shall be an event of default under this Lease:
(a) Failure of Lessee to pay any installment of Minimum Rent, Percentage
Rent, Additional Rent or other charge or money obligation herein required to be
paid by Lessee within ten (10) days after due;
(b) Failure of Lessee to perform any of its covenants under this Lease
within thirty (30) days after receipt of written notice thereof from Lessor, or
if it is not feasible to perform such covenant fully within said period, if
Lessee shall not have commenced to cure said default within said period and
thereafter diligently prosecute the curing of such default;
(c) The appointment of a receiver, trustee or liquidator of Lessee or of
all or substantially all of the assets of Lessee or of Lessee's estate in the
Demised Premises and the Improvements in any proceeding brought by Lessee or in
any proceeding brought against Lessee and not discharged within ninety (90) days
after such appointment or the consent to such appointment or the acquiescence to
such appointment by Lessee;
(d) The License or Lessee's right to serve liquor in
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the Demised Premises has been revoked at any time for a period of longer than 91
days and all appeals have been denied; or
(e) The License or Lessee's right to serve liquor in the Demised Premises
is suspended at any time during the Term of this Lease for more than ninety (90)
days and Lessee has lost all appeals timely made.
(f) However, if the default is made by any sublessee under this lease, the
Lessee shall have written notice of such default from Lessor, specifying the
default. Lessee shall have 90 days from receipt of such notice to cure any
default, or, if the default is caused by the actions of the sublessee only and
not by the Lessee, Lessee may cure the default by terminating the sublease and
either operate the premises themselves or make a new sublease with a new
operating entity. Upon curing the default or terminating the sublease, the
Lessee will be held harmless, and this lease shall continue in effect for the
full term as if no default had occurred.
Section 13.2. Lessor's Remedies.
(a) Upon the happening of an event of default hereunder, Lessor shall have
the right to give Lessee notice of Lessor's intention to terminate the Term of
this Lease. Ninety (90) days after the date of service of such notice, the Term
of this Lease and the estate hereby granted shall expire and terminate as fully
and completely and with the same effect as if such date were the date herein
fixed for the expiration of the Term of this Lease, and all rights of Lessee and
Lessor hereunder shall expire and terminate, but Lessee shall remain liable as
hereinafter described.
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(b) At any time or from time to time after a re-entry, repossession or
removal pursuant to Section 13.2(b), whether or not the Term of this Lease shall
have been terminated pursuant to Section 13.2(a), Lessor may (but shall be under
no obligation to) relet the Demised Premises for the account of Lessee, in the
name of Lessee or Lessor or otherwise, without notice to Lessee, for such term
or terms and on such conditions and for such uses as Lessor, in its sole and
absolute discretion, may determine. Lessor may collect any rents payable by
reason of such reletting. Lessor shall not be liable for any failure to relet
the Demised Premises or for any failure to collect any rent due upon any such
reletting.
(c) If Lessor retakes the property due to default of the Lessee and relets
the property to another Tenant who uses the property as a
bar/restaurant/club/marina, Lessor shall pay to Lessee the unamortized portion
of the improvements then remaining on the property.
Section 13.3. Additional Rights of Lessor.
(a) No right or remedy hereunder shall be exclusive of any other right or
remedy, but shall be cumulative and in addition to any other right or remedy
hereunder or now or hereafter existing. Failure to insist upon the strict
performance of any provision hereof or to exercise any option, right, power or
remedy contained herein shall not constitute a waiver or relinquishment thereof
for the future. Receipt by Lessor of any Minimum Rent, Percentage Rent,
Additional Rent or other sum payable hereunder with knowledge of the breach of
any provision hereof shall not constitute waiver of such breach, and no waiver
by Lessor of any
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provision hereof shall be deemed to have been made unless made in writing.
Lessor shall be entitled to injunctive relief in case of the violation, or
attempted or threatened violation, of any of the provisions hereof, or to a
decree compelling performance of any of the provisions hereof, or to any other
remedy allowed to Lessor by law or equity.
(b) Lessee hereby waives and surrenders for itself and all those claiming
under it, including creditors of all kinds, (i) any right and privilege which it
or any of them may have to redeem the Demised Premises or to have a continuance
of this Lease after termination of Lessee's right of occupancy by order or
judgment of any court or by any legal process or writ, or under the terms of
this Lease, or after the termination of the Term of this Lease as herein
provided, and (ii) the benefits of any law which exempts property from liability
for debt or for distress for rent.
(c) If Lessee shall be in default in the performance of any of its
obligations hereunder, Lessee shall pay to Lessor, on demand, all expenses
incurred by Lessor as a result thereof, including Lessor's cost of curing such
default and reasonable attorneys' fees and expenses (including those incurred in
connection with any appellate proceedings). If Lessor shall be made a party to
any litigation commenced against Lessee and Lessee shall fail to provide Lessor
with counsel approved by Lessor and pay the expenses thereof, Lessee shall pay
all costs and reasonable attorneys' fees and expenses incurred by Lessor in
connection therewith (including those incurred in connection with any appellate
proceedings).
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ARTICLE XIV
MISCELLANEOUS
Section 14.1. Notice Addresses. Every notice, demand, request, consent,
approval or other communication which either party is required or desires to
give or make or communicate upon or to the other party shall be in writing and
shall be sent either by mailing the same by registered mail or certified mail,
postage prepaid, return receipt requested or by overniqht courier as follows:
If to Lessor: Pier 25 North Associates
c/o Silver, Harting & Company
23 N. 3rd Street
Philadelphia, PA 19106
or to such other address as Lessor shall from time to time and at any time
designate by notice to Lessee.
If to Lessee: Katmandu Investment Partners
229 Church Street
Philadelphia, PA. 19106
or to such other address as Lessee shall from time to time and at any time
designate by notice to Lessor.
Section 14.2. Paragraph Headings. The paragraph headings in this Lease are
for convenience and reference only, and the words contained therein shall in no
way be held to explain, modify, amplify or aid in the interpretation,
construction or meaning of the provisions of this Lease.
Section 14.3. Successors and Assigns. Subject to the other provisions of
this Lease, all of the terms, covenants and conditions of this Lease shall inure
to the benefit of and shall bind, as the case may be, the parties hereto, and
their respective successors and assigns.
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Section 14.4. Real Estate Commissions. Each of the parties represents and
warrants unto the other that there are no commissions, charges or other
compensation due any broker, agent or finder with respect to this Lease or the
negotiations thereof and each of the parties covenant and agree with the other
that if either party hereto utilizes an agent, broker, or finder, the party so
using an agent, broker or finder or incurring such commissions, charges, fees or
similar expenses will pay, hold harmless and indemnify the other from and
against all claims, costs, expenses of liability (including without limitation,
the cost of reasonable counsel fees in connection therewith) for any such
compensation, commissions, charges or other compensation claimed by any such
broker, agent or finder.
Section 14.5. Estoppel Certificates. Each party hereto agrees that at any
time and from time to time within ten (10) days after written request by the
other party, that it will execute, acknowledge and deliver to the other party or
to any other person designated by Lessor or Lessee, as the case may be, a
certificate in recordable form certifying (i) that the Lease is unmodified and
in force and effect (or if there have been modifications, that the Lease is in
force and effect as modified, and identifying the modification agreements, or,
if the Lease is not in force and effect, the certificate shall so state); (ii)
the date to which Minimum, Percentage and Additional Rents have been paid under
the Lease; (iii) whether or not there is any existing default by Lessee in the
payment of any Rent or other sum of money under the Lease
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and whether or not there is any other existing default by either party under the
Lease with respect to which a notice of default has been served, and if there is
any such default, specifying the nature and extent thereof; and (iv) whether or
not there are any setoffs, defenses or counterclaims against enforcement of the
obligations of such party hereunder.
Section 14.6. Governing Law. This Lease shall be governed by and
interpreted, construed and enforced under the laws of the Commonwealth of
Pennsylvania.
Section 14.7. Counterparts. This Lease may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
Section 14.8. No Waiver. No delay in exercising or failure to enforce any
right hereunder shall operate as a waiver of such right or any other right
hereunder. A waiver on any one occasion shall not be construed as a bar to or
waiver of any right or remedy on any future occasion. No waiver or consent shall
be binding upon either party unless it is in writing and signed by the other
party. One or more waivers of any covenant, term or condition of this Lease by
either party shall not be construed as a waiver of subsequent breach of the same
covenant, term or condition. The consent or approval by either party to or of
any act by the other party requiring such consent or approval shall not be
deemed to waive or render unnecessary consent to or approval of any subsequent
similar act.
Section 14.9. Partial Invalidity. If any term, covenant, or
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condition of this Lease or the application thereof to any person or
circumstances shall, to any extent, be illegal, invalid, or unenforceable
because of present or future laws or any rule or regulation of any governmental
body or entity or becomes unenforceable because of judicial construction, the
remaining terms, covenants and conditions of this Lease, or the application of
such term, covenant, or condition to persons or circumstances other than those
as to which it is held invalid or unenforceable shall not be affected thereby
and each term, covenant, or condition of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
Section 14.10. Entire Agreement. This Lease contains the entire agreement
of the parties with respect to the leasing of the Demised Premises to Lessee and
no representations or agreements, oral or otherwise, between the parties not
embodied herein shall be of any force and effect. Any additions or amendments to
this Lease subsequent hereto and any consents and approvals required hereunder
shall be of no force or effect unless in writing and signed by the parties
hereto.
Section 14.11. No Partnership. Nothing contained herein shall be deemed or
construed by the parties hereto, nor by any third party, as creating or
authorizing the creation of the relationship of principal and agent or of
partnership or joint venture between Lessor and Lessee, it being understood and
agreed that no provision of this Lease, nor any acts of Lessor or Lessee
hereafter, shall be deemed to create any relationship between Lessor and Lessee
other than the relationship of landlord and tenant.
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Section 14.12. Number and Gender. Whenever the singular number is used in
this Lease and when required by the context, the same shall include the plural,
and vice versa, and the masculine gender shall include the feminine and neuter
genders, and the word "person" shall include corporation, firm or association.
Section 14.13. Recordability. Nothing shall prevent either the Lessor or
the Lessee from recording this lease with the appropriate government
authorities.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the
date first above written.
LESSOR:
PIER 25 NORTH ASSOCIATES,
a Pennsylvania limited partnership,
by its general partners
/s/ S.LANCE SILVER
-------------------------------------
S.LANCE SILVER
/S/ STUART N. HARTING
-------------------------------------
STUART N. HARTING
LESSEE: KATMANDU INVESTMENT
PARTNERS, a Pennsylvania Limited
Partnership, by its Secretary
BY: /S/ DAVID J. PREEFER
-------------------------------------
DAVID J. PREEFER
Signed and sealed this 28th day of February, 1991.
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EXHIBIT A
[Legal Description of Property Located on Easterly Side of Delaware Avenue
Opposite Former Willow Street and known as Pier 25 North]
<PAGE>
EXHIBIT B
[Plan of Property 5th Ward Philadelphia (Survey)]
<PAGE>
[ON KATMANDU LETTERHEAD]
June 17, 1992
Pier 25 Associates
23 N. 3rd Street
Philadelphia, Pa. 19106
Re: Continuation of Advance rents.
Dear Mr. Silver:
Pier 25 Associates has in the past been in dire need of operating capital to pay
back taxes, legal settlements and bills from vendors. In each instance over the
last year and a half, Pier 25 Associates has come to its tenant, Katmandu
Investment Partners, and asked for advance payments on the lease, and each time,
the tenant has agreed to do so. Currently, K.I.P. has prepaid over $35,000 in
advance rent payments.
You have currently approached us for an additional $2,500 along with the
prospect that advance rents will be needed for some time to come, into 1993.
Katmandu Investment Partners is unwilling to continue to advance such moneys
under the current agreements without some compensation.
We propose that in exchange for meeting your current advance request and
continuing to meet reasonable advance requests over the next year, that Pier 25
Associates, as Landlord under our lease dated December 15, 1990 and reformed
February 28, 1991 be amended to strike and make null and void the complete
Section 3.3. Lessor's Right to Terminate. Under this change, the lease will
continue uninterrupted through the termination date of November 15, 2005.
If this change in the lease terms and conditions is approved by you, please sign
this letter which shall thereafter become part of that lease and be binding
thereafter on the parties.
Very truly yours,
/s/ David Preefer
- -----------------------------
David Preefer, Secretary, General Partner
Katmandu Investment Patners
Read and Accepted. /s/ Lance Silver 6/17/92
----------------------------- --------------
Lance Silver, General Partner Date
Pier 25 Associates
<PAGE>
AGREEMENT OF SUB-LEASE
AGREEMENT OF SUB-LEASE, ("Sub-Lease") by and between T-Kat Urban
Renewal Corporation, a New Jersey corporation, as Sub-Lessor, and T-Kat
Corporation, a New Jersey corporation, as Sub-Leasee, dated as of June 20, 1996.
W I T N E S S E T H :
WHEREAS, T-Kat Urban Renewal Corporation, as lessee, (hereinafter
"Sub-Lessor") entered into an Agreement of Lease, dated June 18, 1996, with
Mercer County Improvement Authority ("MCIA"), as lessor, pursuant to which
Sub-Lessor agreed to lease from MCIA certain Real Property more particularly
described in the Lease attached hereto and incorporated by reference herein
(hereinafter the "Lease"); and
WHEREAS, the Sub-Lessor wishes to lease to T-Kat Corporation
("Sub-Lessee") and Sub-Lessee wishes to lease from Sub-Lessor the aforementioned
leased premises on the same terms and conditions as are set forth in the Lease.
NOW, THEREFORE, the parties hereto intending to be legally bound, for
good and valuable consideration, the receipt of which is hereby acknowledged, do
agree as follows:
1. Sub-Lease. Sub-Lessor hereby sub-leases to Sub-Lessee and Sub-Lessee
hereby sub-leases from Sub-Lessor the real property described in the Lease.
2. Terms. The terms and conditions of this Sub-Lease, including, but
not limited to, all payments of rent and additional rent, shall be the same as
are found in
<PAGE>
the Lease, with the Sub-Lessee assuming all rights and obligations of the
Sub-Lessor. Sub-Lessee hereby indemnifies and holds Sub-Lessor harmless from
all liabilities, claims and obligations under the Lease other than liabilities,
claims and damages caused by the gross negligence or willful misconduct of
Sub-Lessor.
3. Miscellaneous. All of the terms and conditions of the Lease are
incorporate herein by reference.
IN WITNESS WHEREOF, the parties hereto have executed this Sub-Lease
Agreement as of the year and date first above written.
ATTEST: SUB-LESSOR:
T-KAT URBAN RENEWAL CORPORATION
_______________________ By: ________________________________
President
ATTEST: SUB-LESSEE:
T-KAT CORPORATION
_______________________ By: ________________________________
President
<PAGE>
AGREEMENT OF LEASE
Mercer County Improvement Authority
as LESSOR
AND
T-Kat Urban Renewal Corporation
as LESSEE
Dated: June ___, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE FIRST - Leased Premises 2
ARTICLE SECOND - Fixed Net Rent and Additional Rent 5
ARTICLE THIRD - Taxes, Assessments and Utility Charges 11
ARTICLE FOURTH - Gross Sales 19
ARTICLE FIFTH - Use of the Premises 23
ARTICLE SIXTH - No Representations by Lessor 25
ARTICLE SEVENTH - Lessor Not Liable for Failure of
Water Supply, Etc. 26
ARTICLE EIGHTH - Lessee to Repair 27
ARTICLE NINTH - Lessee to Comply with Laws 28
ARTICLE TENTH - Lessee's Right to Construct 30
ARTICLE ELEVENTH - Net Lease; Non-Terminability 35
ARTICLE TWELFTH - Insurance 36
ARTICLE THIRTEENTH - Fire or Casualty 44
ARTICLE FOURTEENTH - Lessor May Cure Defaults 49
ARTICLE FIFTEENTH - Partition Upon Termination 50
ARTICLE SIXTEENTH - Default Clauses and Lessor's Remedies 50
ARTICLE SEVENTEENTH - Lessee's Liability 54
ARTICLE EIGHTEENTH - Lessee to Indemnify Lessor 54
ARTICLE NINETEENTH - Mechanic's Liens 56
ARTICLE TWENTIETH - Condemnation 57
ARTICLE TWENTY-FIRST - Arbitration 64
ARTICLE TWENTY-SECOND - Shoring 67
ARTICLE TWENTY-THIRD - Waiver of Redemption 70
ARTICLE TWENTY-FOURTH - Vaults 70
ARTICLE TWENTY-FIFTH - Covenant of Quiet Enjoyment 71
<PAGE>
ARTICLE TWENTY-SIXTH - Contingent Assignment of Sub-leases 71
ARTICLE TWENTY-SEVENTH - Certain Landscaping 72
ARTICLE TWENTY-EIGHTH - Assignment and Sub-letting 73
ARTICLE TWENTY-NINTH - Lessee's Right to Mortgage Lease and
Rights of Leasehold Mortgagee 76
ARTICLE THIRTIETH - Utility Installation Reimbursement 90
ARTICLE THIRTY FIRST - Waivers and Surrenders to be in
Writing 90
ARTICLE THIRTY-SECOND - Cumulative Rights 91
ARTICLE THIRTY-THIRD - Surrender and Removal of Personal
Property 92
ARTICLE THIRTY-FOURTH - Sale or Conveyance of Premises
and Limits of Liability of Lessor 94
ARTICLE THIRTY-FIFTH - Alterations 95
ARTICLE THIRTY-SIXTH - Lessor and Lessee to Furnish
Statement 97
ARTICLE THIRTY-SEVENTH - Inspection by Lessor 98
ARTICLE THIRTY-EIGHTH - Surrender at End of Term 99
ARTICLE THIRTY-NINTH - Covenants Binding on Successors
and Assigns 100
ARTICLE FORTIETH - Consents 101
ARTICLE FORTY-FIRST - Entire Agreement 101
ARTICLE FORTY-SECOND - Designations Herein 101
ARTICLE FORTY-THIRD - Notices 101
ARTICLE FORTY-FOURTH - Non-Merger 108
ARTICLE FORTY-FIFTH - Broker 109
ARTICLE FORTY-SIXTH - Short Form of Lease 109
ARTICLE FORTY-SEVENTH - Force Majeure 110
ARTICLE FORTY-EIGHTH - Existing Tenancies and Occupancies 110
ARTICLE FORTY-NINTH - Bonds and Security 111
<PAGE>
ARTICLE FIFTIETH - Partial Invalidity 111
ARTICLE FIFTY-FIRST - Further Assurances 111
ARTICLE FIFTY-SECOND - Governing Law 112
ARTICLE FIFTY-THIRD - Renewal Term 112
ARTICLE FIFTY-FOURTH - Waterfront Development Permit 113
Responsibilities
ARTICLE FIFTY-FIFTH - Schedules Incorporated by Reference 115
ARTICLE FIFTY-SIXTH - Lease Revision 115
Schedules
SCHEDULE A Description of Leased Premises
SCHEDULE B Designated Parking Plan
SCHEDULE C Permitted Encumberances
SCHEDULE D Schedule of Construction Period
Liability Insurance
SCHEDULE E Description of Adjoining Premises
SCHEDULE F Lessee's Proposal
SCHEDULE G "American Bridge Redevelopment Plan"
SCHEDULE H Construction Schedule
SCHEDULE I Waterfront Development Permit
iii
<PAGE>
AGREEMENT OF LEASE
THIS AGREEMENT OF LEASE dated as of the 18th day of June, 1996
(hereinafter referred to as this "Lease"), made by and between:
MERCER COUNTY IMPROVEMENT AUTHORITY, its successors and/or
assigns as their interests may appear, a public body corporate and politic duly
organized and validly existing under the laws of the State of New Jersey, having
a mailing address 210 River View Executive Park, Trenton, New Jersey 08611,
(hereinafter referred to as "Lessor"),
AND
T-KAT URBAN RENEWAL CORPORATION, a corporation duly organized,
validly existing and in good standing under the laws of the State of New Jersey,
having a mailing address c/o Philip B. Seaton, Esq., Kozlov, Seaton, Romanini &
Brooks, 1940 Route 70 East, Cherry Hill, New Jersey 08003,its successors and/or
assigns as their interests may appear (hereinafter referred to as "Lessee").
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W I T N E S S E T H:
ARTICLE FIRST - Leased Premises
That Lessor, in consideration of the rents hereinafter reserved and of
the covenants, agreements, terms and conditions herein contained on the part of
Lessee to be paid, observed and fulfilled, does demise and hereby leases to
Lessee and Lessee hereby hires from Lessor the premises described in Schedule
"A" attached hereto and forming a part of this Lease, subject to any and all
existing easements as shown on Schedule "A", any and all duly recorded easements
of record and/or any other easements or agreements benefiting third parties
which have been disclosed to Lessee, including any cross-easements either
recorded or unrecorded of any prior owner of the subject property, rights or
claims of parties in possession of the land not shown by the public record,
easements, or claims of easements, not shown on the public record, any facts
about the land which a correct survey would disclose which are not shown by
public record, defects, liens, encumbrances, adverse claims or other matters, if
any, created, first appearing in the public records or attaching subsequent to
the effective date hereof. Lessee acknowledges that certain portions of the
proposed addition to the building on the premises described in Schedule "A"
encroach upon existing easements which are to be modified and relocated in
accordance with the State of New Jersey and/or any other individual or entity
which may hold an interest in those easements.
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The premises shall include the allocation of 125 (one hundred
twenty-five) of the 360 (three hundred sixty) total parking
spaces in the parking lot to be constructed by the County of
Mercer. The remaining 235 (two hundred thirty-five) parking
spaces in that lot shall be assigned to the State of New
Jersey to service Building 100 River View Executive Park from
7:00 a.m. through 5:00 p.m.; notwithstanding the foregoing,
Lessee hereby acknowledges that during the period from April 1
through May 31 for each and every year during the Lease Term
and any Renewal Terms as defined below, 50 (fifty) of the
Lessee's 125 (one hundred twenty-five) allocated parking
spaces shall be designated for the use of fishermen utilizing
the public fishing area and the State of New Jersey shall
designate 50 (fifty) parking spaces in an adjacent location
for the use of Lessee during that period. The Two Hundred
Thirty Five (235) spaces assigned to the State of New Jersey
to service Building 100 River View Executive Park shall be
allocated to the Lessee after 5:00 p.m. during each day of the
Lease term except when there is any event including, but not
limited to, baseball games, concerts, conventions, exhibitions
or any other event either at Mercer County Waterfront Park,
River View Executive Park and/or the described premises and/or
adjoining premises which and/or when the Lessor deems
appropriate and necessary to use said parking spaces as
defined herein. Lessee has reviewed Schedule "B"
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<PAGE>
attached hereto and acknowledges that no representations
and/or warranties have been made by Lessor or any third party
with respect to parking other than the obligation of Lessor to
supply parking spaces to the Lessee which are contained in
this Lease Agreement.
Said premises are hereinafter referred to sometimes as
the "Leased Premises."
Subject, however, to the following:
1. All present and future zoning ordinances, laws, rules and
regulations of the City of Trenton and all present and future ordinances, laws,
regulations, requirements, directives and orders of all boards, bureaus,
commissions, districts and bodies of any municipal, county, state or Federal
governments now or hereafter having, claiming or acquiring jurisdiction over the
Leased Premises and of the use and improvement thereof; and
2. The condition and state of repair of the Leased Premises as
the same may be on the day of the commencement of the term of this Lease,
including all deterioration, injury, loss, damage or destruction which may have
occurred prior to such date and any encroachments existing at the date of the
commencement of this Lease; and
4
<PAGE>
3. The covenants, restrictions, easements, agreements,
conditions and matters referred to in Schedule "C" attached hereto and forming a
part of this Lease (hereinafter referred to as the "Permitted Encumbrances").
TO HAVE AND TO HOLD the Leased Premises unto Lessee, its
successors and assigns, for and during the term (hereinafter referred to as the
"Term") commencing on the date of execution hereof and ending June 17, 2026,
unless otherwise extended for any renewal term described hereinbelow.
IT IS HEREBY MUTUALLY COVENANTED AND AGREED between Lessor and
Lessee as set forth in the following Articles of this Lease:
ARTICLE SECOND - Fixed Net Rent and Additional Rent
2.1 Lessee covenants and agrees to pay to Lessor as the fixed
net rentals for the Leased Premises (hereinafter referred to as the "Fixed Net
Rent") the respective dollar amounts for and during the Term as set forth below:
Lessee shall pay lessor 2% of Gross Sales (as defined in
Article Fourth herein) with a minimum payment of $50,000 per year and a maximum
payment of $100,000 per year. The minimum and/or maximum payments shall be
increased every 3 years by the cumulative
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<PAGE>
increase in the Consumer Price Index for the Philadelphia - New Jersey region
(as defined in Section 42.2(l)) during the previous 3 year period. If there is a
decrease in the CPI, the minimum and maximum rental payments shall remain the
same as the previous 3 year period.
For purposes of calculating the percentage increase in the
CPI, the increase shall be determined by the following formula:
(CPI on the last month of the current 3 year period - CPI on
the 1st month of the current 3 year period) / CPI on the first
month of the current 3 year period = percentage increase in
the CPI
Thus, by way of example only, if the CPI is 125 on the last
month of the current 3 year period and the CPI on the first month of the current
3 year period was 110, then the percentage increase is 13.6% [(125 - 110) / 110
= 0.136] and the new minimum yearly payment for the next 3 year period would be
$56,800.00 [($50,000.00 x 0.136) + $50,000.00 = $56,800.00] and the new maximum
yearly payment would be $113,600.00 [($100,000.00 x 0.136) + $100,000.00 =
113,600.00].
Until such a time as the percentage increase can be determined
for any 3 year period during the Lease term and any renewal terms, Lessee shall
continue to pay the minimum or maximum
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<PAGE>
monthly rent, if applicable, it had been paying for the preceding year and an
adjustment shall be made in the month immediately following the determination of
the minimum or maximum annual rent for the new period.
In the event that the Index described hereinabove ceases to
use 1982-84 = 100 as the basis of calculation, or if a substantial change is
made in the terms or number of items contained in the Index, then the Index
shall be adjusted to the figure that would have been arrived at had the change
in the manner of computing the Index in effect at the date of this lease not
been altered. In the event such Index (or a successor or substitute index) is
not available, a reliable governmental or other nonpartisan publication
evaluating the information theretofore used in determining the Index shall be
used.
The rent shall be paid monthly on the 15th day of each month.
The lessee shall pay the higher of 1/12 of the annual minimum payment (for the
1st 3 years, the minimum monthly rent shall be 1/12 of $50,000 which is
$4,166.66 per month) or 2% of the previous month's Gross Sales.
The lessor and lessee may, in their discretion, estimate the
annual Gross Sales, determine what the annual rent would be following the
formula of annual rent is 2% of Gross Sales, and then divide the annual rent
into 12 equal monthly installments. The
7
<PAGE>
parties will adjust any shortage or overage every 3 months. Said adjustment and
payment, if any, shall be made within fifteen(15) days of the end of each 3
month period.
The rent payments as described above shall be made by Lessee commencing
on the one hundred eightieth (180th) day after the date of the execution of this
Lease or upon the issuance of a temporary Certificate of Occupancy by the City
of Trenton, whichever shall occur first, which temporary Certificate of
Occupancy shall permit Lessee to be open for business to the general public,
regardless of whether the temporary Certificate of Occupancy shall permit Lessee
to open one hundred percent (100%) of the Leased Premises or any portion of the
Leased Premises less than one hundred percent (100%). If Lessee shall receive a
temporary Certificate of Occupancy and is permitted to open for business any
portion of the Leased Premises less than one hundred percent (100%), rent shall
be as set forth in Section 2.1 hereinabove with the following modification:
In the event that the Lessee commences operations without fully
completing the renovations to the structure now located on the premises, any
rents due and payable under this Lease shall be apportioned on a square footage
basis until such time as the premises are in full operation. However, the Lessor
and Lessee hereby agree that the full rent payments as set forth in paragraph
2.1 shall commence no later than the 180th day after the date of
execution of this Lease Agreement.
8
<PAGE>
The minimum and maximum rent shall be amended to reflect the square
footage of the Leased Premises open for business, if less then seventy-five
percent (75%). If seventy-five percent (75%) or more of the Leased Premises is
open for business, Lessee shall pay the full rent as described in paragraph 2.1
above. The square footage of the Leased Premises open for business divided by
the total square footage of the Leased Premises (21,510 square feet if the
outdoor deck is reasonably available for use, taking into consideration weather
conditions, etc., or 12,834 square feet if the outdoor deck is not reasonably
available for use) multiplied by $50,000.00 equals the minimum annual rent and
the square footage of the Leased Premises open for business divided by the total
square footage of the Leased Premises (21,510 square feet if the outdoor deck is
reasonably available for use, taking into consideration weather conditions,
etc., or 12,834 square feet if the outdoor deck is not reasonably available for
use) multiplied by $100,000.00 equals the maximum annual rent.
2.2 Fixed Net Rent shall be paid, without setoff, abatement or
deduction of any kind whatsoever except as hereinafter specifically set forth,
at the address herein provided for delivery of notices, in cash or by good check
drawn on a bank which is a member of the New York Clearing House or by
electronic funds transfer pursuant to Lessor's written directions provided at
Lessee's request.
9
<PAGE>
2.3 All sums, charges, costs and expenses which Lessee assumes or
agrees to pay pursuant to the terms of this Lease shall be deemed additional
rent, and in the event of their non-payment Lessor shall have all the rights and
remedies herein provided for in case of non-payment of the Fixed Net Rent.
2.4 If Lessee shall default in making any payment, other than the
payment of the Fixed Net Rent, required to be made by this Lease or shall
default in performing any term, covenant or condition of this Lease on the part
of Lessee to be performed, which shall involve the expenditure of money by
Lessee, Lessor at its option may (but shall not be obligated to do so), upon the
giving of at least ten (10) days' prior written notice to Lessee of Lessor's
intentions to do so, make such payment or, on behalf of Lessee, expend such sum
as may be necessary to perform and fulfill such term, covenant or condition. Any
and all sums so paid or expended by Lessor, with interest thereon at the then
"Prime Rate" (as such term is defined in Section 42.2 (k) of this Lease) from
the date of such payment of expenditure, shall be additional rent, and shall be
repaid by Lessee to Lessor on demand, but no such payment or expenditure by
Lessor shall be deemed a waiver of Lessee's default nor shall it affect any
other remedy of Lessor by reason of such default.
10
<PAGE>
2.5 All Fixed Net Rent and additional rent shall be payable at the
office of Lessor first above set forth or such other place of which Lessor shall
have given Lessee at least fifteen (15) days' notice.
2.6 The Fixed Net Rent payable hereunder shall be net to Lessor and,
except as provided herein, all costs, expenses and obligations of every kind and
nature whatsoever relating to the Leased Premises shall be paid by Lessee in
addition to the Fixed Net Rent.
ARTICLE THIRD - Taxes, Assessments and Utility Charges
3.1 Lessee shall, as additional rent, pay and discharge:
(a) all such real estate taxes (which term shall be deemed to include
payments in lieu of real estate taxes), special or general assessments, water,
water meter (including any expenses incident to the installation, repair or
replacement of any water meter), sewer and other utility rents and charges
(including any expenses incident to the hook-up and annual maintenance and
operating costs), the proportionate share of parking lot lighting expenses
(based upon the number of spaces assigned to Lessee compared to the total number
of spaces in the parking lot) and all other duties, charges, taxes, rents,
levies, impositions and sums of every kind or nature whatsoever, extraordinary,
as well as ordinary, and
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whether or not now within the contemplation of the parties, as shall, during the
Term, be imposed by any governmental or public authority on, or become a lien in
respect of, the Leased Premises or any part thereof, or upon any "Improvements"
(as such term is defined in Section 42.2(i) of this Lease) or appurtenance
thereto or any part thereof, now on or hereafter erected or placed on or in the
Leased Premises, or upon any sidewalk, or street in front of or adjacent to the
Leased Premises, or which may become due and payable with respect thereto, or by
reason thereof, and any and all taxes, assessments and charges of any kind
whatsoever levied, assessed or imposed upon the Leased Premises in lieu of or in
addition to the foregoing, under or by virtue of any present or future laws,
rules, requirements, orders, directives, ordinances or regulations of the United
States of America, or of the state, county, or city government or any municipal
bureau, district, department or lawful authority whatsoever;
(i) Lessee acknowledges and agrees that Lessee shall pay, as
additional rent, any and all costs and charges for the construction,
installation and/or connection of all public utilities or similar services,
including, but not limited to, gas, electric, sewer, water, telephone lines
and/or television cable. Payment of these costs and charges shall be made by the
Lessee when due except as set forth in Article Thirtieth herein.
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(b) all charges for fire or burglar alarm service, water, gas,
electricity, steam and all other public utility or similar service or services
furnished to the Leased Premises or the Improvements during the Term hereof, and
all fees and charges of the Federal, state, county or city government or of any
municipal bureau, district, department or lawful authority whatsoever, for the
construction, maintenance or use, during the Term, of any vault, passageway or
space in or over or under any street or sidewalk adjacent to the Leased
Premises, or for the construction, maintenance, use or occupancy during the Term
of this Lease of any part of any Improvements now or hereafter erected on the
Leased Premises; and
(c) all taxes and assessments which shall or may during the Term be
charged, levied, assessed or imposed upon, or become a lien upon, the personal
property of Lessee used in the operation of the Improvements on the Leased
Premises or in connection with Lessee's business conducted therein.
3.2 Lessee shall be deemed to have complied with the foregoing
covenants of Section 3.1 if payment of any such taxes (except as hereinafter
provided in Section 3.4 hereof), assessments, water, water meter and sewer rents
and charges, or of any other governmental impositions, duties, fees and charges,
is made by Lessee prior to the expiration of the period within which payment is
permitted without penalty or interest. Lessee shall promptly procure official
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receipts from the appropriate taxing or other authority if available evidencing
such payment and shall within ten (10) days after the receipt of this receipt,
forward a copy to Lessor or, in lieu thereof, shall exhibit such other evidence
of payment as Lessor shall reasonably request. Nothing herein contained shall be
construed so as to require Lessee to pay or be liable for any gift, inheritance,
estate, franchise, income, profits, capital or similar tax, or any tax in lieu
of any of the foregoing, imposed upon Lessor, unless such tax shall be imposed
or levied upon or with respect to rents payable to Lessor hereunder in lieu of
real estate taxes upon the Leased Premises, in which event Lessee covenants and
agrees to pay the same as if the Leased Premises were the only property owned by
Lessor. Notwithstanding anything to the contrary, if any assessment payable
pursuant to this Lease by Lessee is permitted to be paid in installments, Lessee
shall have the right at its option to pay the same in installments. In the event
that Lessee fails to make the payments referred to in this Article in a timely
manner and interest and/or penalties accrue, payment of that interest and/or
those penalties shall be the sole responsibility of the Lessee. Any failure to
make the payments as referred to in this Article shall be deemed a default and
subject to the provisions of Article Sixteenth.
3.3 In any action or proceeding involving any question arising under
the provisions of this Article Third, a search, certificate, or receipt, made or
given by any officer, person or corporation legally authorized to make or give
the same, or showing
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or purporting to certify or show that any such tax, assessment, water, water
meter or sewer rent or charge or other item against or affecting the Leased
Premises or the Improvements located thereon is due and payable on the date of
said search or certificate, or has been paid, shall be prima facie evidence that
such tax, assessment, water, water meter or sewer rent or charge or other item
was due and payable or a lien upon or charge against the Leased Premises or the
Improvements, or was paid. Lessor or Lessee shall be protected in any action
which it may take in reliance upon any such certificate, search or receipt.
3.4 Lessee may contest in good faith by appropriate proceedings at its
own expense, any such tax, assessment, water, water meter or sewer rent or
charge or similar item, provided that Lessee shall have deposited in escrow with
the First Leasehold Mortgagee (as such term is defined in Section 42.2(d) of
this Lease) or Lessor the amount of the item so contested (or where permitted by
law paid the same under protest), together with such additional sums as may
reasonably be required to cover interest or penalties accrued or to accrue on
any such item or items until such time as the proceeding is resolved judicially
by rights of final appeal. If such contest involves real estate taxes, any
additional taxes, interest, court costs and penalties or other charges directed
to be paid as a result of such contest shall be forthwith deposited by Lessee
with the First Leasehold Mortgage or Lessor to enable the First Leasehold
Mortgagee or Lessor to comply with the
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adjudication of said contest. Nothing herein contained, however, shall relieve
Lessee of the obligation and duty to pay and discharge such contested items, as
finally adjudicated, with interest and penalties, and all other charges directed
to be paid in or by any such adjudication less such sums as shall have been
deposited with the First Leasehold Mortgagee or Lessor. Any such contest or
legal proceeding shall be begun by Lessee as soon as reasonably possible after
the imposition of any contested item and shall be prosecuted to final
adjudication with all promptness and dispatch, except, however, that Lessee may
in its discretion consolidate any proceeding to obtain a reduction in the
assessed valuation of the Leased Premises and the Improvements for tax purposes
relating to any tax year with any similar proceeding or proceedings relating to
one or more other tax years. Anything to the contrary notwithstanding, Lessee
shall pay all such contested items before the time when the Leased Premises or
any part thereof might be forfeited as a result of non-payment or if Lessor
shall be subject to any criminal penalty or liability arising out of the
non-payment thereof. Lessor shall not, without Lessee's prior approval, make or
finally agree to any settlement, compromise or other disposition of any such
proceedings or discontinue or withdraw any such proceedings, or accept any
refund or other adjustment of or credit for any tax, assessment, water rent,
rate or charge, sewer rent or other governmental fee, imposition or charge
aforementioned as the result of any such proceedings. Any refunds resulting from
any contest by Lessee shall belong to Lessee, even if the action was brought
by Lessee in Lessor's name.
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3.5 Both at the commencement and at the expiration of the Term, all
taxes, assessments, water, water meter or sewer rents or charges, duties,
impositions, fees and charges for public utility or similar services, and all
fees, payments and other charges of every kind and nature, provided to be paid
by Lessee under this Article Third whether accrued or prepaid as the case may
be, and including any assessments which have been converted into installments,
shall be apportioned between Lessor and Lessee in accordance with the usual
practice and custom then in effect in the City of Trenton; provided, however,
Lessor shall be entitled to deduct from the sums due to Lessee hereunder any
such sum as may be due from Lessee if Lessee shall then be in default in the
performance of any of the terms, covenants and conditions of this Lease on
Lessee's part to be performed.
3.6 If by law any assessment for a public improvement with respect to
the Leased Premises or any Improvements thereon is payable, at the option of the
taxpayer, in installments, Lessee may, whether or not interest shall accrue on
the unpaid balance thereof, pay the same, and any accrued interest or any unpaid
balance thereof, in installments, as each installment becomes due and payable,
but in any event before any fine, penalty, interest, or if Lessor shall be
subject to any criminal or liability arising out of the non-payment thereof.
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3.7 Lessor and Lessee covenant and agree that during the Term, or
during the term of any extension provided for herein, each will cooperate with
the other in obtaining and retaining any tax exemptions and/or tax abatements
for which the Leased Premises may be eligible pursuant to any statute, law,
ordinance, rule or regulation now or hereafter enacted, and each will execute
and file any and all documents and instruments reasonably necessary to obtain
and retain any such exemption and/or abatement, provided that such action on the
part of Lessor shall be without any expense to it. Lessee shall deliver to
Lessor copies of all preliminary and final certificates or other instruments
evidencing any such tax exemption and/or abatement obtained for the Leased
Premises as and when Lessee receives such certificates or other instruments from
the appropriate governmental agency.
3.8 Lessee's obligations under this Article Third shall not be in
limitation of its obligations under Section 2.6.
3.9 The Leased Premises abuts the Delaware River and is located in a
Waterfront Development area and, therefore, may be subject to special
requirements of the United States, State of New Jersey, County of Mercer and/or
City of Trenton governments, including, but not limited to, the Army Corps of
Engineers and/or other governmental entities involved with the maintenance of
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navigable waterways, the U.S. Environmental Protection Agency, the N.J.
Department of Environmental Protection, any United States or New Jersey
Historical Society, the Trenton Landmarks Association, the "American Bridge
Redevelopment Plan" (attached as Schedule "G") and/or any other waterfront
development plans, redevelopment plans and/or historical preservation
requirements that may apply to the Leased Premises. Lessee shall comply with any
and all laws, enactments, court orders, rules, regulations and/or directives
regarding the maintenance and development of the Leased Premises and any
Improvements thereon which may be imposed due to the premises' location abutting
the Delaware River and in a Waterfront Development Area.
ARTICLE FOURTH - Gross Sales
4.1 The term "Gross Sales" as used in this Lease shall mean the total
gross revenues from: (1) all food, drink and merchandise sold and the charges
for all services rendered by Lessee and any other occupant of the Leased
Premises, including, but not limited to, all "cover charges" for entertainment,
whether for cash, by check, on credit or otherwise, without reserve or deduction
for inability or failure to collect, including, but not limited to, such sales
and service: (a) where the orders originate from or accepted by Lessee at the
Leased Premises, but delivery or performance is made at or from any other place;
(b) pursuant to mail, telephone, computer or other orders received or billed at
or
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from the Leased Premises; (c) by mechanical or vending devices; (d) as a result
of transactions originating from whatever source, and which the Lessee in the
normal course of business would credit or attribute to sales at the Leased
Premises; and (2) Lessee's operations which are neither included or excluded
from Gross Sales by the other provisions of this definition. Each installment or
credit sale shall be treated as a sale for the full price in the month when such
sale is made, irrespective of when Lessee receives payment therefor.
4.2 "Gross Sales" shall not include: (1) the exchange of merchandise
between stores of the Lessee where such exchanges are made in the ordinary
course of Lessee's business; (2) returns to manufacturers; or (3) taxes on
sales, provided same are separately and specifically charged to the customer at
the time of the sale and paid by the Lessee directly to the taxing authority,
and further provided that no franchise or capital stock tax and no value added
or income tax shall be deducted from Gross Sales in any event whatsoever; (4)
gross sales shall not include bad debts or write-offs taken in the normal,
ordinary course of the business operated by Lessee and general acceptable
accounting principles.
4.3 Gross Sales shall be reported for each month of each Lease Year as
well as for the entire Lease Year and shall be due and payable as set forth in
Section 2.1. Lessee shall deliver to Lessor within fifteen (15) days after the
end of each month, a
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statement of Gross Sales certified under oath by a principal officer of Lessee
stating the Gross Sales for the previous month in compliance with reasonable
accounting principles and standards. The statement of Gross Sales referred to
herein shall be in form and style and contain such details and breakdowns as the
Lessor may reasonably require.
4.4 Throughout the Lease Term and/or any renewal period and for six (6)
years thereafter, Lessee shall prepare and keep at the Leased Premises, or at
Lessee's executive offices full and accurate books and records showing Gross
Sales from the Leased Premises and claimed exclusions. Such books and records
shall be kept in accordance with generally accepted accounting principles and
shall include, without limitation, records of inventories, purchases and
receipts of merchandise, and all Lessee's sales and other transactions. All
sales shall be registered at the time of the sale in sealed cash registers
having cumulative totals or point of sale terminals. Lessee shall also maintain
original sales records, including, but not limited to, (1) cash register tapes;
(2) serially numbered sales slips; (3) mail orders; (4) telephone orders; (5)
settlement report sheets of transactions with sublessees, concessionaires and
licensees; (6) records showing that merchandise returned by customers was
purchased by such customers; (7) receipts or other records of merchandise taken
out on approval; (8) any other records which would be examined and required to
be kept by an independent accountant in performing an
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audit of Gross Sales pursuant to generally accepted auditing standards,
including, but not limited to, the general ledger and all books of original
entry, i.e. journals for purchases, sales, cash receipts and disbursements; and
(9) all income, sales and occupation tax returns. Lessee shall require its
sublessees, concessionaires and licensees, if any, to prepare and keep for
Lessor's audit at the Leased Premises, or at their executive offices in the
State of New Jersey, books and records of their sales and to furnish the same
statements as required of Lessee herein, provided that nothing herein shall be
construed as a consent to occupancy of the Leased Premises or any part thereof
by a sublessee, concessionaire or licensee, except as expressly provided in
Article Twenty-Eighth. Statements of Gross Sales shall conform to Lessor's
reasonable requirements, as to form and substance, including details and
analyses as Lessor requires. Lessor's acceptance of payments or statements of
Gross Sales shall be without prejudice and shall not constitute a waiver of
Lessor's right to audit books and records, as hereinafter provided.
4.5 Upon five (5) days' notice, Lessor shall have the right to audit
Lessee's aforementioned books and records pertaining to Gross Sales. Said audit
shall be conducted by an accountant employed or retained by Lessor. If the
results of the audit show that any statement of Gross Sales has been understated
by five percent (5%) or more, Lessee shall pay Lessor the cost of the audit in
addition to any deficiency payment within ten (10) days after
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demand. The furnishing by Lessee or any other occupant of the Leased Premises of
any grossly inaccurate statement of Gross Sales shall constitute a breach of
this Lease by Lessee.
4.6 Lessor shall not be deemed a partner of Lessee in the conduct of
Lessee's business, or otherwise, or joint venturer with Lessee. Lessee's payment
of a percentage of Gross Sales is included in this Lease for the purpose of
providing a method whereby Rent shall be measured and ascertained.
ARTICLE FIFTH - Use of the Premises
5.1 Lessee covenants and agrees that it will not use or occupy the
Leased Premises, or permit the Leased Premises or the Improvements to be used or
occupied for other than legal purposes, or for a purpose or in a manner likely
to cause structural or other injury to any Improvement on the Leased Premises,
or in a manner which shall violate any certificate of occupancy in force
relating to any Improvements thereon situated. The provisions of this Section
5.1 are subject to the provisions of Section 9.2 and Article Tenth hereof.
Lessee covenants and agrees that it will use the Leased Premises as a
restaurant, bar and nightclub with indoor/outdoor entertainment, music and
dancing in conformance with the proposal submitted by Lessee (attached as
Schedule "F") and approved by the City of Trenton Planning Board and the City of
Trenton Landmarks Commission for Historic Preservation.
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5.2 The premises may only be used as a restaurant, bar and nightclub
with indoor/outdoor entertainment, music and dancing in conformance with the
proposal submitted by Lessee (attached as Schedule "F") and the approval of the
City of Trenton Planning Board and the City of Trenton Landmarks Commission for
Historical Preservation. The primary use, however, must at all times be a
restaurant with a bar. No other use is permitted without the prior express
written consent of the Lessor. The use must at all times be in compliance with
any and all Federal, state and/or municipal laws, enactments, court orders,
ordinances, rules, regulations and/or directives regarding the use of the Leased
Premises, including, but not limited to, the "American Bridge Redevelopment
Plan" (attached as Schedule "G") and/or any other waterfront development plans,
redevelopment plans and/or historical preservation requirements that may apply
to the Leased Premises.
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ARTICLE SIXTH - No Representations by Lessor
6. Lessee accepts the Leased Premises in its present condition and
without any representations or warranty by Lessor of any kind or nature,
including, without limitation, as to its condition or as to the use or occupancy
which may be made thereof and/or parking availability. Lessee assumes the sole
responsibility for the condition, operation, maintenance and management of the
Leased Premises and Lessor shall not be required to furnish any facilities or
services or make any repairs or alterations thereto. Notwithstanding the
foregoing, Lessee accepts the premises subject to existing conditions as to the
title of said property and based upon representations that Lessor has the
authority to lease without color or claim of any other agency, individual,
and/or corporation or entity the Leased Premises. Notwithstanding the foregoing,
the Lessee acknowledges that the Lessor is in the process of acquiring title to
the Leasehold Premises from the State of New Jersey and/or Economic Development
Authority of the State of New Jersey. Lessee further acknowledges that Lessee
shall have the right to enter upon the Premises prior to the actual closing of
title in order to commence construction and/or improvements to the existing
Cooper Iron Works building.
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ARTICLE SEVENTH - Lessor Not Liable for Failure of
Water Supply, Etc.
7.1 Lessor shall not be liable for any failure of or irregularity in
water supply, gas or electric current, sanitary or storm sewer, or any other
utility service, nor for any injury or damage to person or property for any
reason whatsoever, including, without limitation, that caused by or resulting
from gasoline, oil, steam, gas, electricity, or hurricane, tornado, flood, wind
or similar storms or disturbances, or water, rain or snow or ice which may leak
or flow from the street, sewer, gas mains or any subsurface area or from any
part of the Improvements, or leakage of gasoline or oil from pipes, appliances,
sewer or plumbing works therein, or from any other place, nor for interference
with light or other incorporeal hereditaments by anybody, or caused by
operations by or of any public or quasi-public work, except for any affirmative
act of negligence of Lessor from and after the date hereof.
7.2 Lessor is not responsible for any damage caused by water of any
kind, including, but not limited to, any damage caused by flooding and/or any
other act of God including, but not limited to, hurricane, tornado, twister,
rains or lightning storm.
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ARTICLE EIGHTH - Lessee to Repair
8.1 Lessee shall, at its own cost and expense,
(a) take good care of the Leased Premises and of any
Improvements now or hereafter located thereon, both inside and outside, and keep
the same and all parts thereof, including, without limitation on the generality
thereof, the roof, foundations, windows and appurtenances thereto, together with
any and all alterations, additions and improvements therein and thereto, in good
order and condition, suffering no waste or injury, and shall, at Lessee's
expense, promptly make all needed repairs and replacements, structural or
otherwise, ordinary and extraordinary, in and to any Improvements now or
hereafter erected upon the Leased Premises, including, without limitation on the
generality thereof, vaults, sidewalks, curbs, water, sewer and gas connections,
pipes and mains, and all other fixtures, machinery and equipment now or
hereafter belonging to or connected with the Leased Premises or used in the
operation of the Improvements. All such repairs and replacements shall be of
good quality sufficient for the proper maintenance and operation of the Leased
Premises and any Improvements thereon and shall be constructed and installed in
compliance with all requirements of all governmental authorities having
jurisdiction thereof, and of the applicable Board of Fire Underwriters or any
successor thereof, and the requirements, if any, of any insurance company
insuring the Improvements. Lessee shall not permit the accumulation of waste or
refuse matter, nor
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permit anything to be done upon the Leased Premises or the Improvements which
would invalidate or prevent the procurement of any insurance policies which may
at any time be required pursuant to the provision of Article Twelfth hereof.
Lessee shall not obstruct or permit the obstruction of the street or sidewalk
except as may be permitted by municipal authorities having jurisdiction thereof,
and shall keep the sidewalk and curb adjoining the Leased Premises clean and
free of snow and ice. Lessor shall not be required to furnish any services or
facilities or to make improvements, repairs or alterations in or to the Leased
Premises during the Term.
ARTICLE NINTH - Lessee to Comply with Laws
9.1 Lessee shall, at Lessee's own cost and expense, promptly comply
with all present and future:
(a) requirements of every applicable statute, law, ordinance,
rule, regulation, directive or order, now or thereafter made by any Federal,
state, county, municipal or other public body, department, bureau, district,
officer or authority, with respect to (i) the Leased Premises, the Improvements
and appurtenances thereto; (ii) the use or occupation of the Leased Premises,
and the Improvements including the making of any alteration or addition in or to
any structure upon, connected with, or appurtenant to, the Leased Premises;
(iii) the removal of any encroachment, but only if
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required to do so by order of any court, department or bureau having
jurisdiction; and (iv) any vault, sidewalk or other space in, under or over any
street or avenue adjoining the Leased Premises; and
(b) any applicable regulation or order of the applicable Board
of Fire Underwriters, the applicable Fire Insurance Rating Organization, or
other body having similar functions; whether or not such compliance involves
structural repairs or changes to be required on account of any particular use to
which the Leased Premises, the Improvements or any part, may be put, and whether
or not any such statute, law, ordinance, requirement, regulation or order be of
kind not now within the contemplation of the parties hereto.
9.2 Provided non-compliance therewith shall not constitute a crime or
an offense punishable by fine or imprisonment, Lessee may, at Lessee's expense,
contest the validity of any such law, ordinance, regulation, order or
requirement, and such non-compliance by Lessee during such contest, provided
such contest shall be diligently prosecuted, shall not be deemed a breach of
this covenant, provided that before the commencement of such contest Lessee
shall furnish to the First Leasehold Mortgagee or Lessor either (a) the bond of
a surety company reasonably satisfactory to the First Leasehold Mortgagee or
Lessor, which bond shall be, as to its provisions and form, reasonably
satisfactory to
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the First Leasehold Mortgagee or Lessor, and shall be in an amount at least
equal to one hundred and twenty-five percent (125%) of the estimated cost of
such compliance and shall indemnify Lessor against the cost thereof, and against
all liability for any damages, interest, penalties and expense (including
reasonable fees of attorneys or counsel), resulting from or incurred in
connection with such contest or non-compliance, or (b) other security in place
of such bond reasonably satisfactory to the First Leasehold Mortgagee or Lessor.
ARTICLE TENTH - Lessee's Right to Construct
10.1 Lessee, at Lessee's own cost and expense, shall be obligated to
rehabilitate the Leased Premises and/or to demolish, renovate, construct and/or
reconstruct in whole or in part, any structure or structures thereon, and any
related improvements and appurtenances thereto, for such lawful use set forth
herein and in substantial compliance with the proposal previously submitted by
Lessee to Lessor (attached hereto as Schedule "F") and in compliance with any
special requirements of the United States, State of New Jersey, County of Mercer
and/or City of Trenton governments, including, but not limited to, the Army
Corps of Engineers and/or other governmental entities involved with the
maintenance of navigable waterways, the U.S. Environmental Protection Agency,
the N.J. Department of Environmental Protection, any United States or New Jersey
Historical Society, the City of
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Trenton Landmarks Commission for Historical Preservation, the "American Bridge
Redevelopment Plan" (attached as Schedule "G") and/or any other waterfront
development plans, redevelopment plans and/or historical preservation
requirements that may apply to the Leased Premises. Lessee shall comply with any
and all laws, enactments, court orders, rules, regulations and/or directives
regarding the maintenance and development of the Leased Premises and any
Improvements thereon which may be imposed by any plan or governmental entity
(such resulting renovated, constructed and/or reconstructed structure or
structures with related improvements and appurtenances are hereafter sometimes
referred to as the "Building").
10.2 Lessee shall commence the construction of such demised Building
within ten (10) days, including Saturdays and Sundays, after the plans and
specifications have been mutually approved in writing by Lessor, and will
diligently prosecute to completion such construction. The ten (10) day period
shall commence upon the issuance of any required demolition and/or building
permits.
10.3 Lessee's rights under Section 10.1 are subject to the following
terms and conditions:
(a) All plans and specifications for the Building shall be
prepared and completed by a licensed architect who shall be retained by and at
the expense of Lessee, subject to the prior
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express written consent of Lessor, which consent shall not be unreasonably
withheld, for that purpose.
(b) At no cost, charge or expense to Lessor, Lessee shall
furnish Lessor with copies of all plans (architectural, mechanical and
structural) and specifications for the Building as and when such plans are
received.
(c) Lessor's prior written approval of any of the said plans
and specifications for the Building shall be required. All of the said plans and
specifications must substantially comply with the proposal previously submitted
by the Lessee to the Lessor (attached hereto as Schedule "F") and with any and
all special requirements of the United States, State of New Jersey, County of
Mercer and/or City of Trenton governments, including, but not limited to, the
Army Corps of Engineers and/or other governmental entities involved with the
maintenance of navigable waterways, the U.S. Environmental Protection Agency,
the N.J. Department of Environmental Protection, any United States or New Jersey
Historical Society, the City of Trenton Landmarks Commission for Historical
Preservation, the "American Bridge Redevelopment Plan" (attached as Schedule
"G") and/or any other waterfront development plans, redevelopment plans and/or
historical preservation requirements that may apply to the Leased Premises. All
plans and specifications shall comply with any and all laws, enactments, court
orders, rules, regulations and/or directives regarding the
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maintenance and development of the Leased Premises and any Improvements thereon
which may be imposed due to the premises' location abutting the Delaware River
and in a Waterfront Development Area.
(d) Within ninety (90) days after completion of the
rehabilitation, construction or reconstruction of the Building (as such
completion is hereafter defined), Lessee shall also, without cost, charge or
expense to Lessor, furnish Lessor with one complete set of "as-built" plans,
drawings and specifications of the Building.
10.4 Lessee shall procure, at its own cost and expense, all permits
requisite to the rehabilitation, construction or reconstruction of the Building
and shall, during the construction thereof, comply with all applicable legal
requirements. The Building shall, when completed, comply with all applicable
laws, ordinances, rules, directives, regulations or orders of any Federal,
state, municipal or other public authority affecting the same, and with all
requirements of the Fire Insurance Rating Organization or similar body and of
any liability insurance company insuring Lessor against liability for accidents
in or connected with the Leased Premises or the Improvements thereon.
10.5 After Lessee shall have commenced demolition of any existing
Improvements, Lessee shall thereafter complete demolition and commence
construction with diligence and continuity until completion of the Building.
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10.6 (a) Lessor will, on demand of Lessee, promptly execute any
documents necessary to be signed on its part to obtain Certificates of Occupancy
for the Building. If Lessor shall incur any expense thereby, Lessee shall assume
such payment or if Lessor shall be subjected to any liability thereby, Lessee
shall agree to hold Lessor harmless therefrom, in form satisfactory to Lessor's
counsel.
(b) Title to the Building and all additions, alterations and
improvements thereto, or replacements thereof and appurtenant fixtures and
equipment therein installed when erected or installed in or upon the said
premises, shall be in Lessor subject to the provisions of Article Thirty-Eighth
hereof. Any and all equipment, furniture, etc., which is considered personalty
under the laws of the State of New Jersey shall remain property of the Lessee
and shall be retained by the Lessee at the expiration of the Lease Term.
10.7 Prior to "commencement of demolition or construction" (as
hereinafter defined) of any Improvements on the Leased Premises, Lessee shall
deliver to Lessor a builders risk policy of insurance naming Lessor as an
additional insured and/or loss payee as required by the Lessor and a liability
insurance policy in
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accordance with Section 12 for the respective risks and in the limits set forth
in the Schedule of Construction Period Liability Insurance annexed hereto and
made a part hereof as Schedule "D", which insurance shall be maintained and kept
in force by Lessee until the issuance of a Permanent Certificate of Occupancy
for the Building. For purposes of this Lease, "commencement of demolition or
construction" means the actual commencement of demolition work on the
Improvement or the commencement of construction.
ARTICLE ELEVENTH - Net Lease; Non-Terminability
11.1 This Lease is a net lease and the Fixed Net Rent, additional rent
and all other sums, payable hereunder to or on behalf of Lessor shall be paid
without notice or demand and without setoff, counterclaim, abatement,
suspension, deduction or defense, except as otherwise expressly provided.
11.2 Except as otherwise expressly provided herein, this Lease shall
not terminate, nor shall Lessee have any right to terminate this Lease or be
entitled to the abatement of any rent or any reduction thereof, nor shall the
obligations hereunder of Lessee be otherwise affected, by reason of (a) any
damage to or the destruction of all or any part of the Leased Premises or the
Improvements from whatever cause, (b) the taking of the Leased Premises or the
Improvements or any portion thereof by condemnation or otherwise, (c) the
prohibition, limitation or restriction of
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Lessee's use of the Leased Premises or the Improvements or the interference with
such use by any private person or corporation, (d) any eviction by paramount
title or otherwise, or (e) for any other cause whether similar or dissimilar to
the foregoing, any present or future law to the contrary notwithstanding it
being the intention of the parties hereto that the Fixed Net Rent and additional
rent reserved hereunder shall continue to be payable in all events, and the
obligations of Lessee hereunder shall continue unaffected, unless the
requirement to pay or perform the same shall be terminated or abated in full or
in part pursuant to an express provision of this Lease.
11.3 Lessee waives all rights now or hereafter conferred by law (a) to
quit, terminate or surrender this Lease or the Leased Premises, the Improvements
or any part thereof, or (b) to any abatement, suspension, deferment or reduction
of the Fixed Net Rent or additional rent or any other sums payable under this
Lease, regardless of whether such rights shall arise from any present or future
constitution, statute or rule of law.
ARTICLE TWELFTH - Insurance
12.1 Throughout the Term, Lessee shall, at its own cost and
expense:
(a) Keep the Buildings, Improvements and equipment on,
in or appurtenant to the Leased Premises at the commencement of the
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Term and thereafter erected thereon or therein, including all alterations,
additions and improvements thereto, insured for the benefit of Lessor against
loss or damage by fire with standard all risk special form (or its equivalent)
coverage, in an amount not less than ninety percent (90%) of the full
replacement value thereof, inclusive of excavations and foundations, with a
so-called "agreed amount" endorsement. Supplementing the foregoing, said Lessee
shall also provide worker's compensation for Lessee's employees and agents at no
less than the statutory requirement; employer's liability; difference in
conditions; rent insurance for no less than one (1) year's annual operating
income; and any and all other insurance, including but not limited to liquor
liability, flood, boiler and machinery, general liability and fire insurance as
Lessor may require to protect adequately the interest of Lessor against risks
afforded by such insurance coverage. All such insurance shall:
(i) be issued by such insurance companies licensed
to do business in the State of New Jersey under insurance policies
in form and content reasonably satisfactory to Lessor;
(ii) comply with any changes in requirements
applicable to the Leased Premises or the Improvements by the
applicable Fire Insurance Organization, or any similar body, or by
statute;
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(iii) in no event be in the amount less than
required by the First Leasehold Mortgagee of the Leased Premises;
(iv) also name Lessor and any Leasehold
Mortgagee(s), as their interests may appear as loss payees under a
non-contributory mortgage/loss payee endorsement;
(v) effectively provide that the respective
interests of Lessor and the holder of any Leasehold Mortgagee(s)
shall not be subject to cancellation by reason of any act or
omission of Lessee or any other party; and
(vi) provide that, subject to the right of the
First Leasehold Mortgagee whose interest may be covered by said policy or
policies, that the loss, if any, under any such policies shall be adjusted by
Lessee and paid by the insurance company or companies as provided in Section
12.8.
(b) Maintain, and provide Lessor with proof of, general and/or
public liability insurance, flood insurance, liquor liability insurance,
elevator insurance, boiler (should boilers be installed) and machinery
insurance, Builder's Risk insurance and such other insurance as may from time to
time be reasonably required by Lessor as insurance against insurable hazards
which are customarily and generally required to be insured with respect to
similar Improvements, with due regard for the height and depth and type of
building, its construction and use of occupancy.
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(i) Public liability insurance in limits not less
than One Million Dollars ($1,000,000.00) per individual per occurrence with a
Ten Million Dollar ($10,000,000.00) umbrella policy.
(ii) Property damage coverage under said liability
insurance policy in limits of not less than Five Million Dollars ($5,000,000.00)
for any one occurrence.
(iii) Liquor law liability insurance policy in
limits of not less than Three Million Dollars ($3,000,000.00).
(iv) Builder's Risk insurance policy in limits of
not less than [value of completed building] and may be canceled and replaced
with the property insurance policy or a package policy upon completion of the
Improvements.
Such personal injury and property damage liability policies
shall cover the Improvements, the appurtenances as well as the sidewalks
adjacent to the Improvements or the Leased Premises, and all parking areas.
All the insurance described in this subdivision (b) shall be
carried in favor of and insure Lessee, Lessor, the County of Mercer and any
Leasehold Mortgagee(s), as their interests may appear and specifically name the
Lessor, County of Mercer and any other Leasehold Mortgagee(s) as additional
insureds as their interests may appear. The Lessee must provide Lessor the
evidence of liability insurance in the above-stated amounts prior to the
commencement of construction and/or demolition. In the event of
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any dispute between Lessor and Lessee with respect to such other insurance as
Lessor may reasonably require from time to time, as above provided, such dispute
shall be arbitrated pursuant to the provisions of Article Twenty-First hereof.
The liability limits shall be increased every three (3) years by the cumulative
CPI as defined in Section 42.2(l).
12.2 Lessee shall procure policies for all said insurance for periods
of from one (1) to five (5) years, as Lessee shall elect, and shall deliver to
Lessor the originals or certified copies of such policies, if obtainable, or if
not obtainable, certificates thereof with evidence, by stamping or otherwise, of
the payment of the premiums thereon.
12.3 All premiums and charges for all of said policies shall be paid by
Lessee, and if Lessee shall fail to make any such payment when due, or carry any
such policy, Lessor may, but shall not be obligated to, make such payment or
carry such policy, and the amount paid by Lessor, with interest thereon at the
Prime Rate (as such term is hereinafter defined), shall be repaid to Lessor by
Lessee as additional rent on demand and all such amounts so repayable, together
with such interest, shall be considered as additional rent payable hereunder,
for the collection of which Lessor shall have all of the remedies herein or by
law provided for the collection of rent. Payment by Lessor of any such premium
or the carrying by Lessor of any such policy shall not be deemed to waive or
release the default of Lessee with respect thereto.
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12.4 Prior to the expiration of each such policy, Lessee shall pay the
premiums for renewal insurance and prior to said period shall deliver to Lessor
the original or a certified copy of such policy or a certificate or binder and
duplicate receipt (or other written documentation) evidencing the payment
thereof; and if any such premiums shall not be so paid and the policy, or a
certified copy thereof, or certificate or binder thereof, shall not be so
delivered, Lessor may (after first having given Lessee notice of Lessor's
intention to do so) procure and/or pay therefor, and the amounts so paid by
Lessor with interest thereon at the Prime Rate from the date of payment shall
become due and payable by Lessee as additional rent with the next installment of
Fixed Net Rent which shall become due after such payment by Lessor; and payment
by Lessor of any such premium shall not be deemed to waive or release the
default in payment thereof by Lessee, or the right of Lessor to take such action
as may be permissible hereunder, as in the case of default in the payment of
Fixed Net Rent.
12.5 Lessee shall not violate or permit to be violated any of the
conditions or provisions of any such policy, and Lessee shall so perform and
satisfy the reasonable requirements of the companies writing such policies.
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12.6 All of the insurance policies to be obtained and maintained by
Lessee under this Article Twelfth shall be held by Lessor, except that whenever
this Lease shall be mortgaged, the originals of said policies may be held by the
First Leasehold Mortgagee. In such event, duplicate originals of such policies,
or certified copies, if obtainable, certificates thereof shall be delivered to
Lessor.
12.7 Neither Lessee nor Lessor shall carry separate insurance,
concurrent in coverage and contributing in the event of loss with any insurance
required to be furnished by Lessee under the provisions of this Article Twelfth
if the effect of such separate insurance would be to reduce the protection or
the payment to be made under said insurance required to be furnished by Lessee,
unless Lessor is included as an insured with loss payable as hereinabove
provided. Lessee and/or Lessor, as applicable, shall promptly notify the other
of the issuance of any such separate insurance and shall cause such policies to
be delivered to the other and the First Leasehold Mortgagee as provided in this
Article Twelfth.
12.8 The proceeds of any fire or casualty insurance:
(a) if less than Fifty Thousand Dollars ($50,000.00), shall be
paid to Lessee as a trust fund, deposited in a separate bank account maintained
by Lessee and used, applied and paid to the repair and restoration of the damage
of the Improvements on the Leased Premises; or
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(b) if in excess of Fifty Thousand Dollars ($50,000.00), shall
be paid to and deposited with a bank or trust company, in the State of New
Jersey, of Lessor's selection, having assets in excess of $200,000,000.00 as
insurance trustee (hereinafter referred to as the "Depositary") which shall
hold, apply and make available the proceeds of such insurance, subject to the
right of any Leasehold Mortgagee(s), to the cost of repair of the damage and
replacement or rebuilding of the Improvements as more particularly hereafter
provided in Article Thirteenth of this Lease.
12.9 In the event Lessor receives any rent insurance proceeds under a
policy, the premiums for which are paid by anyone other than Lessor, Lessee
shall be credited therefor as payments made to Lessor on account of Fixed Net
Rent and additional rent payable by Lessee.
12.10 All policies to be obtained by the Lessee shall contain a
provision that any such policy shall provide notice to the Lessor of any
cancellation of said policy for non-payment and/or any other reason sixty (60)
days prior to the effective date of the cancellation.
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ARTICLE THIRTEENTH - Fire or Casualty
13.1 If the Improvements now or hereafter erected upon the Leased
Premises during the Term shall be destroyed or damaged in whole or in part by
fire, flood, or as a result directly or indirectly of war, or by act of God, or
occurring by reason of any causes whatsoever, Lessee covenants that Lessee shall
give prompt notice thereof to Lessor, and Lessee at its own cost and expense,
shall promptly repair, replace and rebuild the same, at least to the extent of
the value and as nearly as practicable to the character of the Improvements
existing immediately prior to such occurrence. Such repairs, replacements or
rebuilding shall be made by Lessee, as aforesaid, and in accordance with the
following terms and conditions:
(a) the same shall be made in accordance with plans and
specifications therefor , subject, however to the provisions of Section 10.3 of
this Lease;
(b) before commencing any such work, said plans and
specifications and application for all permits shall be filed and approved by
all municipal or other governmental departments or authorities having
jurisdiction thereof and a firm estimate for the cost of such repairs or
restoration shall be obtained;
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(c) before commencing any such work, Lessee shall, at its own
cost and expense, deliver to Lessor appropriate endorsements to be attached to
and made part of the fire and liability policies more particularly described in
Article Twelfth hereof. Said endorsements shall cover all of the risks concerned
during the course of such work and shall be in form and content reasonably
satisfactory to Lessor. Any dispute with respect to any of such endorsements
shall be determined by arbitration as hereafter provided;
(d) such work shall be commenced within sixty (60) days after
settlement shall have been made with the insurance companies and the insurance
monies shall have been turned over to Lessee or Depository as provided in
Article Twelfth hereof and the necessary governmental approvals, as herein
provided for, shall have been obtained, and such work shall be completed within
a reasonable time, due regard being had to conditions, free and clear of all
liens and encumbrances and in accordance with said plans and specifications;
(e) at least ten (10) days before commencing such work Lessee
shall notify Lessor of Lessee's intention to commence the same, and Lessee shall
pay the increased premiums, if any, charged by the insurance companies carrying
insurance on said building, to cover the additional risk during the course of
such work.
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13.2 The Depositary shall, provided this Lease shall then be in full
force and effect, apply the net proceeds of any insurance deposited with it to
the payment of the cost of such repairing or rebuilding as the same progresses,
payments to be made against properly certified vouchers of a competent architect
in charge of the work selected by Lessee. The Depositary shall advance out of
such insurance proceeds toward each payment to be made by or on behalf of
Lessee, an amount which shall bear the same proportion to such payment as the
whole amount received by the Depositary shall bear to the total estimated cost
of the repairing or rebuilding except, however, that the Depositary shall
withhold from each amount so to be paid by it ten percent (10%) thereof until
the work of repairing or rebuilding shall have been completed, and proof
furnished that no lien or liability has attached or will attach to the Leased
Premises, the Improvements, or to Lessor in connection with such repairing or
rebuilding. Provided that Lessee is not the First Leasehold Mortgagee or other
Institutional Lender, or a "related company" (as hereafter defined) with respect
to the First Leasehold Mortgagee or another Institutional Lender, then if the
total estimated cost of the repairs or rebuilding shall exceed the amount of the
net proceeds of such insurance received by the Depositary, the Depositary shall
require of Lessee that, before such repairing or rebuilding be commenced, the
Depositary be secured by a surety bond or cash equal to the amount of the excess
of such estimated cost over the net insurance proceeds as security for the due
completion, within a reasonable time, of such repairs or rebuilding or such
other security as may be reasonably
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satisfactory to the Lessor. The total cost of all such rebuilding shall, at all
events, be borne by Lessee without any contribution thereto by Lessor, but
nothing herein contained shall be deemed to obligate the First Leasehold
Mortgagee or any Institutional Lender or any related company to advance monies
in excess of the insurance proceeds for the purpose of repairs or rebuilding. If
the insurance proceeds shall exceed the cost of such repairs or rebuilding, the
balance remaining after payment to the cost of such repairs or rebuilding shall
be paid over and belong to Lessee.
The term "related company" as used herein shall mean a parent,
subsidiary or company affiliated with the First Leasehold Mortgagee or another
Institutional Lender or a successor to the First Leasehold Mortgagee or another
Institutional Lender or any such parent, subsidiary or affiliate by
consolidation, merger or the acquisition of substantially all of the assets of
the First Leasehold Mortgagee or another Institutional Lender or any such
parent, subsidiary or affiliate. The term "affiliate" shall be construed to mean
any entity in which the First Leasehold Mortgagee or another Institutional
Lender or a parent or subsidiary of the First Leasehold Mortgagee or another
Institutional Lender shall have an interest of not less than ten percent (10%).
13.3 If the work of repairing, replacing or rebuilding said damaged or
destroyed Improvements shall not have been commenced within the sixty (60) day
period provided for in subsection (d) of
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Section 13.1 hereof, or if such work after commencement shall not diligently
proceed, unless such work is delayed by strikes, lockouts, labor disputes or
other causes unavoidable or reasonably beyond the control of Lessee, Lessor
shall have the right to terminate this Lease and the term thereof by giving
Lessee not less than thirty (30) days' written notice of its intention so to do,
and upon the expiration of the date fixed in such notice, if such work shall not
have been commenced and the other conditions hereof complied with, or if after
commencement such work shall not diligently proceed, this Lease, and the Term
hereby granted, shall wholly cease and expire and the insurance proceeds
received and receivable under any and all policies of insurance shall be
retained by Lessor, as its interest may appear, without claim thereon by Lessee,
but subject to the right of any Leasehold Mortgagee to obtain and use such
proceeds to perform such work either on behalf of Lessee or as the lessee of a
new lease entered into pursuant to Section 29.2 hereof but Lessee shall continue
to be liable as provided in Article Seventeenth hereof. Any dispute under this
Section 13.3 hereof shall be determined by arbitration as hereinafter provided.
13.4 Except as provided in Section 13.3 hereof, this Lease shall not
terminate or be affected in any manner by reason of the destruction or damage in
whole or in part of the Improvements, now or hereafter standing or erected on
the Leased Premises, or by reason of the untenantability of the Improvements or
the Leased
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Premises and the Fixed Net Rent reserved in this Lease as well as all other
charges payable hereunder, to the extent that the same are not covered by and
paid pursuant to rent insurance, the premiums for which policy are paid for by
anyone other than Lessor, shall be paid by Lessee in accordance with the terms,
covenants and conditions of this Lease, without abatement, diminution or
reduction.
ARTICLE FOURTEENTH - Lessor May Cure Defaults
14. If Lessee shall default in the performance of any covenant
contained herein and to be performed on Lessee's part, Lessor may but shall not
be obligated to, after ten (10) days' prior notice to Lessee, or on shorter
notice if an emergency exists, perform the same for the account and at the
expense of Lessee. If Lessor should incur any expense, including reasonable
attorneys' fees, by instituting, prosecuting or defending any action or
proceeding instituted by reason of any default of Lessee, Lessee shall reimburse
Lessor for the amount of such expense plus interest thereon at the Prime Rate.
Should Lessee, pursuant to this Lease, become obligated to reimburse or
otherwise pay Lessor one or more sums of money in addition to the Fixed Net
Rent, the amount thereof shall be deemed additional rent and may, at the option
of Lessor, be added to any subsequent installment of the
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Fixed Net Rent due and payable under this Lease; in which event Lessor shall
have the remedies for default in the payment thereof provided by Article
Sixteenth hereof.
ARTICLE FIFTEENTH - Partition Upon Termination
15. Subject to the provisions of Article Twenty-Ninth hereof, in the
event of a termination of this Lease, Lessor may partition the Leased Premises
from any adjoining or contiguous property integrated with the Leased Premises
with respect to any Building, any portion of which is located upon the Leased
Premises. The right to partition shall include, without limitation, the right to
demolish, sever or otherwise separate the Building from any related structure or
improvement located on adjoining premises; in connection therewith, Lessor shall
have no duty to provide support (lateral, horizontal, vertical or otherwise) to
any such building, structure or other improvements on such adjoining premises.
Lessor shall have no liability to Lessee, any sublessees, or adjoining land
owners on account of the exercise of any rights contained in this Article
Fifteenth.
ARTICLE SIXTEENTH - Default Clauses and Lessor's Remedies
16.1 Upon the occurrence of any of the following events
(herein called "Events of Default"), i.e.,
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(a) if Lessee shall fail to pay any installment of Fixed Net
Rent or any Additional Rent or other charges, or any part thereof, as and when
the same become due and payable, and such default shall continue for a period of
ten (10) days, or
(b) if Lessee shall violate, fail to comply with or perform
any other covenant, term, condition or agreement of this Lease, other than that
requiring payment of a sum of money, and such default shall continue for a
period of ten (10) days after notice; provided, however, if the default is of a
type or character which cannot be cured within said ten (10) day period, the
Lessee shall have such additional time but in no event more than thirty (30)
days as may be necessary in order to effect such cure so long as the Lessee is
acting in good faith and is diligently undertaking to remedy the default, Lessor
shall have the right, at Lessor's option, to terminate this Lease and the Term
hereof, as well as all the right, title and interest of Lessee hereunder, by
giving Lessee ten (10) days' notice in writing of such termination, and this
Lease and the Term hereof, as well as all of the right, title and interest of
Lessee hereunder in the Leased Premises and the Improvements, shall wholly cease
and expire in the same manner and with the same force and effect as if the date
fixed by such latter notice were the expiration of the term herein originally
granted, and Lessee shall immediately quit and surrender to Lessor the Leased
Premises, the Improvements and each and every part thereof, and Lessor may enter
into or repossess the Leased Premises and the Improvements either by force,
summary proceedings or otherwise.
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16.2 In the event that this Lease shall be terminated as provided in
Section 16.1 (a) and/or (b), either by summary proceedings or otherwise, or in
the event that the Leased Premises shall be abandoned by Lessee, then Lessor, or
his agents or representatives may re-enter and resume possession of the Leased
Premises and the Improvements either by summary proceedings or by a suitable
action or proceeding at law or in equity, without being liable for any damages
therefor, which re-entry and repossession of the Leased Premises by Lessor shall
be Lessor's sole and exclusive remedy notwithstanding anything to the contrary
contained in this Lease. Upon the re-entry and repossession by Lessor and/or
upon the surrender of the Leased Premises by Lessee or the abandonment of the
Leased Premises by Lessee, this Lease and the estate created hereby shall wholly
cease and terminate.
16.3 With respect to subsection (b) of Section 16.1 hereof, if any of
the violations or defaults therein referred to be of such nature that they
cannot be cured and remedied within the applicable notice period, then Lessee
shall not be deemed to be in default with respect thereto if Lessee shall have
commenced the work or initiated the action required to remedy such violations or
defaults promptly within the applicable notice period and thereafter prosecutes
such work or other action to completion within a period of time which, under all
the prevailing circumstances shall be
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reasonable. However, Lessee's time to so commence the work or initiate the
action required to remedy such violations or defaults shall be extended by
delays occasioned by fire, strikes, embargoes, governmental restrictions or any
other similar cause beyond the reasonable control of Lessee.
16.4 The Leased Premises shall be used as a restaurant, bar and
nightclub with indoor/outdoor entertainment, music and dancing in conformance
with the proposal submitted by Lessee (attached as Schedule "F") and the
approval of the City of Trenton Planning Board and the City of Trenton Landmarks
Commission for Historic Preservation. Any failure to operate the premises as
such shall be a default. If the premises are not open or operated as set forth
herein for a period of forty-five (45) cumulative days per annum during any
lease year of this Lease, the Lessee shall be in default. The forty-five (45)
day period is defined as the operation of the normal and ordinary business of
the Lessee for a period of forty-five (45) cumulative days during any lease year
of this Lease Agreement and any renewals and/or extensions.
16.5 No default shall be deemed waived unless in writing and signed by
Lessor, except that any default in payment under subsection (a) of Section 16.1
above shall be deemed waived if such default in payment is made good before the
date fixed by the notice for termination of this Lease.
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ARTICLE SEVENTEENTH - Lessee's Liability
17. If Lessee or any successor in interest of Lessee shall be an
individual or individuals who are joint venturers, tenants in common, members of
a firm, a general or limited partnership or corporation, it is specifically
understood and agreed that the monetary liability of such individual or of the
members, officers, directors, shareholders and/or employees of that firm,
corporation, partnership or joint venture, in relation to any covenants or
conditions under this Lease, shall be limited to the equity of Lessee in the
Lease of the Leased Premises upon the occurrence of an Event of Default.
ARTICLE EIGHTEENTH - Lessee to Indemnify Lessor
18. Lessee shall not do or permit any act or thing upon the Leased
Premises, Improvements or parking area, which may subject Lessor to any
liability by reason of any illegal business or conduct upon the Leased Premises,
Improvements or parking area, or by reason of any violation of law or of any
legal requirement of public authority, but shall exercise such reasonable
control over the Leased Premises, Improvements and parking area as to fully
protect Lessor. Lessee shall indemnify and hold Lessor harmless from and against
any and all liability, fines, suits, claims, demands and actions, and costs and
expenses of any kind or nature including reasonable attorneys' fees or by anyone
whosoever, due to
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or arising out of (a) any breach, violation or non-performance of any covenant,
condition or agreement in this Lease set forth and contained on the part of
Lessee to be fulfilled, kept, observed and performed, and/or (b) any damage to
person or property occasioned by Lessee's use and occupancy of the Leased
Premises, Improvements and parking area and/or (c) any injury to person or
persons, including death resulting at any time therefrom, occurring in or about
the Leased Premises, Improvements, parking area and/or on the sidewalks in front
of the same but nothing herein shall be deemed to relieve Lessor from any
liability (i) resulting from the wanton or willful acts of Lessor and its
agents, employees, invitees and licensees or anyone claiming through Lessor with
respect to a claim by any third party or (ii) resulting from the negligence or
wanton or willful acts of Lessor and its agents, employees, invitees and
licensees or anyone claiming through Lessor with respect to a claim by Lessee.
If Lessor be required to defend any action or proceeding for which it is
entitled to indemnification pursuant to this Article Eighteenth, Lessor shall be
entitled to appear, defend or otherwise take part in the matter involved, at its
election, by counsel of its own choosing at the expense of Lessee, provided (i)
such action by Lessor does not limit or make void any liability of any insurer
of Lessor or Lessee hereunder in respect to the claim or matter in question,
(ii) such action or proceeding is not subject to defense by an insurance carrier
under a policy or policies of insurance required to be carried pursuant to
Article Twelfth hereof if (a) the coverage of such policy(ies) is in excess
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of the amount reasonably anticipated to be recovered, (b) there is not a
disclaimer of coverage or reservation of rights by the insurer, and (iii) Lessor
has made a written demand on Lessee to assume such defense with counsel
reasonably acceptable to Lessor and Lessee has failed or refused, and continues
to fail and refuse, to do so. Lessee's liability under this Article Eighteenth
shall be reduced by the net proceeds actually collected of any insurance
effected by Lessee on the risks in question for Lessor's benefit.
ARTICLE NINETEENTH - Mechanic's Liens
19.1 Notice is hereby given that Lessor shall not be liable for any
labor or materials furnished or to be furnished to Lessee upon credit, and that
no mechanic's lien, charge or order for the payment of money for any such labor
or materials (hereinafter collectively referred to as "Mechanic's Liens") shall
attach to or affect the reversion of any estate or interest of Lessor in and to
the Leased Premises or the Improvements.
19.2 Lessee covenants that whenever and as often as any Mechanic's
Liens shall have been filed against any part or all of the Leased Premises or
any part of the Improvements based upon any act or interest of Lessee or of
anyone claiming through Lessee, Lessee shall forthwith take such action by
bonding, depositing or paying so as to remove or satisfy the lien; and in
default thereof for thirty (30) days after notice to Lessee from Lessor, Lessor
may
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discharge the Mechanic's Lien by bonding or deposit, and the amount so expended,
with interest thereon, shall be deemed additional rent reserved under this
Lease, and shall be payable forthwith with interest at the Prime Rate from the
date of such advance and with the same remedies to Lessor as in case of default
in the payment of rent has herein provided.
ARTICLE TWENTIETH - Condemnation
20.1 If at any time during the Term any person or corporation,
municipal, public, private or otherwise, shall lawfully condemn and acquire
title of all of the Leased Premises or the Improvements, but not the parking
area, in or by condemnation proceedings in pursuance of any law, general or
special or otherwise, or by agreement between Lessor, Lessee and those
authorized to exercise such right, this Lease and the Term hereof shall
terminate and expire on the date of such taking and the Fixed Net Rent,
additional rent and other sum or sums of money and other charges herein reserved
and provided to be paid by Lessee shall be apportioned and paid to the date of
such taking.
20.2 If less than all of the Leased Premises or Improvements shall be
taken as aforesaid, Lessee shall determine, within ninety (90) days thereafter,
whether the remaining portion of the Leased Premises (after necessary repairs
and reconstruction to constitute the same a complete architectural unit or
units) can economically
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and feasibly be used by Lessee. If Lessee determines by written notice to Lessor
given within said ninety (90) day period that such remaining portion of the
Leased Premises including Improvements thereon cannot economically and feasibly
be used by Lessee, Lessee shall have the option to terminate this Lease on ten
(10) days' written notice to Lessor, and upon the expiration of ten (10) days
from the date of the giving of such notice, this Lease shall terminate and come
to an end, and the Fixed Net Rent, additional rent and other sum or sums of
money and other charges herein reserved payable by Lessee under this Lease shall
be apportioned up to the date of termination. However, the option to terminate
provided for in this subsection must be exercised within ten (10) days after the
determination, as aforesaid, that the remaining portion of the Leased Premises
including Improvements thereon cannot economically and feasibly be used by
Lessee. Lessee's failure to make the determination within said ninety (90) day
period, or having made the determination, the failure to exercise its option to
terminate shall be deemed a determination by Lessee that the remaining portion
of the Leased Premises (after necessary repairs and reconstruction to constitute
the same a complete architectural unit or units) can economically and feasibly
be used by Lessee.
20.3 If less than all of the Leased Premises and Improvements shall be
taken as aforesaid and this Lease shall not be terminated pursuant to Section
20.2, or if any appurtenances to the Leased
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Premises or Improvements, including but not limited to vaults, areas or
projections outside of the boundaries of the land owned by Lessor or rights in,
under or above the streets adjoining such land, or the rights and benefits of
light, air or access to said streets, or space or rights therein below the
surface of or above the Leased Premises or Improvements, shall be taken as
aforesaid, this Lease and the term hereof shall continue, but the Fixed Net Rent
thereafter payable to Lessee shall be reduced as and from the date of such
partial taking, or of such taking of appurtenances, by an amount per annum equal
to ninety percent (90%) of the aggregate amount payable to Lessor pursuant to
Section 20.4.
20.4 The rights of Lessor and Lessee in and to the award or awards upon
any such taking shall be determined as follows:
(a) In the event of any such taking of all or less than all of
the Leased Premises, as the case may be, Lessor shall always be entitled to
receive such portion of the award therefor, with interest thereon, as shall
represent compensation for the value of the land on the Leased Premises subject
to this Lease as of the day of taking plus consequential damages, if any, to its
reversionary interest in the portion of the land constituting the Leased
Premises not so taken.
(b) In the event of any taking of only appurtenances to
the Leased Premises or rights in, under or above the streets
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adjoining the Leased Premises, or the rights and benefits of light, air or
access to said streets, or the taking of space or rights therein below the
surface of or above the Leased Premises, or change of grade, Lessor shall always
be entitled to receive such equitable portion of the award therefor, with
interest thereon, as shall represent compensation for diminution, if any, in the
value of the land constituting the Leased Premises, as distinct from
consequential damages to the Improvements thereon.
(c) Lessee shall be entitled to receive the entire balance of
any such award or awards remaining after Lessor shall be paid as provided in
subsections (a) and (b) of this Section 20.4, except that in the event that less
than all of the Leased Premises shall be taken during the course of construction
or after completion of the Building and this Lease shall have been terminated
under the provisions of Section 20.2, then Lessor shall be entitled to receive
in addition to its portion of such award under subdivision (a) of this Section
20.4 such sum from the balance of such award as will be equal to the cost of
demolishing the remaining structure and filling the property to sidewalk level
and grading and covering same with cinders or gravel surfacing, to extent that
the cost thereof has not been included in consequential damages under subsection
(a) of this Section 20.4.
20.5 In case the respective portions of any award claimed to
be due by Lessor and Lessee shall not be fixed in the proceedings
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for such taking, in accordance with the agreement of the parties set forth in
Section 20.4, and if the parties shall not agree in writing as to the respective
portions to be paid out of such award within ninety (90) days after the date of
the final determination of the amount thereof, the amounts of such respective
portions shall be determined by arbitration in the manner provided in Article
Twenty-First hereof.
20.6 If the Improvements or any replacement thereof shall be damaged or
partially destroyed by any such taking of less than all thereof, and this Lease
shall not be terminated as provided in Section 20.2, Lessee shall proceed with
reasonable diligence to conduct any necessary demolition and to repair, replace
or rebuild at Lessee's own cost and expense any remaining part of the
Improvements not so taken so as to constitute such remaining part thereof a
complete, rentable building in good condition and repair and Lessee shall retain
that portion, if any, of any award which represents compensation for that
portion of the Improvements taken and consequential damages to the Building and
Improvements not so taken, in trust, to apply the same to the extent necessary
to the cost and expense of such demolition, repair, replacement and rebuilding
by whomsoever incurred and sums in excess of the cost thereof shall belong to
the Lessee. The provisions of Article Thirteenth hereof shall apply to the work
required to be done under this Section 20.6.
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20.7 If the taking of any appurtenances to the Leased Premises, vaults,
areas or projections outside of the boundaries of the land owned by Lessor or
rights in, under or above the streets adjoining such land, or the rights and
benefits of light, air or access to said streets, or the taking of space or
rights therein below the surface of or above the Leased Premises, or change in
grade, shall result in physical damage to the Improvements now or hereafter
erected upon the Leased Premises, Lessee shall proceed with reasonable diligence
to conduct any necessary repairs, replacements or rebuilding at Lessee's own
cost and expense. The provisions of Article Thirteenth shall apply to the work
required to be done under this Section 20.7. Lessee shall retain that portion,
if any, of the award which represents compensation for physical damage to the
Improvements then existing and maintained upon the Leased Premises and the cost
of repairing, restoring or replacing the same, in trust, to apply the same, to
the extent that such portion will permit, to the cost and expense of such
repairs, replacements and rebuilding, and any sums in excess thereof shall
belong to the Lessee.
20.8 If the temporary use of the whole or any part of the Leased
Premises or Improvements except for the parking area, shall be taken at any time
during the Term for any public or quasi-public purpose by any lawful power or
authority by the exercise of the right of condemnation or eminent domain or by
agreement between Lessee and those authorized to exercise such right, the
foregoing
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provisions of this Article Twentieth shall be inapplicable thereto, the Term
shall not be reduced or affected in any way, Lessee shall continue to pay in
full the Fixed Net Rent, additional rent and other sum or sums of money and
charges herein reserved and provided to be paid by Lessee, and Lessee shall be
entitled to make claim for, recover and retain any award or awards, whether in
the form of rental or otherwise, recovered above in respect to such possession
or occupancy; provided, however, that if such possession or occupancy shall
extend beyond any expiration of the Term, the award shall be apportioned between
Lessor and Lessee as of the date of such expiration.
20.9 Neither Lessee nor Lessor shall settle or compromise the amount of
any award in such condemnation proceeding without the other's and the First
Leasehold Mortgagee's, if any, consent, which consent Lessor and Lessee agree
shall not be unreasonably withheld. If Lessor and Lessee cannot agree to such
settlement or compromise, the same shall be determined by arbitration in
accordance with the provisions of Article Twenty-First, Lessee shall be entitled
to appear in such condemnation proceeding and make claim for such share of the
award as it is entitled to receive under the provisions of this Article
Twentieth and to offer testimony thereat.
20.10 Any Leasehold Mortgagees shall be entitled to appear in such
condemnation proceedings and make claim for such charge of any
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award to which Lessee is entitled by the terms of this Article Twentieth. Such
Leasehold Mortgagees shall be entitled to that portion of the condemnation award
which by the terms of this Article Twentieth might otherwise be paid to Lessee
except that where by the terms of this Article Twentieth Lessee is to retain
such funds in trust for the purpose of demolishing, repairing, replacing or
rebuilding the Improvements or the Building or any portion thereof.
ARTICLE TWENTY-FIRST - Arbitration
21.1 In the event of a dispute between Lessor and Lessee with respect
to any issue of fact (other than one determined by the condemnation court)
arising out of a taking referred to in Article Twentieth hereof, or specifically
mentioned and provided for elsewhere herein as a matter to be decided by
arbitration, such dispute shall be determined by arbitration as hereinafter in
Article Twenty-First provided.
21.2 J.J. Pierson of the Arbitration Centre, P.O. Box 604, New Vernon,
New Jersey 07976, shall be designated as the arbitrator of any dispute which may
arise. In the event that J.J. Pierson is not available to serve as arbitrator,
Lessor and Lessee shall each appoint a fit and impartial person as arbitrator
who shall have had at least ten (10) years' experience in the State of New
Jersey in a calling connected with the subject matter of the dispute. The
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party desiring such arbitration shall give written notice to that effect to the
other party, specifying the nature of the dispute, its position with respect
thereto and its choice of arbitrator and requesting the other party to appoint
an arbitrator. The other party shall notify the invoking party of its choice of
arbitrator, and its position with regard to the dispute within twenty (20) days
of receipt of the notice. The arbitrators so appointed, in the event of their
failure to agree within thirty (30) days upon the matter so submitted, shall
appoint an umpire.
21.3 In case either Lessor or Lessee shall fail to appoint an
arbitrator as aforesaid, for a period of twenty (20) days after written notice
from the invoking party to make such appointment, then the arbitrator appointed
by the party not in default hereunder shall appoint a second arbitrator and the
two so appointed shall, in the event of their failure to agree upon any decision
within ten (10) days thereafter, appoint an umpire.
21.4 In the case of the failure of such arbitrators to agree and their
failure to agree upon an umpire, then such umpire shall be appointed by the
American Arbitration Association (New Jersey office) from its qualified panel of
arbitrators, and shall be a person having at least ten (10) years' recent
experience as to the subject matter in question.
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21.5 The arbitrators and umpire, after being duly sworn to perform
their duties with impartiality and fidelity, shall proceed with all reasonable
dispatch to determine the question submitted. The decision of the arbitrators
and umpire, as the case may be, shall in any event be rendered within thirty
(30) days after their appointment, and such decision shall be in writing and in
duplicate, one counterpart thereof to be delivered to each of the parties.
21.6 The arbitration shall be conducted in accordance with N.J.S.A.
2A:24-1, et seq., entitled Arbitration and Award, or any successor statute
thereto in accordance with the Rules of the American Arbitration Association.
Hearing shall be held in the City of Trenton, County of Mercer, State of New
Jersey. The award of the arbitrators shall be binding, final and conclusive on
the parties. The fees of the arbitrators and umpire and the expenses incident to
the proceedings shall be borne equally between Lessor and Lessee. The fees of
respective counsel engaged by the parties, and the fees of expert witnesses and
other witnesses called for by the parties, shall be paid by the respective party
engaging such counsel or calling or engaging such witnesses.
21.7 In the event a dispute shall be submitted to arbitration as
hereinabove provided, notice of appointment of the arbitrators shall be given to
the then holder of the First Leasehold Mortgage who prior thereto shall have
given Lessor a written notice specifying the name and address of such holder,
and such holder of
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the First Leasehold Mortgage shall have the right to participate in the
arbitration proceedings, provided, however, that such participation shall be in
association with Lessee and shall neither be deemed to entitle such holder of
the First Leasehold Mortgage to participate in the appointment of Lessee's
arbitrator nor to appoint an additional arbitrator, nor to enlarge Lessee's
rights in such arbitration proceedings, it being the intention of the parties
that the said holder of the First Leasehold Mortgage shall have only the right
to present evidence and arguments and so participate in the arbitration
proceeding.
ARTICLE TWENTY-SECOND - Shoring
22.1 Lessee shall allow an adjoining owner desiring to excavate on its
premises, or a municipality desiring to excavate a nearby street, to enter the
Leased Premises and Improvements and shore up a perimeter wall during such
excavation. Lessee shall, at Lessee's own expense, within a reasonable time,
repair or cause to be repaired, any damage caused to any part of the Leased
Premises and Improvements because of any excavation, construction work or other
work of a similar nature which may be done on any property adjoining or adjacent
to the Leased Premises, and Lessor hereby assigns to Lessee any and all rights
to sue for or recover against such adjoining owners, or the parties causing such
damages, the amounts expended or injuries sustained by Lessee because of the
provisions of this Article Twenty-Second requiring Lessee to repair
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any damages sustained by such excavations, construction work or
other work.
22.2 Lessee shall be responsible for maintaining the riverbank of the
Delaware River, and the shoring of the same in order to insure the stability of
the Building and/or decks or any other structure located on the Leased Premises.
All such maintenance and shoring of the riverbank shall be subject to the
requirements of the United States, State of New Jersey, County of Mercer and/or
City of Trenton governments, including, but not limited to, the Army Corps of
Engineers and/or other governmental entities involved with the maintenance of
navigable waterways, the U.S. Environmental Protection Agency, the N.J.
Department of Environmental Protection, the Mercer County Soil Conservation
District, any United States or New Jersey Historical Society, the City of
Trenton Landmarks Commission for Historical Preservation, the "American Bridge
Redevelopment Plan" (attached as Schedule "G") and/or any other waterfront
development plans, redevelopment plans and/or historical preservation
requirements that may apply to the Leased Premises. Lessee shall comply with any
and all laws, enactments, court orders, rules, regulations and/or directives
regarding the maintenance and development of the Leased Premises and any
Improvements thereon which may be imposed due to the premises' location abutting
the Delaware River and in a Waterfront Development Area.
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22.3 Lessee shall bear the cost of the installation of "rip- rap" or
other material used for the stabilization of the Delaware River embankment as
required by the State of New Jersey Department of Environmental Protection, the
Mercer County Soil Conservation District and/or any other governmental entity.
In the event that the cost of the installation of "rip-rap" or other material
used for the stabilization of the Delaware River embankment exceeds thirty
thousand dollars ($30,000.00) and the Lessee has expended at least three and
one-half million dollars ($3,500,000.00) in construction costs for the
Improvements on the Leased Premises, then Lessee shall receive from Lessor a
credit against the first year's rental payments in an amount equal to the sum by
which the cost of the installation of "rip-rap" or other material used for the
stabilization of the Delaware River embankment exceeds thirty thousand dollars
($30,000.00). The credit, if any, shall be given in twelve (12) equal monthly
installments, each installment being in the amount of 1/12th of the overage,
during the first year's rental payments. Notwithstanding anything to the
contrary in Section 22.2 hereinabove, Lessor shall be responsible for the
maintenance of the "rip-rap" or other material used for the stabilization of the
Delaware River embankment. Lessee specifically acknowledges that by maintaining
the "rip-rap" or other material, Lessor is not assuming any responsibility
and/or liability for Lessee's obligations as set forth in Section 22.2 herein
above regarding the stability of the Building and/or decks or any other
structure on the Leased Premises.
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ARTICLE TWENTY-THIRD - Waiver of Redemption
23. Lessee, for itself and for all persons claiming through or under
it, hereby expressly waives any and all rights which are or may be conferred
upon Lessee by any present or future law to redeem the Leased Premises, or to
any new trial in any action of ejectment under any provision of law, after
re-entry thereupon, or upon any part thereof by Lessor, or after any warrant to
dispossess or judgment in ejectment. If Lessor shall have acquired possession of
the Leased Premises by summary proceedings, or in any other lawful manner
without judicial proceedings, it shall be deemed a re-entry within the meaning
of that word as used in this Lease.
ARTICLE TWENTY-FOURTH - Vaults
24. This Lease includes, as appurtenant to the Leased Premises, any
rights of Lessor, or which Lessor has authority to grant, in or to any vaults or
other space in, under or over any adjoining avenue, street, highway or property,
but if, by law, or by or in consequence of the action of any authority
hereinabove referred to in Article Twentieth hereof, or by title paramount, the
possession or use of any appurtenances to any Improvements now or hereafter
erected on the Leased Premises (such vaults, steam lines, show-windows, porches
or any other thing or privilege), outside the boundaries of the land owned by
Lessor shall be discontinued, such discontinuance shall in no way affect the
liability of Lessee to
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pay the full rent and perform all the covenants contained in this Lease. Except
as may be otherwise provided in Article Twentieth hereof, no diminution of the
amount of space used by Lessee, caused by legally required changes in the
construction, equipment or operation of any Improvements now or hereafter
erected on the Leased Premises, shall entitle Lessee to any reduction or
abatement of rent. Lessor makes no representation that any such rights exist or,
if they do exist, the nature, extent or value thereof.
ARTICLE TWENTY-FIFTH - Covenant of Quiet Enjoyment
25. If and so long as Lessee shall pay the Fixed Net Rent and
additional rent reserved by this Lease, and shall perform and observe all the
covenants and conditions herein contained on the part of Lessee to be performed
and observed, Lessor warrants that Lessee shall have the right to and shall
quietly enjoy the Leased Premises, subject however, to the terms of this Lease.
ARTICLE TWENTY-SIXTH - Contingent Assignment of Sub-leases
26. During the continuance of an Event of Default, Lessee hereby
assigns to Lessor all sub-leases and sub-tenancies, including, but not limited
to any concessions and/or licenses, now or hereafter to be made of the Leased
Premises, the Improvements or any parts thereof, as well as all rents or other
sums of money which may hereafter become due and payable thereunder to Lessee,
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together with all security at any time deposited for the payment of rent and the
performance of any other terms of such sub-leases. Upon the curing of such Event
of Default prior to the termination of this Lease by Lessor by reason of such
Event of Default, such assignment shall become inoperative unless and until a
further Event of Default under this Lease. The foregoing assignment in the event
of such defaults shall be subject to any assignment of such sub-leases and
sub-tenancies and the rents due thereunder to any permitted Leasehold Mortgagee
(as defined in Article Twenty-Ninth). After any such Event of Default and until
the same is cured, any such sub-leases or sub-tenancies may not be canceled or
modified without the prior express written consent of Lessor, and any such
cancellation or modification, whether by Lessee or any Leasehold Mortgagee,
shall be of no force or effect.
ARTICLE TWENTY-SEVENTH - Certain Landscaping
27. Lessor shall be responsible for the initial landscaping of the area
located on the public easement directly in front of the Building on the Leased
Premises in the amount of Ten Thousand Dollars ($10,000.00). It shall be
Lessee's responsibility during the course of the Lease Term and any Renewal
Terms to maintain that landscaping.
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ARTICLE TWENTY-EIGHTH - Assignment and Sub-letting
28.1 Lessee shall have the right, at any one or more times and from
time to time, with the prior express written consent of Lessor which consent
will be governed by the terms set forth in 28.1 (a), (b), (c) to assign or
transfer this Lease in whole or in part or to underlease or sub-let the whole or
any part of the Leased Premises or to grant concessions or licenses in the
Leased Premises to any one or more parties or entities, provided the Lessee
shall pay to the Lessor seventy-five percent (75%), of any rents collected under
said partial or complete sub-letting and/or assignment in addition to the rent
of the Lessee hereinabove set forth in this Lease (any one of the foregoing
events shall hereinafter be referred to as a "Transfer").
(a) In the event that a Transfer be an assignment of this
entire Lease or a sub-letting of a major portion of the Leased Premises (which
sub-letting of a major portion of the Leased Premises shall be hereinafter
referred to a "Major Sub-Letting" and the document evidencing same a "Major
Sub-Lease") Lessor shall receive advance written notice of such proposed
assignment or Major Sub-Letting and the effective date thereof, and must approve
in writing the assignment or sub-letting which approval shall not be
unreasonably withheld. However, the premises must continue to be used primarily
as a restaurant, bar and nightclub with indoor/outdoor entertainment, music and
dancing in conformance with
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the proposal submitted by Lessee (attached as Schedule "F") and the approval of
the City of Trenton Planning Board and the City of Trenton Landmarks Commission
for Historic Preservation. Any use that differs will justify a rejection of the
proposed sublease and/or assignment. Furthermore, the Lessor has the right to
investigate, interview, and conduct financial and background checks on any
person, partnership, corporation, etc. that may wish to take control of the
premises as sublessee and/or assignee. The parties acknowledge and agree that
Lessor wants to ensure that the premises will be a restaurant, bar and nightclub
with indoor/outdoor entertainment, music and dancing in conformance with the
proposal submitted by Lessee (attached as Schedule "F") and the initial approval
of the City of Trenton Planning Board and the City of Trenton Landmarks
Commission for Historic Preservation with the ability to provide late night
entertainment;
(b) such assignment or Major Sub-Lease shall be in writing,
duly executed and acknowledged by Lessee (and by the SubLessee in the case of a
Major Sub-Letting) in proper form for recording;
(c) a duplicate original of such assignment or Major Sub-Lease
shall be delivered to Lessor not more than ten (10) days after the execution of
such assignment or Major Sub-Lease;
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(d) if Lessee assigns one or more undivided interests
in all right, title and interest of Lessee hereunder, then:
(i) every such assignment shall comply with all of
the provisions of the foregoing subsections (a), (b) and (c);
(ii) neither Lessee's interest hereunder, nor any
part thereof or estate therein shall be subject by agreement, by
operation of law or otherwise to any later partition;
(iii) no such partial assignment shall require
Lessor or Leasehold Mortgagee to look to any such partial assignees for the
performance of any of the agreements, terms, covenants and conditions hereof on
the part of the Lessee to be performed, except to all of such partial assignees
as owners or tenants in common of this Lease; and
(iv) wherever notice to, demand upon, request or
any other communication of any nature is required to be given by Lessor or
Leasehold Mortgagee to Lessee no such notice shall in any event be required to
be given to any such partial assignee, but any such notice shall be given only
to such one individual, firm or corporation who shall have been duly designated
by an instrument or instruments executed and acknowledged by all of such partial
assignees.
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28.2 Lessee may sub-let all or part of the space and appurtenances
comprising the Improvements provided (a) same does not conflict with any express
term of any mortgage to which this Lease is subordinate, and (b) said
sub-lettings shall at all times to be subordinate to this Lease.
28.3 If the Transfer be an assignment of this Lease which assignment is
made in compliance with the foregoing provisions of this Article
Twentieth-Eighth, the assignor shall not be deemed to be released and discharged
from all obligations and liabilities hereunder accruing after the execution and
delivery to Lessor of such assignment.
28.4 Notwithstanding anything to the contrary in this Article
Twenty-Eighth, Lessee may at any time assign or sublease this Lease Agreement to
any entity which is controlled by Lance Silver and Stuart Harting without
Lessor's consent and without the payment of the additional rent as set forth in
Section 28.1 hereinabove, provided that Lance Silver and Stuart Harting are and
remain the principal controlling shareholders of that entity.
ARTICLE TWENTY-NINTH - Lessee's Right to Mortgage Lease
and Rights of Leasehold Mortgagee
29.1 Lessee shall have the right, subject to Lessor's prior
express written consent which shall not be unreasonably withheld to
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mortgage this Lease and Lessee's leasehold estate hereunder by one First
Leasehold Mortgage and by no Subordinate Leasehold Mortgages (as such terms are
defined in subsections (d) and (f) of Section 42.2 of this Lease); provided,
however, no such mortgage shall extend to or affect Lessor's reversionary
interest and estate of Lessor in and to the Leased Premises.
29.2 If Lessee shall mortgage this Lease and Lessee's leasehold estate
hereunder, and if the First Leasehold Mortgagee, as such term is defined in
subsection (c) of Section 42.2, shall forward to Lessor an executed counterpart
of the mortgage or mortgages in the form proper for recording, or a conformed or
true copy of said mortgage or mortgages, together with a written notice given in
the manner provided in Article Forty-Third hereof setting forth the name and
address of the First Leasehold Mortgagee, then any such counterpart or copy of
said mortgage and any such notice shall be deemed also to have been forwarded to
any successor to Lessor's interest in the Leased Premises and until the time, if
any, that said mortgage shall be satisfied of record or said First Leasehold
Mortgagee shall give to Lessor written notice that said mortgage held by it has
been satisfied:
(a) No cancellation, surrender, acceptance of surrender or
modification of this Lease shall be binding upon the First Leasehold Mortgagee
or effect the lien of the First Leasehold Mortgagee if done without the prior
express written consent of said First Leasehold Mortgagee.
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(b) If Lessor shall give any notice, demand, election or other
communication (hereinafter in this subsection (b) of Section 29.2 collectively
referred to as "notices") to Lessee hereunder, Lessor shall at the same time
give a copy of each such notice to the First Leasehold Mortgagee at the address
theretofore designated by them in the manner provided in Article Forty-Third
hereof and the giving of such notice shall be deemed complete when such notice
is received by the First Leasehold Mortgagee. No notice given by Lessor to
Lessee shall be binding upon or effect said First Leasehold Mortgage unless a
copy of said notice shall be given to said First Leasehold Mortgagee pursuant to
this subsection (b) of Section 29.2. In the case of any assignment of the
mortgage or mortgages held by it or change in address of the First Leasehold
Mortgagee, said assignee or First Leasehold Mortgagee by written notice to
Lessor, may change the name of the First Leasehold Mortgagee and/or the address
to which such copies of notice are to be sent by notice to Lessor given in the
manner provided in Article Forty-Third hereof. Lessor shall not be bound to
recognize any assignment of any Leasehold Mortgage unless and until Lessor shall
be given written notice of such assignment and the name and address of the
assignee, and thereafter such assignee shall be deemed to be a "First Leasehold
Mortgagee" under this Article Twenty-Ninth. If any Leasehold Mortgage is held by
more than one person, corporation or other entity, no provision of this Lease
requiring Lessor to
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give a notice or copy of a notice to the holder thereof shall be binding upon
Lessor unless and until all of the holders thereof shall give to Lessor a
written notice given in the manner provided in Article Forty-Third, executed by
all of said holders, in form proper for recording, which shall designate the one
person, corporation or other entity to whom shall be given, as agent for all of
said holders, all such notices and copies of notices.
(c) The First Leasehold Mortgagee shall have the right to
perform any term, covenant, condition or agreement of this Lease to be performed
by Lessee and to remedy any default by Lessee hereunder, and Lessor shall accept
such performance by the First Leasehold Mortgagee with the same force and effect
as if furnished by Lessee; provided, however, that the First Leasehold Mortgagee
shall not thereby or hereby be subrogated to the rights of Lessor.
(d) If Lessor shall give a notice of a default under the
provisions of this Lease and if such default shall not be remedied within any
applicable grace period pursuant to the provisions of this Lease and Lessor
shall become entitled to re-enter the Leased Premises or the Improvements or to
give a notice of election to terminate this Lease, then, before so re-entering
the Leased Premises or the Improvements or giving any such notice of election to
terminate this Lease, Lessor shall give to the First Leasehold Mortgagee not
less that thirty (30) days' additional written notice of the default and shall
allow the First Leasehold Mortgagee such
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additional thirty (30) days within which to cure the default or, in the case of
a default (other than a default in the payment of any rent or other sum of money
which Lessee shall be obligated to pay under this Lease) which cannot in the
exercise of diligence be cured within said thirty (30) day period, shall allow
the First Leasehold Mortgagee such additional thirty (30) days to commence the
curing of the default, in which event Lessor shall not so re-enter the Leased
Premises or the Improvements or give such notice of election to terminate this
Lease, so long as the First Leasehold Mortgagee or Lessee, is engaged in curing
the default which curing shall be complete, under all the prevailing
circumstances, within a reasonable period of time. The rights of the First
Leasehold Mortgagee under this subsection (d) of Section 29.2 are in addition to
such rights as are given to the First Leasehold Mortgagee under Section 29.2(g)
of this Article Twenty-Ninth.
(e) In case of a default by Lessee in the performance or
observance of any term, covenant, condition or agreement on Lessee's part to be
performed or observed under this Lease, if Lessor shall not elect to re-enter
the Leased Premises or the Improvements or to give notice of default pursuant to
the provisions of Article Sixteenth hereof, but shall instead bring a proceeding
to dispossess Lessee and/or other occupants of the Leased Premises or the
Improvements or to re-enter the Leased Premises or the Improvements or to
terminate this Lease, by reason of such default, pursuant to any statute now or
hereafter enacted
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or shall elect otherwise to terminate that leasehold estate of Lessee hereunder,
Lessor shall, before commencing such proceedings, or otherwise terminate the
leasehold estate of Lessee hereunder, give to the First Leasehold Mortgagee
thirty (30) days' written notice of such default and shall allow the First
Leasehold Mortgagee such thirty (30) day period within which to cure such
default or, in the case of a default (other than a default in the payment of any
rent or other sum of money which Lessee shall be obligated to pay under this
Lease) which cannot in the exercise of diligence be cured within said thirty
(30) day period, shall allow the First Leasehold Mortgagee such additional
thirty (30) days to commence the curing of the default, in which event Lessor
shall not so re-enter the Leased Premises or the Improvements or give such
notice of election to terminate this Lease, so long as the First Leasehold
Mortgagee or Lessee is engaged in curing the default which curing shall be
complete, under all the prevailing circumstances, within a reasonable period of
time. The rights of the First Leasehold Mortgagee under this subsection (e) of
Section 29.2 are in addition to such rights as are given to the First Leasehold
Mortgagee under Section 29.2(g) of this Article Twenty- Ninth.
(f) Lessee may delegate irrevocably to the First Leasehold
Mortgagee the authority to exercise any or all of Lessee's rights hereunder
(such as the authority to exercise the rights, privileges, powers of appointment
of arbitrators) but no
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such delegation shall be binding upon Lessor unless and until either Lessee or
the First Leasehold Mortgagee shall give to Lessor in the manner provided in
Article Forty-Third hereof a true copy of a written instrument effecting such
delegation. Such delegation of authority may be effected by the terms of the
First Leasehold Mortgage itself, in which case the service upon Lessor of an
executed counterpart or certified copy of the First Leasehold Mortgage in
accordance with this Article Twenty-Ninth, together with a written notice in the
manner provided in Article Forty-Third specifying the provisions therein which
delegate such authority to said First Leasehold Mortgagee, shall be sufficient
to give Lessor notice of such delegation. Any provisions of this Lease which
give to the First Leasehold Mortgagee the privilege of exercising a particular
right of Lessee hereunder on condition that Lessee shall have failed to exercise
such right shall not be deemed to diminish any privilege which the First
Leasehold Mortgagee may have, by virtue of a delegation of authority from
Lessee, to exercise such right without regard to whether or not Lessee shall
have failed to exercise such right.
(g) In case of a default by Lessee in the performance or
observance of any term, covenant, condition or agreement on Lessee's part to be
performed under this Lease, other than a term, covenant, condition or agreement
requiring the payment of a sum of money, as to which payments shall continue to
be made as they become due hereunder, if such default is of such a nature that
the
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same cannot practicably be cured by the First Leasehold Mortgagee without taking
possession of the Leased Premises or the Improvements, or if such default is of
such a nature that the same is not capable of being cured by the First Leasehold
Mortgagee, then Lessor shall not re-enter the Leased Premises or the
Improvements as provided in Article Seventeenth hereof, or serve a notice of
election to terminate this Lease pursuant to Article Sixteenth hereof, or bring
a proceeding to dispossess Lessee and/or other occupants of the Leased Premises
or the Improvements or to re-enter the Leased Premises or the Improvements or to
terminate this Lease by reason of such default pursuant to any statute now or
hereafter enacted, or otherwise, terminate the leasehold estate of Lessee
hereunder by reason of such default, if and so long as:
(i) in the case of a default which cannot
practicably be cured by the First Leasehold Mortgagee without taking possession
of the Leased Premises or the Improvements, said First Leasehold Mortgagee shall
deliver to Lessor in the manner provided in Article Forty-Third hereof, prior to
the date on which Lessor shall be entitled to re-enter the Leased Premises or
the Improvements or to give notice of election to terminate this Lease as
provided in Article Sixteenth hereof, or to commence any such proceeding or
otherwise terminate this Lease, a written instrument wherein the First Leasehold
Mortgagee unconditionally guarantees to Lessor that it will cure such default
and that, if this Lease thereafter is terminated or Lessor thereafter re-enters
the Leased
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Premises or the Improvements prior to the curing of such default, the First
Leasehold Mortgagee shall pay to Lessor the cost of curing such default; if the
First Leasehold Mortgagee be other than an Institutional Lender (as defined in
Article Forty-Second), such guaranty shall be accompanied by security,
reasonably satisfactory to Lessor, sufficient to insure payment of the cost of
curing such default. However, the requirements to operate the Leased Premises as
a restaurant with a bar and not be closed more than 45 days cannot be cured by
the payment of money. Any mortgagee, if they take possession or take any other
action, must ensure the continued operation of the premises primarily as a
restaurant with a bar unless the prior written consent of the Lessor to waive
this requirement is obtained.
(ii) in the case of a default which cannot
practicably be cured by the First Leasehold Mortgagee without taking possession
of the Leased Premises or the Improvements, the First Leasehold Mortgagee shall
proceed diligently, subject to any stay in any proceedings involving the
insolvency of Lessee, to obtain possession of the Leased Premises or the
Improvements as mortgagee (including possession by a receiver), and, upon
obtaining such possession, shall proceed to cure such default which curing shall
be completed, under all prevailing circumstances, within a reasonable period of
time; and
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(iii) in the case of a default which is not capable
of being cured by the First Leasehold Mortgagee, the First Leasehold Mortgagee
shall institute foreclosure proceedings and diligently prosecute the same to
completion, subject to any stay in any proceedings involving the insolvency of
Lessee (unless in the meantime the First Leasehold Mortgagee shall acquire
Lessee's estate hereunder, either in its own name or through a nominee, by
assignment in lieu of foreclosure).
Said First Leasehold Mortgagee shall not be required to continue to
proceed to obtain possession, or to continue in possession as mortgagee, of the
Leased Premises or the Improvements pursuant to Section 29.2(g)(ii) above, or to
continue to prosecute foreclosure proceedings pursuant to this Section
29.2(g)(iii), if and when such default shall be cured. Nothing herein shall
preclude Lessor from exercising any of its rights or remedies with respect to
any default by Lessee during any period of such forbearance, but if in such
event of the First Leasehold Mortgagee, or their nominee, or a purchaser at a
foreclosure sale, shall acquire title to Lessee's leasehold estate hereunder,
and shall cure all defaults of Lessee hereunder which are capable of being cured
by the First Leasehold Mortgagee, or by said purchaser, as the case may be, then
the defaults of any prior holder of Lessee's leasehold estate hereunder which
are not capable of being cured by First Leasehold Mortgagee (or by said
purchaser) shall no longer be deemed to be defaults hereunder, with the
exception of the requirements to continually operate the premises as a
restaurant
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with a bar and that the premises cannot be closed for more than 45
days.
29.3 If, by reason of any default by Lessee, either this Lease or any
renewal thereof shall be terminated at the election of Lessor prior to the
stated expiration thereof, Lessor will enter into a new lease of the Leased
Premises with the First Leasehold Mortgagee for the remainder of the Term,
effective as of the date of such termination, at the rent and additional rent
and upon the terms, provisions, covenants and agreements herein contained
subject, however, to the rights, if any, of the parties then in possession of
any part of the Leased Premises, provided:
(a) said First Leasehold Mortgagee shall make written request
upon Lessor for such new lease within thirty (30) days after the date of such
termination of such written request is accompanied by payments to Lessor of all
sums then due to Lessor under this Lease;
(b) said First Leasehold Mortgagee shall pay to Lessor, at the
time of the execution and delivery of said new lease, any and all sums, then due
under this Lease but for such termination, and in addition thereto, any
reasonable expenses, including legal and attorneys' fees, to which Lessor shall
have been subjected by reason of such default; and
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(c) said First Leasehold Mortgagee shall, on or before
execution and delivery of said new lease, perform and observe all the other
covenants and conditions herein contained on Lessee's part to be performed and
observed to the extent that Lessee shall have failed to perform and observe the
same, except that (i) with respect to any default which cannot be cured by said
First Leasehold Mortgagee until it obtains possession of the Leased Premises,
said First Leasehold Mortgagee shall have a reasonable time after said First
Leasehold Mortgagee obtains possession, to cure such default provided said First
Leasehold Mortgagee shall first agree in writing to proceed diligently to remedy
said default after it obtains possession of the Leased Premises; provided,
however, that such extension of time shall not subject Lessor to either fine or
imprisonment. Upon execution and delivery of such new lease any sub-leases which
may have theretofore been assigned and transferred to Lessor shall thereupon be
assigned and transferred, without recourse by Lessor, to the new lessee.
29.4 The rights hereunder of the holders of Leasehold Mortgages shall
be exercisable by such holders in the order of the priority of lien or other
security interest of their respective Leasehold Mortgages.
29.5 No holder of a Leasehold Mortgage shall be liable under the
provisions of this Lease unless and until such time as it becomes, and then only
for as long as it remains, the owner of Lessee's interest hereunder.
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29.6 Upon written request of Lessee or of the First Leasehold Mortgagee
or of any prospective holder of any mortgage on this Lease or Lessee's leasehold
interest, Lessor will:
(a) deliver to them or any of them a separate written
instrument signed and acknowledged by Lessor setting forth and
confirming the foregoing provisions of Section 29.2;
(b) acknowledge to them or either of them in writing the
receipt by Lessor of any notice or instrument given, sent or delivered to Lessor
pursuant to the above provisions of Section 29.2;
(c) furnish a written statement, duly acknowledged, of the
following items: (i) the amount of Fixed Net Rent and additional rent due, if
any; (ii) whether or not the insurance required by Article Twelfth of this Lease
has been supplied in compliance therewith; (iii) whether or not the Lease is
unmodified and in full force and effect (or, if there have been modifications,
that the same are in full force and effect or modified and stating the
modifications); (iv) whether or not Lessee is in default; (v) whether there are
any offsets or defenses; and (vi) whether Lessor has given Lessee any notice of
default under this Lease, and if given, whether the default set forth herein
remains uncured. Any
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such statement shall be for the sole benefit of Lessee or its assigns or for any
Leasehold Mortgagee requiring the same or its assigns and shall have no effect,
as an estoppel or otherwise, with respect to any other third party.
29.7 In the event that the First Leasehold Mortgagee shall take
possession of the Leased Premises or the Improvements, the following provisions
shall apply, notwithstanding anything to the contrary in this Lease Agreement:
(a) First Leasehold Mortgagee shall pay as fixed rent a
monthly amount equal to the average monthly rent paid by
Lessee during the six (6) month period prior to the First
Leasehold Mortgagee taking possession of the Leased Premises
or the Improvements and the additional rent as set forth in
Section 3.1 hereinabove for a period not to exceed one (1)
year and subject to Section 29.7(b) hereinbelow.
(b) Section 16.4 hereinabove shall be modified to permit the
First Leasehold Mortgagee a period of one (1) year to open or
operate the Leased Premises as a restaurant, bar and nightclub
with indoor/outdoor entertainment, music and dancing in
conformance with the proposal submitted by Lessee (attached as
Schedule "F") and the approval of the City of Trenton Planning
Board, and the City of Trenton Landmarks Commission for
Historic Preservation. In the
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event that the Leased Premises is not open or operated in this
manner for a period of one (1) year, then First Leasehold
Mortgagee shall be in default and subject to the default
provisions of this Lease Agreement.
ARTICLE THIRTIETH - Utility Installation Reimbursement
30. Notwithstanding anything contained in Article 3, Paragraph
3.1(a)(i) hereinabove, it is agreed upon by the parties hereto that the sum of
thirty-six thousand dollars ($36,000.00) for the installation of utilities to
and upon the Leased Premises shall be paid by Lessor and reimbursed by the
Lessee to the Lessor, as additional rent, in twenty-four (24) equal payments of
One Thousand Five Hundred Dollars ($1,500.00) per month amortized over a
twenty-four (24) month period commencing at the same time as the commencement of
the payment of the rent payments as described in Article Second, Paragraph 2.1
hereinabove (including the commencement of the payment of any percentage of the
full rent amount pursuant to Article Second, Paragraph 2.1).
ARTICLE THIRTY FIRST - Waivers and Surrenders to be in Writing
31. The receipt of rent by Lessor, with knowledge of any
breach of this Lease by Lessee or of any default on the part of Lessee in the
observance or performance of any of the conditions or covenants of this Lease,
shall not be deemed to be a waiver of any
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provision of this Lease. No failure on the part of Lessor or of Lessee to
enforce any covenant or provision herein contained, nor any waiver of any right
thereunder by Lessor or Lessee, unless in writing, shall discharge or invalidate
such covenant or provision or affect the right of Lessor or Lessee to enforce
the same in the event of any subsequent breach or default. The receipt by Lessor
of any rent or any other sum of money or any other consideration hereunder paid
by Lessee after the termination, in any manner, of the Term herein demised,
shall not reinstate, continue or extend the Term herein demised, unless so
agreed to in writing and signed by Lessor. Neither acceptance of the keys nor
any other act or thing done by Lessor or any agent or employee during the Term
shall be deemed to be an acceptance of a surrender of the Leased Premises,
excepting only an agreement in writing signed by Lessor accepting or agreeing to
accept such a surrender.
ARTICLE THIRTY-SECOND - Cumulative Rights
32. Subject to the provisions of Article Sixteenth hereof, the rights
given to Lessor or Lessee herein are in addition to any rights that may be given
to Lessor or Lessee by any statute or otherwise. All the rights and remedies of
Lessor or Lessee under this Lease or pursuant to present or future law shall be
deemed to be separate, distinct and cumulative and no one or more of them,
whether exercised or not, nor any mention of or reference to, any one or more of
them in this Lease, shall be deemed to be in
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exclusion of, or a waiver of, any of the others, or of any of the rights or
remedies which Lessor or Lessee may have, whether by present or future law or
pursuant to this Lease, and Lessor and Lessee shall have, to the fullest extent
permitted by law, the right to enforce any rights or remedies separately and to
take any lawful action or proceedings to exercise or enforce any right or remedy
without thereby waiving or being barred or estopped from exercising and
enforcing any other rights and remedies by appropriate action or proceedings.
ARTICLE THIRTY-THIRD - Surrender and Removal of Personal Property
33. Lessee shall, on or before the last day of the Term of this Lease,
or on the sooner termination thereof, peaceably and quietly leave, surrender and
deliver to Lessor all and singular the Leased Premises and the Improvements,
free of sub-tenancies unless Lessor shall have consented to such sub-tenancies,
broom-clean, together with all alterations, additions and Improvements which may
have been made upon the Leased Premises, except movable furniture, movable
personal property or movable trade fixtures put in at the expense of Lessee or
at the expense of any sub-tenant, provided that such property is removed without
substantial injury to the Leased Premises or the Improvements. No injury shall
be considered substantial if it is promptly and completely corrected, subject,
however, to the subsequent provisions hereof. All the property removable
pursuant to the provisions of this Article Thirty-Third
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shall be removed by Lessee on or before the date hereinabove in this Article
indicated, and all property not so removed shall be deemed abandoned by Lessee.
If the Leased Premises and the Improvements be not surrendered at the end of the
Term, Lessee shall make good to Lessor all damage which Lessor shall suffer by
reason thereof, and shall indemnify Lessor against all claims made by any
succeeding tenant against Lessor founded upon delay by Lessor in delivering
possession of the Leased Premises to such succeeding tenant, so far as such
delay is occasioned by the failure of Lessee to surrender the Leased Premises.
Should Lessor incur any expense in removing any such subtenant or
person by or through or under Lessee who has failed to so surrender the Leased
Premises or the Improvements, Lessee shall and hereby agrees to reimburse Lessor
for the reasonable cost and expense including counsel fees of removing such
sub-tenant or such person, provided Lessee shall have failed to have effected
such removal after written demand.
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ARTICLE THIRTY-FOURTH - Sale or Conveyance of Premises and
Limits of Liability of Lessor
34.1(a) The term "Lessor", as used in this Lease, means only the owner
for the time being of the Leased Premises, so that in the event of any sale,
assignment or other conveyance of the Leased Premises, both of which are
expressly permitted, the seller, assignor or grantor shall be and hereby is
entirely freed and relieved of all covenants and obligations of Lessor hereunder
thereafter arising, and it shall be deemed and construed, without further
agreement between the parties or between the parties and the purchaser or
grantee of the Leased Premises, that such purchaser, assignee or grantee has
assumed and agreed to carry out any and all covenants and obligations of Lessor
hereunder. If Lessor or any successor in interest of Lessor shall be an
individual or individuals who are joint venturers, tenants in common, members of
a firm, a general or limited partnership or a corporation, it is specifically
understood and agreed that the monetary liability of such individual or of the
members, officers, directors, shareholders and/or employees of that firm,
corporation, partnership or joint venture in relation to any covenants or
conditions under this Lease, shall be limited to the equity of Lessor in the
Leased Premises in the event of a breach by Lessor of any of the terms,
covenants and conditions of the Lease to be performed by Lessor. Notwithstanding
anything to the contrary herein contained, Lessee shall look solely to the
interest of
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Lessor in the Leased Premises for the satisfaction of any claim or remedy it may
take hereunder or in connection herewith, and shall not look to any other assets
of Lessor or of any other person, firm or corporation. There shall be absolutely
no personal liability on the part of Lessor or any of its successors or assigns
or on the part of any present or future shareholder, partner, joint venturer,
officer, agent or director of Lessor, or of any of their respective successors
or assigns, with respect to any obligation hereunder or in connection herewith.
ARTICLE THIRTY-FIFTH - Alterations
35.1 Lessee shall have the right, subject to the Lessor's prior express
written consent which shall not be unreasonably withheld to make any Alterations
(as defined in Section 42.2(j))to the Leased Premises which shall be necessary,
however the Alterations must be of such a nature as to continue the primary use
of the property as a restaurant, bar and nightclub with indoor/outdoor
entertainment, music and dancing in conformance with the proposal submitted by
Lessee (attached as Schedule "F") and the initial approval of the City of
Trenton Planning Board and the City of Trenton Landmarks Commission for
Historical Preservation.
Any and all Alterations shall be subject to special requirements of the
United States, State of New Jersey, County of Mercer and/or City of Trenton
governments, including, but not limited to, the Army Corps of Engineers and/or
other governmental
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entities involved with the maintenance of navigable waterways, the United States
Environmental Protection Agency, the New Jersey Department of Environmental
Protection, any United States or New Jersey Historical Society, the Mercer
County Soil Conservation District, the City of Trenton Landmarks Commission for
Historical Preservation, the "American Bridge Redevelopment Plan" (attached as
Schedule "G") and/or any other waterfront development plans, redevelopment plans
and/or historical preservation requirements that may apply to the Leased
Premises. Lessee shall comply with any and all laws, enactments, court orders,
rules, regulations and/or directives regarding the Alterations to the Leased
Premises and any Improvements thereon which may be imposed due to the premises'
location abutting the Delaware River and in a Waterfront Development Area.
35.2 The foregoing provisions of Section 35.1 are, and shall continue
to be, subject to the restrictions contained in Section 10.2 hereof.
35.3 Subject to Article Third-Third hereof, any and all Alterations
made to or upon the Leased Premises or Improvements by Lessee, as well as
fixtures and articles of personal property attached to and used in connection
with the Leased Premises or Improvements, shall become the property of Lessor at
the end or other termination of this Lease and shall be surrendered to Lessor;
provided, however, the movable furniture, movable personal property
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and movable trade fixtures put in at the expense of Lessee or any sub-tenant,
which, pursuant to the provisions of Article Thirty-Third and Paragraph 10.6(b)
of Article Tenth hereof, may be removed by Lessee or any sub-tenant at or before
the expiration or sooner termination of this Lease, shall not be deemed to be
attached to the freehold nor the property of, nor surrendered to, Lessor.
ARTICLE THIRTY-SIXTH - Lessor and Lessee to Furnish
Statement
36.1 Lessor within twenty (20) business days, upon written request of
Lessee or of any holder or prospective holder of a First Leasehold Mortgage,
will furnish a written statement, duly acknowledged, of the following items: (a)
the amount of Fixed Net Rent and additional rent due, if any; (b) whether or not
the fire and other insurance required by Article Twelfth of this Lease have been
supplied in compliance therewith; (c) whether or not the Lease is unmodified and
in full force and effect (or, if there have been modifications, that the same
are in full force and effect as modified and stating the modifications); (d)
whether or not to the knowledge of Lessor, Lessee is in default; (e) whether
there are any offsets or defenses; and (f) whether Lessor has given Lessee any
notice of default under this Lease, and if given, whether the default set forth
herein remains uncured. Any such statement shall be for the sole benefit of
Lessee or its assigns or such holder or prospective holder requiring the same or
its assigns and shall have no effect, as an estoppel or otherwise, with respect
to any other third party.
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36.2 Lessee within twenty (20) days will, upon written request of
Lessor, furnish a written statement, duly acknowledged, as to (a) whether the
Lease is unmodified and in full force and effect; (b) whether the Lease has been
modified or amended in any respect and submitting copies of such modifications,
if any; (c) whether there are any defaults thereunder to the knowledge of Lessee
and specifying the nature of such defaults, if any; (d) the amount of Fixed Net
Rent and additional rent due, if any; and (e) whether there are any offsets or
defenses.
36.3 Upon the failure of Lessor or Lessee, as the case may be, to
furnish such statements within the said twenty (20) day period it shall be
conclusively presumed that (a) said Lease is in full force and effect, (b) said
Lease is unmodified, (c) there are no defaults thereunder, (d) there are no
outstanding notices of default, and (e) there are no offsets or defenses.
ARTICLE THIRTY-SEVENTH - Inspection by Lessor
37. Lessee shall permit an inspection of the Leased Premises and
Improvements by Lessor, or Lessor's agents or representatives, and by or on
behalf of prospective purchasers, upon reasonable notice to the Lessee during
business hours, at least once within
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each month of each year of the Term and during the year next preceding the
expiration of this Lease shall permit inspection thereof by or on behalf of
prospective tenants. If, during such hours, admission of the Leased Premises for
the purpose aforesaid cannot be obtained, or if at any time by reason of an
emergency condition an entry shall be deemed necessary for the protection of the
Leased Premises or Improvements, whether for the benefit of Lessee or not,
Lessor, or Lessor's agents or representatives, may enter the Leased Premises or
Improvements and accomplish such purpose. The provisions contained in this
Article Thirty-Seventh are not intended to create or increase, and are not to be
construed as creating or increasing, any obligations on Lessor's part hereunder
and are subject at all times to the rights of sub-tenant leases (and to any
special requirements thereof).
ARTICLE THIRTY-EIGHTH - Surrender at End of Term
38. On the last day of the Term hereof, or on the earlier termination
of the Term, subject to Article Thirty-Third hereof, Lessee shall peaceably and
quietly leave, surrender and deliver the Leased Premises and the Improvements to
Lessor together with any machinery, equipment or other personal property of any
kind or nature which Lessee may have installed or affixed on, in or to the
Leased Premises or the Improvements for use in connection with the operation and
maintenance of the Leased Premises and Improvements (whether or not said
property be deemed to be fixtures), in good,
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substantial and sufficient repair, order and condition, reasonable use, wear and
tear excepted and subject to the provisions of Article Thirty-Third hereof.
ARTICLE THIRTY-NINTH - Covenants Binding on Successors
and Assigns
39.1 The covenants, agreements, terms, provisions and conditions
contained in this Lease shall apply to and inure to the benefit of and be
binding upon Lessor and Lessee, and their respective successors and assigns,
except as expressly otherwise hereinbefore provided.
39.2 If title of Lessor or Lessee to the Leased Premises shall be held
by an entity which shall consist of or is held by more than one person or more
than one corporation, the holders of such title or interest shall within thirty
(30) days thereafter designate one of their number or some other person or
corporation as authorized to receive payments and notices and grant consents or
approvals, as required under this Lease, and in the event that:
(a) no such designation shall have been made within the
said thirty (30) days; or
(b) the person or corporation designated by the holders
of Lessor's or Lessee's title shall fail to or refuse to act at any
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time, then, and in either event, Lessor or Lessee, as the case may be, may apply
to the appropriate court of New Jersey on notice to one or more of such of the
other party's holders of title or Lessor's successors, for the appointment of a
nominee to act for the other party in the matters concerned.
ARTICLE FORTIETH - Consents
40. Where the consent or approval of either party shall be required,
the parties hereto agree that such consent shall not be unreasonably withheld or
unduly delayed.
ARTICLE FORTY-FIRST - Entire Agreement
41. This Lease contains the entire agreement between the parties and
shall not be modified in any manner except by an instrument in writing executed
by the parties or their respective successor in interest. This Lease shall not
be recorded. However, the parties will at any time at the request of either one
promptly execute duplicate originals of an instrument, in recordable form, which
will constitute a short form of Lease setting forth a description of the Leased
Premises, the Term and any other portions hereof, excepting the rental
provisions, as either party may request.
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ARTICLE FORTY-SECOND - Designations Herein
42.1 (a) As used herein, the expression "the Term of this Lease",
"Term" or the like, shall be deemed to be the period of thirty (30) years
specified in Article First of this Lease, as such term may be extended pursuant
to the renewal rights specified in Article Fifty-Third of this Lease.
(b) The term "Lessee" as used herein shall be Lessee named
herein on page 1 hereof or the then holder of this Lease and the Term thereof as
though in each instance so specifically expressed.
42.2 (a) The term "Leased Premises", unless the context shall clearly
indicate a different meaning, shall be construed to mean the land described on
Schedule "A" annexed hereto.
(b) The term "building equipment" shall be construed to mean
machinery, apparatus, equipment, fittings, elevators, plumbing, lighting,
electric and heating fixtures and equipment and other personal property,
including, but not limited to, air-conditioning, heating and ventilating units
and systems (except where such items of personal property are owned by occupancy
tenants), used or procured for use in connection with the operation and
maintenance of the Improvements on the Leased Premises.
(c) The term "First Leasehold Mortgagee" shall be deemed
to mean only the New Jersey Economic Development Authority, Equity
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Bank and/or Carnegie Bank, N.A., trust company (in individual or trust
capacity), savings and loan association, insurance company, or real estate
investment trust or a corporation that is a wholly-owned subsidiary of a bank,
trust company or insurance company (which all of the foregoing must be licensed
or authorized to do business as such in the State of New Jersey and have assets
in excess of Two Hundred Million Dollars ($200,000,000.00) and any of the
foregoing are herein called "Institutional Lender") or any other source of funds
approved by Lessor, which shall be the holder of the First Leasehold Mortgage or
any subsequent leasehold mortgagee which shall have succeeded to the rights of
the holder of the First Leasehold Mortgage either by written transfer or
assignment.
(d) The term "First Leasehold Mortgage" shall be deemed to
mean the first lien on Lessee's leasehold interest.
(e) The term "Subordinate Leasehold Mortgagee" shall be deemed
to mean the holder of a Subordinate Leasehold Mortgage.
(f) The term "Subordinate Leasehold Mortgage" shall be deemed
to mean any subordinate lien on this Lease and Lessee's leasehold estate.
(g) The term "Leasehold Mortgagee" shall be deemed to
mean the holder of any Leasehold Mortgage.
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(h) The term "Leasehold Mortgage" shall be deemed to
mean any First Leasehold Mortgage or Subordinate Leasehold
Mortgage.
(i) The term "Improvements" shall be construed to mean the
structures (not necessarily enclosed) or buildings, and replacements thereof,
now on the Leased Premises or hereafter erected on the Leased Premises or on any
contiguous parcel, including all building equipment and fixtures of every kind
and nature forming part of such structures or buildings, or of any structures or
buildings hereafter standing on the Leased Premises or on any part thereof and
articles of personal property owned by Lessee now or at any time hereafter
affixed to, attached to, placed upon, or used in any way in connection with the
complete and comfortable use, enjoyment, occupancy or operation of, any such
structures or buildings.
(j) The term "Alterations" shall be deemed to mean any and all
alterations, changes, replacements, improvements and additions in and to the
Leased Premises and the Improvements thereon, including the demolition of any
building(s) and Improvement(s) and/or structure(s) that now or hereafter may be
situated or erected on the Leased Premises.
(k) The term "Prime Rate" shall be deemed to mean the "Prime
Rate" as announced by The Wall Street Journal.
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(l) The term "Consumer Price Index" or "CPI" or "Index" shall
be deemed to mean the U.S Department of Labor, Bureau of Labor Statistics,
Consumer Price Index for Urban Wage Earners and Clerical Workers(1982-84 = 100)
for the Philadelphia - New Jersey
region.
42.3 The captions of this Lease and the index preceding this Lease are
for convenience and reference only and in no way define, limit or describe the
scope or intent of this Lease, nor in any way affect this Lease.
42.4 All the provisions of this Lease shall be deemed and construed to
be "conditions" as well as "covenants", as though the words specifically
expressing or importing covenants and conditions were used in each separate
provision hereof.
42.5 Words of any gender in this Lease shall be held to include any
other gender and words in the singular number shall be held to include the
plural when the sense requires.
42.6 If and to the extent that a provision of this Lease shall be
unlawful or contrary to public policy, the same shall not be deemed to
invalidate the other provisions of this Lease.
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ARTICLE FORTY-THIRD - Notices
43.1 Any notices, demand or other communication (hereinafter
collectively called "notices") which, under the terms of this Lease or under any
statute, must or may be given by the parties hereto shall be in writing and
shall be given by mailing the same by registered or certified mail, return
receipt requested, in a prepaid wrapper addressed, (i) in the case of notices to
Lessor, to Lessor at the address first above written with a copy to:
Executive Director
Mercer County Improvement Authority
210 River View Plaza
Trenton, NJ 08611
and
Mercer County Counsel
P.O. Box 8068
640 South Broad Street
Trenton, NJ 08650-0068
and
Mercer County Business Administrator
P.O. Box 8068
640 South Broad Street
Trenton, NJ 08650-0068
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(ii) in the case of Lessee, to Lessee at:
Kozlov, Seaton, Romanini & Brooks
1940 Route 70 East
Cherry Hill, NJ 08003
Attn: Philip B. Seaton, Esquire
and
T-Kat Urban Renewal Corporation
c/o Philip B. Seaton, Esquire
Kozlov, Seaton, Romanini & Brooks
1940 Route 70 East
Cherry Hill, NJ 08003
or
415 N. Columbus Blvd.
Philadephia, PA 19123
Attn: Lance Silver
or Stuart Harting
and (iii) in the case of the Leasehold Mortgagees, to the address(es) received
pursuant to subsection (b) of Section 29.2 hereof. Either Lessor or Lessee may
designate by notice in writing a new or other address to which notices shall
thereafter be given. Any notice given hereunder shall be deemed given upon
receipt, provided, however, that in the event a party refuses to accept delivery
of said certified mail, the notice will nevertheless be deemed to be given upon
the date of refusal to accept delivery, and
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further provided that if the postal service is unable to deliver said certified
mail the notice will nevertheless be deemed to be given as of the date of the
postal service's second notice of attempted delivery. Notwithstanding the above,
a notice of change of address will not be effective until received.
43.2 No notice of default given by Lessor to Lessee shall be deemed
legally effective with respect to the Leasehold Mortgagee(s) until and unless
like notice shall have been given by Lessor to such Leasehold Mortgagee(s).
43.3 Either party may, at its option, substitute for service by United
States first class certified mail, service by Federal Express or similar
overnight courier, provided that such courier obtains and makes available to its
customer written evidence of delivery. Notice given via such courier is deemed
to be given upon receipt or upon refusal to accept delivery, as applicable.
ARTICLE FORTY-FOURTH - Non-Merger
44. There shall not be a merger of (a) Lessee's interest in this Lease
or the leasehold estate created hereby, or (b) Lessee's interest in the
Improvements, or (c) the fee estate in the Leased Premises or any part thereof
by reason of the fact that the same person may acquire, own or hold, directly or
indirectly, all or part of (a), (b) or (c) above, and no such merger shall occur
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unless and until all persons, including, without limitation, Lessor, Lessee, and
any First Leasehold Mortgagee, having an interest in the foregoing (a), (b)
and/or (c) above shall join in a written instrument effecting such merger and
shall duly record same.
ARTICLE FORTY-FIFTH - Broker
45. Lessor and Lessee covenant, warrant and represent that there was no
broker or finder instrumental in consummating this Lease and that no
conversations or negotiations were had with any broker or finder concerning the
leasing of the Leased Premises.
ARTICLE FORTY-SIXTH - Short Form of Lease
46.1 At the request of either party, Lessor and Lessee shall promptly
execute, acknowledge and deliver a short form of Lease sufficient for recording.
Such short form of Lease shall not in any circumstances be deemed to change or
otherwise affect any of the obligations or provisions of this Lease.
46.2 Any modifications or amendment of this Lease shall be executed in
form sufficient for recording and it, or a memorandum thereof, may be recorded
by either Lessor or Lessee.
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ARTICLE FORTY-SEVENTH - Force Majeure
47. In the event Lessee is delayed in complying with any of its
obligations set forth in this Lease by reason of the future enactment of any law
or issuance of any governmental order, rule or regulation establishing rationing
or priorities in the use of material or restricting the use of labor, or by
reason or delays due to strikes, lock-outs, acts of God, enemy action, civil
commotion, fire or other unavoidable casualty or unavailability of construction
materials, or changes in building plans, if any, made necessary in order to
comply with the requirements of the zoning resolutions or codes or laws
applicable to the Improvements or any other cause beyond Lessee's reasonable
control, then the time within which Lessee shall comply with such obligations
shall be extended for such period of time as Lessee shall have been so delayed.
In no event shall the provisions of this Section 47.1 be deemed to relieve
Lessee of its obligations to pay Fixed Net Rent or additional rent or any other
sums payable under the Lease or to otherwise modify the provisions of Section
11.1 hereof.
ARTICLE FORTY-EIGHTH - Existing Tenancies and Occupancies
48. Other than those listed on Schedule "B" attached hereto and made a
part hereof of this Lease or as set forth in Article First herein, Lessor
represents that there are no tenants, occupants or other parties presently
occupying or having any right to occupy the Leased Premises, the Improvements or
any portion thereof.
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ARTICLE FORTY-NINTH - Bonds and Security
49. If and for so long as Lessee is an Institutional Lender, no bond or
other security shall be required in connection with any of the provisions of
this Lease requiring bonds or other security to be furnished by Lessee.
ARTICLE FIFTIETH - Partial Invalidity
50. If any term, covenant, condition or provision of this Lease or the
application thereof to any person or circumstances shall, at any time or to any
extent be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term, covenant, condition and provision of this Lease shall be
valid and be enforced to the fullest extent permitted by law.
ARTICLE FIFTY-FIRST - Further Assurances
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51. The parties agree to cooperate with each other and to execute and
deliver, without expense to the other, such further documents and assurances as
may be necessary to carry out the purposes of this Lease.
ARTICLE FIFTY-SECOND - Governing Law
52. This Lease and the performance thereof shall be governed,
interpreted, construed and regulated by the substantive laws of the State of New
Jersey.
ARTICLE FIFTY-THIRD - Renewal Term
53. Provided Lessee shall not be in default under the terms, covenants
or conditions of this Lease, the Lessee shall have the right to renew the
initial thirty (30) year term of this Lease for two (2) additional five (5) year
periods. Lessee shall exercise its renewal rights under this Lease in accordance
with the following provisions:
(a) Fixed Net Rent shall be the "Fair Market Rental Value" (as
defined below) of the Leased Premises as of the date of exercise of Lessee's
option to renew, provided, however, that notwithstanding the foregoing or
subsection (c) below the valuation date for Fair Market Rental Value shall in no
event be earlier than six (6) months prior to the expiration of the Term or then
current renewal term, as applicable. For purposes hereof the term "Fair
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Market Rental Value" shall mean the rental value of the Leased Premises as of
the applicable valuation date in its condition as of the date of this Lease as
same is determined by agreement of the Lessor and Lessee. If Lessor and Lessee
cannot (in the sole opinion of either) agree on such value by forty-five (45)
days following the applicable valuation date the Fair Market Rental Value shall
be determined by arbitrator pursuant to Article Twenty- First above. In no
event, however, shall the annual Fixed Net Rent of the Leased Premises for any
renewal term be less than the annual Fixed Net Rent for the last Lease year of
the immediately preceding Term or renewal term, as applicable.
(b) Notice of renewal shall be given by Lessee to Lessor not
less than eighteen (18) months prior to the expiration of the then current term
or renewal term. Copies of this notice shall be distributed in accordance with
Section 43.1.
ARTICLE FIFTY-FOURTH - Waterfront Development
Permit Responsibilities
54. The Lessor and the Lessee hereby agree that on June 10, 1996, the
State of New Jersey, Department of Environmental Protection, issued a Waterfront
Development Permit Number 1111-96- 0002.1 for the property located in the City
of Trenton, County of Mercer and State of New Jersey bearing Lot No. 5, Block
68. The
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Lessor and the Lessee hereby agree that pursuant to said Waterfront Development
Permit special conditions were imposed by the State of New Jersey, Department of
Environmental Protection. The Lessor and the Lessee hereby agree that the
responsibility for said special conditions are as follows:
Special Condition Number One - Lessor;
Special Condition Number Two - Lessor;
Special Condition Number Three - Lessee;
Special Condition Number Four - Lessor;
Special Condition Number Five - Lessee;
Special Condition Number Six - Lessee;
Special Condition Number Seven - Lessee;
Special Condition Number Eight - Lessee;
Special Condition Number Nine - Lessee;
Special Condition Number Ten - Lessee;
Special Condition Number Eleven - Lessor;
Special Condition Number Twelve - Applies to Lessor and Lessee;
Special Condition Number Thirteen - Lessor;
Special Condition Number Fourteen - Applies to Lessor and Lessee.
A copy of the Waterfront Development Permit is attached hereto and
designated as Schedule "I".
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ARTICLE FIFTY-FIFTH - Schedules Incorporated by Reference
Schedule "E", a "Description of Adjoining Premises" and Schedule "H", a
"Construction Schedule", attached hereto are specifically incorporated into this
Lease Agreement by reference.
ARTICLE FIFTY-SIXTH - Lease Revision
Lessor and Lessee acknowledge that this Lease Agreement contains
certain revisions from the previous Lease Agreement dated June 18, 1996 and this
Lease Agreement supercedes any and all Lease Agreements previously entered into
regarding the Leased Premises.
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as
of the day and year first above written by their duly authorized general
partners or corporate officers, as applicable.
WITNESS: MERCER COUNTY
IMPROVEMENT AUTHORITY
__________________________ By: __________________________
Acting Executive Director
ATTEST: T-KAT URBAN RENEWAL
CORPORATION
__________________________ By: __________________________
[Seal]
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Lease Agreement
1 - Parties
This agreement, made the first day of July one thousand nine hundred and
ninety-six (1996), by and between ELIZABETH RESTAURANT PARTNERS, General
Partner: Lizzy Management Corp. (hereinafter called Lessor), of the other part,
and KATMANDU ENTERTAINMENT CORP., a Delaware corporation (hereinafter called
Lessee) of the other part.
2 - Premises
Witnesseth that: Lessor does hereby demise and let unto Lessee all that certain
premises comprised in total of the uppermost (referred to as "second") floor of
the restaurant ship The Elizabeth located at 415 North Christopher Columbus
Boulevard, Philadelphia, PA 19123, which demised premises shall be the entire
second deck, rail-to-rail. Dimensions of ship: LOA: 206'; LWL: 196'; Beam: 43'
in the County of Philadelphia, state of Pennsylvania, to be used and occupied as
office space and for no other purpose,
3 - Term
for the term of five (5) years beginning the first day of October
one thousand nine-hundred and ninety six (1996), and ending the last day of
September, two thousand and one (2001),
4 - Minimum Rent
for the minimum yearly rental of fifty thousand and no/100 (Dollars)
($50,000.00) lawful money of the United States of America payable in monthly
installments in advance during the said term of this lease, or any renewal
hereof, in sums of four thousand one hundred sixty seven and no/100 Dollars
($4,167.00) on the first (1st) day of each month to begin from the first (1st)
day of October, 1996.
5 - Inability to give Possession
If Lessor is unable to give Lessee possession of the demised premises, as herein
provided, by reason of the holding over of a previous occupant, or by reason of
any cause beyond the control of the Lessor, the Lessor shall not be liable in
damages to the Lessee therefor, and during the period that the Lessor is unable
to give possession, all rights and remedies of both parties hereunder shall be
suspended.
6 - Additional Rent
(a) Damages for Default
(a) Lessee agrees to pay as rent in addition to the minimum rental herein
reserved any and all sums which may become due by reason of the failure of
Lessee to comply with all the covenants of this lease and pay any and all
damages, costs and expenses which the Lessor may suffer or incur by reason of
any default of the Lessee or failure on his part to comply with the covenants of
this lease, and each of them, and also any and all damages of the demised
premises caused by any act or neglect of the Lessee.
(b) Taxes
(b) Lessee further agrees to pay as rent in addition to the minimum rental
herein reserved its proportionate share of ** all taxes assessed or imposed upon
the demised premises and/or the building of which the demised premises is a part
during the term of this lease. The amount due hereunder on account of such taxes
shall be apportioned for that part of the first and last calendar years covered
by the term hereof. The same shall be paid by Lessee to Lessor **.
(c) Fire Insurance Premiums
(c) Lessee further agrees to pay to Lessor as additional rent its
proportionate share of fire insurance premiums upon the demised premises
and/or the building of which the demised premises is a part.
<PAGE>
(d) Water Rent
(d) Lessee further agrees to pay as additional rent, if there is a metered
water connection to the said premises, its proportionate share of charges for
water consumed upon the demised premises in excess of the yearly minimum meter
charge and all charges for repairs to the said meter or meters on the premises,
whether such repairs are made necessary by ordinary wear and tear, freezing, hot
water, accident or other causes, immediately when the same become due.
(e) Sewer Rent
(e) Lessee further agrees to pay as additional rent, if there is a metered
water connection to said premises, its proportionate share of sewer rental or
charges for use of sewers, sewage system, and sewage treatment works servicing
the demised premises immediately when the same become due.
7 - Place of Payment
All rents shall be payable without prior notice or demand at the office of
Lessor in Philadelphia, Pa. or at such other place as Lessor may from time to
time designate by notice in writing.
8 - Affirmative Covenants of Lessee
Lessee covenants and agrees that he will without demand
(a) Payment of Rent
(a) Pay the rent and all other charges herein reserved as rent on the days
and times and at the place that the same are made payable, without fail, and if
Lessor shall at any time or times accept said rent or rent charges after the
same shall have become due and payable, such acceptance shall not excuse delay
upon subsequent occasions, or constitute or be construed as a waiver of any of
Lessor's rights. Lessee agrees that any charge or payment herein reserved,
included or agreed to be treated or collected as rent and/or any other charges
or taxes, expenses, or costs herein agreed to be paid by the Lessee may be
proceeded for and recovered by the Lessor by distraint or other process in the
same manner as rent due and in arrears.
(b) Cleaning, Repairing, etc.
(b) Keep the demised premises clean and free from all ashes, dirt and other
refuse matter; replace all glass windows, doors, etc., broken; keep all waste
and drain pipes open; repair all damage to plumbing and to the premises in
general; keep the same in good order and repair as they now are, reasonable wear
and tear and damage by accidental fire or other casualty not occurring through
negligence of Lessee or those employed by or acting for Lessee alone excepted.
The Lessee agrees to surrender the demised premises in the same condition in
which Lessee has herein agreed to keep the same during the continuance of this
lease.
(c) Requirements of Public Authorities
(c) Comply with any requirements of any of the constituted public
authorities, and with the terms of any State or Federal statute or local
ordinance or regulation applicable to Lessee or his use of the demised premises,
and save Lessor harmless from penalties, fines, costs or damages resulting from
failure to do so.
(d) Fire
(d) Use every reasonable precaution against fire.
(e) Rules and Regulations
(e) Comply with rules and regulations of Lessor promulgated as hereinafter
provided.
(f) Surrender of Lease
(f) Peaceably deliver up and surrender possession of the demised premises
to the Lessor at the expiration or sooner termination of this lease, promptly
delivering to Lessor at his office all keys for the demised premises.
(g) Notice of Fire
(g) Give Lessor prompt written notice of any accident, fire, or damage
occurring on or to the demised premises.
(h) Condition of Payment
(h) Lessee shall be responsible for the condition of the pavement, curb,
cellar doors, awnings and other erections in the pavement during the term of
this lease; shall keep the pavement free from snow and ice; and shall be and
hereby agrees that Lessee is solely liable for any accidents, due or alleged to
be due to the defective condition, or to any accumulations of snow and ice.
<PAGE>
(i) Agency on Removal
(i) The Lessee agrees that if, with the permission in writing of Lessor,
Lessee shall vacate or decide at any time during the term of this lease, or any
renewal thereof, to vacate the herein demised premises prior to the expiration
of this lease, or any renewal hereof, Lessee will not cause or allow any other
agent to represent Lessee in any sub-letting or reletting of the demised
premises other than an agent approved by the Lessor and that should Lessee do so
or attempt to do so, the Lessor may remove any signs that may be placed on or
about the demised premises by such other agent without any liability to Lessor
or to said agent, the Lessee assuming all responsibility for such action.
9 - Negative Covenants of Lesse
Lessee covenants and agrees that he will do none of the following things
without the consent in writing of Lessor first had and obtained:
(a) Use of Premises
(a) Occupy the demised premises in any other manner or for any other
purpose than as above set forth.
(b) Assignment and Subletting
(b) Assign, mortgage or pledge this lease or under-let or sub-lease the
demised premises, or any part thereof, or permit any other person, firm or
corporation to occupy the demised premises, or any part thereof; nor shall any
assignee or sub-lessee assign, mortgage or pledge this lease or such sub-lease,
without an additional written consent by the Lessor, and without such consent no
such assignment, mortgage or pledge shall be valid. If the Lessee becomes
embarrassed or insolvent, or makes an assignment for the benefit of creditors,
or if a petition in bankruptcy is filed by or against the Lessee or a bill in
equity bill in equity or other proceeding for the appointment of a receiver for
the Lessee is filed, or if the real or personal property of the Lessee shall be
sold or levied upon by any Sheriff, Marshall or Constable, the same shall be a
violation of this covenant.
** All such taxes to be paid within a reasonable period after receipt of tax
bills from Lessor. Lessor shall be responsible for any penalties or
interest occasioned by Lessor's failure to submit the tax bills to Lessee.
Said taxes shall be paid by Lessee to Lessor at least one(1) month before
expiration of the net payment period of said taxes and before penalties are
assessed.
<PAGE>
(c) Signs
(c) Place or allow to be placed any stand, booth, sign or show case upon
the doorsteps, vestibules or outside walls or pavements of said premises, or
paint, place, erect or cause to be painted, placed or erected any sign,
projection or device on or in any part of the premises. Lessee shall remove any
sign, projection or device painted, placed or erected, if permission has been
granted and restore the walls, etc., to their former conditions, at or prior to
the expiration of this lease. In case of the breach of this covenant (in
addition to all other remedies given to Lessor in case of breach of any
conditions or covenants of this lease) Lessor shall have the privilege of
removing said stand, booth, sign, show case, projection or device, and restoring
said walls, etc., to their former condition, and Lessee, at Lessor's option,
shall be liable to Lessor for any and all expenses so incurred by Lessor.
(d) Alterations, Improvements
(d) Make any alterations, improvements, or additions to the demised
premises. All alterations, improvements, additions or fixtures, whether
installed before or after the execution of this lease, shall remain upon the
premises at the expiration or sooner determination of this lease and become the
property of Lessor, unless Lessor shall, prior to the determination of this
lease, have given written notice to Lessee to remove the same, in which event
Lessee will remove such alterations, improvements and additions and restore the
premises to the same good order and condition in which they now are. Should
Lessee fail to do so, Lessor may do so, collecting, at Lessor's option, the cost
and expense thereof from Lessee as additional rent.
(e) Machinery
(e) Use or operate any machinery that, in Lessor's opinion, is harmful to
the building or disturbing to other tenants occupying other parts thereof.
(f) Weights
(f) Place any weights in any portion of the demised premises beyond the
safe carrying capacity of the structure.
(g) Fire Insurance
(g) Do or suffer to be done, any act, matter or thing objectionable to the
fire insurance companies whereby the fire insurance or any other insurance now
in force or hereafter to be placed on the demised premises, or any part thereof,
or on the building of which the demised premises may be a part, shall become
void or suspended, or whereby the same shall be rated as a more hazardous risk
than at the date of execution of this lease, or employ any person or persons
objectionable to the fire insurance companies or carry or have any benzene or
explosive matter of any kind in and about the demised premises. In case of a
breach of this covenant (in addition to all other remedies given to Lessor in
case of the breach of any of the conditions or covenants of this lease) Lessee
agrees to pay to Lessor as additional rent any and all increase or increases of
premiums on insurance carried by Lessor on the demised premises, or any part
thereof, or on the building of which the demised premises may be a part, caused
in any way by the occupancy of Lessee.
(h) Removal of Goods
(h) Remove, attempt to remove or manifest an intention to remove Lessee's
goods or property from or out of the demised premises otherwise than in the
ordinary and usual course of business, without having first paid and satisfied
Lessor for all rent which may become due during the entire term of this lease.
(i) Vacate Premises
(i) Vacate or desert said premises during the term of this lease, or permit
the same to be empty and unoccupied.
10 - Lessor's Rights
Lessee covenants and agrees that Lessor shall have the right to do the
following things and matters in and about the demised premises:
(a) Inspection of Premises
(a) At all reasonable times by himself or his duly authorized agents to go
upon and inspect the demised premises and every part thereof, and/or at his
option to make repairs, alterations and additions to the demised premises or the
building of which the demised premises is a part.
(b) Rules and Regulations
(b) At any time or times and from time to time to make such rules and
regulations as in his judgment may from time to time be necessary for the
safety, care and cleanliness of the premises, and for the preservation of good
order therein. Such rules and regulations shall, when noticed thereof is given
to Lessee, form a part of this lease.
(c) Sale or Rent Sign. Prospective Purchasers or Tenants
(c) To display a "For Sale" sign at any time, and also, after notice from
either party of intention to determine this lease, or at any time within three
months prior to the expiration of this lease, a "For Rent" sign, or both "For
Rent" and "For Sale" signs; and all of said signs shall be placed upon such part
of the premises as Lessor may elect and may contain such matter as Lessor shall
require. Prospective purchasers or tenants authorized by Lessor may inspect the
premises at reasonable hours at any time.
(d) Discontinue Facilities and Service
(d) The Lessor may discontinue all facilities furnished and services
rendered, or any of them, by Lessor, not expressly covenanted for herein, it
being understood that they constitute no part of the consideration for this
lease.
11 - Responsibility of Lessor
(a) Lessee agrees to be responsible for and to relieve and hereby relieves
the Lessor from all liability by reason of any injury or damage to any person or
property in the demised premises, whether belonging to the Lessee or any other
person, caused by any fire, breakage or leakage in any part or portion of the
demised premises, or any part or portion of the building of which the demised
premises is a part, or from water, rain or snow that may leak into, issue or
flow from any part of the said premises, or of the building of which the demised
premises is a part, or from the drains, pipes, or plumbing work of the same, or
from any place or quarter, whether such breakage, leakage, injury or damage be
caused by or result from the negligence of Lessor or his servants or agents or
any person or persons whatsoever.
(b) Lessee also agrees to be responsible for and to relieve and hereby
relieves Lessor from all liability by reason of any damage or injury to any
person or thing which may arise from or be due to the use, misuse or abuse of
all or any of the elevators, hatches, openings, stairways, hallways, of any kind
whatsoever, which may exist or hereafter be erected or constructed on the said
premises, or from any kind of injury which may arise from any other cause
whatsoever on the said premises or the building of which the demised premises is
a part, whether such damage, injury, use, misuse or abuse be caused by or result
from the negligence of Lessor, his servants or agents or any other person or
persons whatsoever.
12 - Responsibility of Lessor
(a) Total Destruction of Premises
(a) In the event that the demised premises is totally destroyed or so
damaged by fire or other casualty not occurring through fault or negligence of
the Lessee or those employed by or acting for him, that the same cannot be
repaired or restored within a reasonable time, this lease shall absolutely cease
and determine, and the rent shall abate for the balance of the term.
(b) Partial Destruction of Premises
(b) If the damage caused as above be only partial and such that the
premises can be restored to their then condition within a reasonable time, the
Lessor may, at his option, restore the same with reasonable promptness,
reserving the right to enter upon the demised premises for that purpose. The
Lessor also reserves the right to enter upon the demised premises whenever
necessary to repair damage caused by fire or other casualty to the building of
which the demised premises is a part, even though the effect of such entry be to
render the demised premises or a part thereof untenantable. In either event the
rent shall be apportioned and suspended during the time the Lessor is in
possession, taking into account the proportion of the demised premises rendered
untenantable and the duration of the Lessor's possession. If a dispute arises as
to the amount of rent due under this clause, Lessee agrees to pay the full
amount claimed by Lessor. Lessee shall, however, have the right to proceed by
law to recover the excess payment, if any.
(c) Repairs by Lessor
(c) Lessor shall make such election to repair the premises or terminate
this lease by giving notice thereof to Lessee at the leased premises within
thirty days from the day Lessor received notice that the demised premises had
been destroyed or damaged by fire or other casualty.
(d) Damage for Interruption of Use
(d) Lessor shall not be liable for any damage, compensation or claim by
reason of inconvenience or annoyance arising from the necessity of repairing any
portion of the building, the interruption in the use of the premises, or the
termination of this lease by reason of the destruction of the premises.
(e) Representation of Condition of Premises
(e) The Lessor has let the demised premises in their present condition and
without any representations on the part of Lessor, his officers, employees,
servants and/or agents. It is understood and agreed that Lessor is under no duty
to make repairs or alterations at the time of letting or at any time thereafter.
(f) Zoning
(f) It is understood and agreed that the Lessor hereof does not warrant or
undertake that the Lessee shall be able to obtain a permit under any Zoning
Ordinance or Regulation for such use as Lessee intends to make of the said
premises, and nothing in this lease contained shall obligate the Lessor to
assist Lessee in obtaining said permits; the Lessee further agrees that in the
event a permit cannot be obtained by Lessee under any Zoning Ordinance or
Regulation, this lease shall not terminate without Lessor's consent, and the
Lessee shall use the premises only in a manner permitted under such Zoning
Ordinance or Regulation.
13 - Miscellaneous Agreements and Conditions
(a) Effect of Repairs on Rental
(a) No contract entered into or that may be subsequently entered into by
Lessor with Lessee, relative to any alterations, additions, improvements or
repairs, nor the failure of Lessor to make such alterations, additions,
improvements or repairs as required by any such contract, nor the making by
Lessor or his agents or contractors of such alterations, additions, improvements
or repairs shall in any way affect the payment of the rent or said other charges
at the time specified in this lease.
(b) Agency
(b) It is hereby expressly agreed and understood that the said N/A is
acting as agent only and shall not in any event be held liable to the owner or
to Lessee for the fulfillment or non-fulfillment of any of the terms or
conditions of this lease, or for any action or proceedings that may be taken by
the owner against Lessee, or by Lessee against the owner.
(c) Waiver of Custom
(c) It is hereby covenanted and agreed, any law, usage or custom to the
contrary notwithstanding, that Lessor shall have the right at all times to
enforce the covenants and provisions of this lease in strict accordance with the
terms hereof, notwithstanding any conduct or custom on the part of the Lessor in
refraining from so doing at any time or times; and, further, that the failure of
Lessor at any time or times to enforce his rights under said covenants and
provisions strictly in accordance with the same shall not be construed as having
created a custom in any way or manner contrary to the specific terms, provisions
and covenants of this lease or as having in any way or manner modified the same.
(d) Conduct of Lessee
(d) This lease is granted upon the express condition that Lessee and/or the
occupants of the premises herein leased, shall not conduct themselves in a
manner which the Lessor in his sole opinion may deem improper or objectionable,
and that if at any time during the term of this lease or any extension or
continuation thereof, Lessee or any occupier of the said premises shall have
conducted himself, herself or themselves in a manner which Lessor in his sole
opinion deems improper or objectionable, Lessee shall be taken to have broken
the covenants and conditions of this lease, and Lessor will be entitled to all
of the rights and remedies granted and reserved herein for the Lessee's failure
to observe any of the covenants and conditions of this lease.
(e) Failure of Lessee to Repair
(e) In the event of the failure of Lessee promptly to perform the covenants
of Section 8(b) hereof, Lessor may go upon the demised premises and perform such
covenants, the cost thereof, at the sole option of Lessor, to be charged to
Lessee as additional and delinquent rent.
14 - Remedies of Lessor
If the Lessee
(a) Does not pay in full when due any and all installments of rent and/or
any other charge or payment herein reserved, included, or agreed to be treated
or collected as rent and/or any other charge, expense, or cost herein agreed to
be paid by the Lessee, or
(b) Violates or fails to perform or otherwise breaks any covenant or
agreement herein contained; or
(c) Vacates the demised premises or removes or attempts to remove or
manifests an intention to remove any goods or property therefrom otherwise than
in the ordinary and usual course of business without having first paid and
satisfied the Lessor in full for all rent and other charges then due or that may
thereafter become due until the expiration of the then current term, above
mentioned; or
(d) Becomes embarrassed or insolvent, or makes an assignment for the
benefit of creditors, or if a petition in bankruptcy is filed by or against the
Lessee, or a bill in equity or other proceeding for the appointment of a
receiver for the Lessee is filed, or if proceedings for reorganization or for
composition with creditors under any State or Federal law be instituted by or
against Lessee, or if the real or personal property of the Lessee shall be sold
or levied upon by any Sheriff, Marshall or Constable; __________________________
________________________________________________________________________________
then and in any or either of said events, there shall be deemed to be a
breach of this lease, and thereupon ipso facto and without entry or other action
by Lessor;
(1) The rent for the entire unexpired balance of the term of this lease,
as well as all other charges, payments, costs and expenses herein agreed to be
paid by the Lessee, or at the option of Lessor any part thereof, and also all
costs and officers' commissions including watchmen's wages and further including
the five percent chargeable by Act of Assembly to the Lessor, shall, in addition
to any and all installments of rent already due and payable and in arrears
and/or any other charge or payment herein reserved, included or agreed to be
treated or collected as rent, and/or any other charge, expense or cost herein
agreed to be paid by the Lessee which may be due and payable and in arrears, be
taken to be due and payable and in arrears as if by the terms and provisions of
this lease, the whole balance of unpaid rent and other charges, payments, taxes,
costs and expenses were on that date payable in advance; and if this lease or
any part thereof is assigned, or if the premises or any part thereof is sub-let,
Lessee hereby irrevocably constitutes and appoints Lessor Lessee's agent to
collect the rents due by such assignee or sub-lessee and apply the same to the
rent due hereunder without in any way affecting Lessee's obligation to pay any
unpaid balance of rent due hereunder;
<PAGE>
(2) This lease and the term hereby created shall determine and become
absolutely void without any right on the part of the Lessee to save the
forfeiture by payment of any sum due or by other performance of any condition,
term or covenant broken; whereupon, Lessor shall be entitled to recover damages
for such breach in an amount equal to the amount of rent reserved for the
balance of the term of this lease, less the fair rental value of the said
demised premises, for the residue of said term.
15 - Further Remedies of Lessor
In the event of any default as above set forth in Section 14, the Lessor,
or anyone acting on Lessor's behalf, at Lessor's option:
(a) may without notice or demand enter the demised premises, breaking open
locked doors if necessary to effect entrance, without liability to action for
prosecution or damages for such entry or for the manner thereof, for the purpose
of distraining or levying and for any other purposes, and take possession of and
sell all goods and chattels at auction, on three days' notice served in person
on the Lessee or left on the premises, and pay the said Lessor out of the
proceeds, and even if the rent be not due and unpaid, should the Lessee at any
time remove or attempt to remove goods and chattels from the premises without
leaving enough thereon to meet the next periodical payment, Lessee authorizes
the lessor to follow for a period of ninety days after such removal, take
possession of and sell at auction, upon like notice, sufficient of such goods to
meet the proportion of rent accrued at the time of such removal; and the Lessee
hereby releases and discharges the Lessor, and his agents, from all claims,
actions, suits, damages, and penalties, for or by reason or on account of any
entry, distraint, levy, appraisement, or sale; and/or
(b) may enter the premises, and without demand proceed by distress and sale
of the goods there found to levy the rent and/or other charges herein payable as
rent, and all costs and officers' commissions, including watchmen's wages and
sums chargeable to Lessor, and further including a sum equal to 5% of the amount
of the levy as commissions to the constable or other person making the levy,
shall be paid by the Lessee, and in such case all costs, officers' commissions
and charges made after the issue of a warrant of distress shall not be
sufficient to satisfy the claim of the Lessor. Lessee hereby expressly waives in
favor of Lessor the benefit of all laws now made or which may hereafter be made
regarding any limitation as to the goods upon which, or the time within which,
distress is to be made after removal of goods, and further relieves the Lessor
of the obligations of proving or identifying such goods, it being the purpose
and intent of this provision that all goods of Lessee, whether upon the demises
premises or not, shall be liable to distress for rent. Lessee waives in favor of
Lessor all rights under the Act of Assembly of April 6, 1951, P.L. 69, and all
supplements and amendments thereto that have been or may hereafter be passed,
and authorizes the sale of any goods distrained for rent at any time after five
days from said distraint without any appraisement and/or condemnation thereof.
(c) The Lessee further waives the right to issue a Write of Replevin under
the Pennsylvania Rules of Civil Procedure, No. 1071 &c. and Laws of the
Commonwealth of Pennsylvania, or under any other law previously enacted and now
in force, or which may be hereafter enacted, for the recovery of articles,
household goods, furniture, etc., seized under distress for rent or levy upon
execution for rent, damages or otherwise; all waivers any hereinbefore mentioned
are hereby extended to apply to any such action; and/or
(d) may lease said premises or any part or parts thereof to such person or
persons as may in Lessor's discretion seem best and the Lessee shall be liable
for any loss o rent for the balance of the then current term.
16 - Confession of Judgment
If rent and/or any charges hereby reserved as rent shall remain unpaid on
any day when the same ought to be paid, Lessee hereby empowers any Prothonotary,
Clerk of Court, or attorney of any Court of Record to appear for Lessee in any
and all actions which may be brought for rent and/or the charges, payments,
costs and expenses reserved as rent, or agreed to be paid by the Lessee and /or
to sign for Lessee an agreement for entering in any competent Court an amicable
action or actions for the recovery of rent or other charges, payments, costs and
expenses, and in said suits or in said amicable action or actions to confess
judgment against Lessee for all or any part of the rent specified in this lease
and then unpaid including, at Lessor's option rent for the entire unexpired
balance of the term of this lease, and/or other charges, payments, costs and
expenses reserved as rent to agree to be paid the Lessee, and for interest and
costs together with any attorney's commission of 5%. Such authority shall not be
exhausted by one exercise thereof, but judgment may be confessed as aforesaid
from time to time as often as any of said rent and/or other charges, payments,
costs and expenses, reserved as rent shall fall due or be in arrears, and such
powers may be exercised as well after the expiration of the original term and/or
during any extension or renewal of this lease.
17 - Ejectment
When this lease shall be determined by condition broken, either during the
original term of this lease or any renewal or extension thereof, and also when
and as soon as the term hereby created or any extension thereof shall have
expired, it shall be lawful for any attorney as attorney for Lessee to file an
agreement for entering in any competent Court an amicable action and judgment in
ejectment against Lessee and all persons claiming under Lessee for the recovery
by Lessor of possession of the herein demised premises, for which this lease
shall be his sufficient warrant, whereupon, if Lessor so desires, a Writ of
Execution or of Possession may issue forthwith, without any prior writ or
proceedings whatsoever, and provided that if for any reason after such action
shall have been commenced the same shall be determined and the possession of the
premises hereby demised remain in or be resorted to Lessee, Lessor shall have
the right upon any subsequent default or defaults, or upon the termination of
this lease as hereinbefore set forth, to bring one or more amicable action or
actions as hereinbefore set forth to recover possession of the said premises.
18 - Affidavit of Default
In any amicable action of ejectment and/or for rent in arrears, Lessor
shall first cause to be filed in such action an affidavit made by him or someone
acting for him setting forth the facts necessary to authorize the entry of
judgment, of which facts such affidavit shall be conclusive evidence and if a
true copy of this lease (and of the truth of the copy such affidavit shall be
sufficient evidence) be filed in such action, it shall not be necessary to file
the original as a warrant of attorney, any rule of Court, custom or practice to
the contrary notwithstanding.
19 - Waivers by Lessee of Errors, Right of Appeal, Stay, Exemption, Inquisition
Lessee expressly agrees that any judgment, order or decree entered against
him by or in any Court or Magistrate by virtue of the powers of attorney
contained in this lease, or otherwise, shall be final, and that he will not take
an appeal, certiorari, writ of error, exception or objection to the same, or
file a motion or rule to strike off or open or to stay execution of same, and
releases to Lessor and to any and all attorneys who may appear for Lessee all
errors in the said proceedings, and all liability therefor. Lessee expressly
waives the benefits of all laws, now or hereafter in force, exempting any goods
on the demised premises, or elsewhere from distraint, levy or sale in any legal
proceedings taken by the Lessor to enforce any rights under this lease. Lessee
further waives the right of inquisition on any real estate that may be levied
upon to collect any amount which may become due under the terms and conditions
of this lease, and does hereby voluntarily condemn the same and authorizes the
Prothonotary or Clerk of Court to issue a Writ of Execution or other process
upon Lessee's voluntary condemnation, and further agrees that the said real
estate may be sold on a Writ of Execution or other process. If proceedings shall
be commenced by Lessor to recover possession under the Acts of Assembly, either
at the end of the term or sooner termination of this lease, or for nonpayment of
rent or any other reason Lessee specifically waived the right to the three
months' notice and/or the fifteen or thirty days' notice required by the Act of
April 6, 1951, P.L. 69, and agrees that five days' notice shall be sufficient in
either or any other case.
20 - Rigt of Assignee of Lessor
The right to enter judgment against Lessee and to enforce all of the other
provisions of this lease hereinabove provided for may, at the option of assignee
of this lease, be exercised by any assignee of the Lessor's right, title and
interest in this lease in his, her or their own name, notwithstanding the fact
that any or all assignments of the said right, title and interest may not be
executed and/or witnessed in accordance with the Act of Assembly of May 28,
1715, 1 Sm. L. 90, and all supplements and amendments thereof that have been or
may hereafter be passed and Lessee hereby expressly waives the requirements of
said Act of Assembly and any and all laws regulating the manner and/or form in
which such assignments shall be executed and witnessed.
21- Remedies of Cumulative
All of the remedies hereinbefore given to Lessor and all rights and
remedies given to him by law and equity shall be cumulative and concurrent. No
determination of this lease or the taking or recovering of the premises shall
deprive Lessor of any of his remedies or actions against the Lessee for rent due
at the time or which, under the terms hereof, would in the future become due as
if there has been no determination, or for any and all sums due at the time, or
which, under the terms hereof, would in the future become due as if there had
been no determination, nor shall the bringing of any action for rent or breach
of covenant, or the resort to any other remedy herein provided for the recovery
of rent be construed as a waiver of the right to obtain possession of the
premises.
22 - Condemnation
In the event that the premises demised or any part thereof is taken or
condemned for a public or quasi-public use, this lease shall, as to the part so
taken, terminate as of the date title shall vest in the condemnor, and rent
shall abate in proportion to the square feet of leased space taken or condemned
or shall cease if the entire premises be so taken. In either event the Lessee
waives all claims against the Lessor by reason of the complete or partial taking
of the demised premises, and it is agreed that the Lessee shall not be entitled
to any notice whatsoever of the or complete termination of this lease by reason
of the aforesaid
23 - Subordination
This agreement of Lease and all its terms, covenants and provisions are and
each of them is subject and subordinate to any lease or other arrangements or
right to possession, under which the Lessor is in control of the demised
premises, to the rights of the owner or owner's of the demised premises and the
land or buildings of which the demised premises are a part, to all rights of the
Lessor's landlord and to any and all mortgages and other encumbrances now or
hereafter placed upon the demised premises or upon the land and/or the buildings
containing the same; and Lessee expressly agrees that if Lessor tenancy or
control, or right to possession shall terminate either by expiration, forfeiture
or otherwise, then this lease shall thereupon immediately terminate and the
Lessee shall, thereupon, give immediate possession; and Lessee hereby waives any
and all claims for damages or otherwise by reason of such termination as
aforesaid.
24 - Termination of Lease
It is hereby mutually agreed that either party hereto may terminate this
lease at the end of said term by giving the other party written notice thereto
at lease 180 days prior thereto, but in default of such notice, this lease shall
continue upon the same terms and conditions in force immediately prior to the
expiration of the term hereof as are herein contained for a further period of
one month and so on from month to month unless or until terminated by either
party hereto, giving the other 180 days written notice for removal previous to
expiration of the then current term; PROVIDED, however, that should this lease
be continued for a further period under the terms hereinabove mentioned, any
allowances given Lessee on the rent during the original term shall not extend
beyond such original term, and further provided, however, that if Lessor shall
have given such written notice prior to the expiration of any term hereby
created, of his intention to change the terms and conditions of this lease, and
Lessee shall not within 30 days from such notice notify Lessor of Lessee's
intention to vacate the demised premises at the end of the then current term,
Lessee shall be considered as Lessee under the terms and conditions mentioned
such notice for a further term as above provided, or for such further term as
may be stated in such notice. In the event that Lessee shall give notice, as
stipulated in this lease, of intention to vacate the demised premises at the end
of the present term, or any renewal or extension thereof, and shall fail or
refuse so to vacate the same on the date designated by such notice, then it is
expressly agreed that Lessor shall have the option either (a) to disregard the
notice so given as having no effect, in which case all the terms and conditions
of this lease shall continue thereafter with full force precisely as if such
notice had not been given, or (b) Lessor may, at any time within thirty days
after the present term or any renewal or extension thereof, as aforesaid, give
the said Lessee ten days' written notice of his intention to terminate the said
lease; whereupon the Lessee expressly agrees to vacate said premises at the
expiration of the said period of ten days specified in said notice. All powers
granted to Lessor by this lease may be exercised and all obligations imposed
upon Lessee by this lease shall be performed by Lessee as well during any
extension of the original term of this lease as during the original term itself.
25 - Notices
All notices required to be given by Lessor to Lessee shall be sufficiently
given by leaving the same upon the demised premises, but notices given by Lessee
to Lessor must be given by registered mail, and as against Lessor the only
admissible evidence that notice has been given by Lessee shall be registered
return receipt signed by Lessor or his Agent.
26 - Lease Contains All Agreements
It is expressly understood and agreed by and between the parties hereto
that this lease and the riders attached hereto and forming a part hereof set
forth all the promises, agreements, conditions and understandings between Lessor
or his Agents and Lessee relative to the demised premises, and that the re are
no promises, agreements, conditions or understandings, either oral or written,
between them other than are herein set forth. It is further understood and
agreed that, except as herein otherwise provided, no subsequent alteration,
amendment, change or addition to this lease shall be binding upon Lessee or
Lessee unless reduced to writing and signed by them.
<PAGE>
27 - Heirs and Assignees
All rights liabilities herein given to, or imposed upon, the respective
parties hereto shall extend to and bind the several and respective heirs,
executors, administrators, successor and assigns of said parties; and if there
shall be more than one Lessee, they shall all be bound jointly and severally by
the terms, covenants and agreements herein, and the word "Lessee" shall be
deemed and taken to mean each and every person or party mentioned as a Lessee
herein, be the same one or more; and if there shall be more than one Lessee, any
notice required or permitted by the terms of this lease may be given by or to
any one thereof, and shall have the same force and effect as if given by or to
all thereof. The words "his" and "him" wherever stated herein shall be deemed to
refer to the "Lessor" and "Lessee" whether such Lessor or Lessee be singular or
plural and irrespective of gender. No rights, however, shall inure to the
benefit of any assignee of Lessee unless the assignment to such assignee has
been approved by Lessor in writing as aforesaid.
28 - Security Deposit
Lessee shall, upon execution hereof, deposit with Lessor as security for
the performance of all the terms, covenants, and conditions of this lease sum of
________________________________________________________________________________
____________________________________. This deposit is to be retained by Lessor
until the expiration of this lease and shall be returnable to Lessee provided
that (1) premises have been vacated; (2) Lessor shall have inspected the
premises after such vacation; and (3) Lessee shall have complied with all the
terms, covenants and conditions of this lease, in which event the deposit so
paid hereunder shall be returned to Lessee; otherwise, said sum deposited
hereunder or any part thereof may be retained by Lessor at his option, as
liquidated damages, or may be applied by Lessor against any actual loss, damage
or injury chargeable to Lessee hereunder or otherwise, if Lessor determines that
such loss, damage or injury exceeds said sum deposited. Lessor's determination
of the amount, if any, to be returned to Lessee shall be final. It is understood
that the said deposit is not to be considered as the last rental due under the
lease.
29 - Headings No Part of Lease
Any headings preceding the text of the several paragraphs and
sub-paragraphs hereof are inserted solely for convenience of reference and shall
constitute a part of this lease, nor shall they affect its meaning, construction
or effect.
IN WITNESS WHEREOF, the parties hereto have executed these presents
the day and year first above written, and intend to be legally bound thereby.
SEALED AND DELIVERED IN THE PRESENCE OF
/s/ James Bergman /s/ S. Lance Silver
- --------------------------------------- -------------------------------(Agent)
LESSOR - Elizabeth Restaurant Partnres
BY: Lizzy Management Corp.,
General Partner
- -------------------------------------- --------------------------------- SEAL
/s/ James Bergman /s/ Stuart N. Harting
- -------------------------------------- --------------------------------- SEAL
LESSEE - Katmandu Entertainment Corp.
- -------------------------------------- --------------------------------- SEAL
================================================================================
LEASE
ELIZABETH RESTAURANT PARTNERS,
General Partner: Lizzy Management Corp.
TO
KATMANDU ENTERTAINMENT CORP.
Premises: 415 N. Christopher Columbus Blvd.
Second Floor (Deck)
Philadelphia, PA 19123
Rent: $50,000.00 per year
Commence October 1, 1996
Expires: Secptember 30, 2001
FOR VALUE RECEIVED _________ hereby assign, transfer and set over unto _________
__________________________________________________________________ Executors,
Administrators, Successors and Assigns, all ______________ right, title and
interest in the within _________________________________________________________
____________________ and all benefit and advantages to be derived therefore.
Witnes ____ hand and seal this _______ day of __________________ A.D. 19__
SEALED AND DELIVERED
IN PRESENCE OF
<PAGE>
LEASE AGREEMENT SUPPLEMENT
THIS AGREEMENT entered into on this 1st of July, 1996, by and between
ELIZABETH RESTAURANT PARTNERS, General Partner; Lizzy Management Corp.,
hereinafter called "Lessor" and KATMANDU ENTERTAINMENT CORP., a Delaware
corporation, hereinafter called "Lessee" is a supplement to the Lease entered
into by and between the parties dated 1st day of July, 1996.
Relocation Option: Lessee and Lessor agree that in the event a casino
gaming related sales contract is obtained by Lessor on the leased premises,
then the Lease between Lessee and Lessor will terminate with the following
conditions:
a) Lessor, at Lessor's expense, will use its best efforts to provide Lessee
with a new location suitable to Lessee in the same general area of the
currently leased premises and with similar operating conditions as the
currently leased premises. Said location must be approved by Lessee.
b) Lessor will give Lessee at least six (6) months notice of Lessor's
intention to relocate Lessee or terminate the Lease pursuant to the
provisions of this lease supplement.
c) Lessor agrees that the provisions of this supplement with regard to
relocation and termination of the Lease will not be exercised during the
first year of the Lease.
IN WITNESS WHEREOF, the parties have set their hands and seals on the day
and year first above written.
ELIZABETH RESTAURANT PARTNERS, L.P.
Witness: BY: LIZZY MANAGEMENT CORP., General Partner
/s/ James R. Bergman BY: /S/ SLS
- --------------------------------- --------------------------------------------
S. LANCE SILVER, PRESIDENT
: KATMANDU ENTERTAINMENT CORP.
/s/ James R. Bergman BY: /S/ S
- --------------------------------- --------------------------------------------
STUART N. HARTING, CO-PRESIDENT
<PAGE>
APPROVAL OF SUBLET AGREEMENT
Approval this 1st day of July, 1996, of a Lease Agreement (hereinafter
referred to as the "Sublet Agreement") dated the 1st day of July, 1996, by and
between ELIZABETH RESTAURANT PARTNERS ("Elizabeth"), general partner: Lizzy
Management Corp. ("Lizzy"), ("Lessor") and KATMANDU ENTERTAINMENT CORP.
("Lessee").
WHEREAS, Hong Kong & Shanghai Investment Corp. ("H & S") is the Lessor
under a Lease Agreement by and between H & S and Elizabeth dated August 15,
1992, (H & S and Elizabeth are hereinafter referred to collectively as the
"Parties"); and
WHEREAS, Elizabeth and its general partner, Lizzy, intend to enter into a
Sublet Agreement with Katmandu Entertainment Corp.; and
WHEREAS, the Sublet Agreement must be approved by H & S;
NOW, THEREFORE, in consideration of the promises and representations
contained herein, the Parties agree and covenant as follows:
1. H & S agrees to and approves to the Sublet Agreement which is the
subject hereof;
2. In consideration of the approval of H & S, Elizabeth will remain
primarily liable to H & S for the rental payments specified in
(ss)4.1, 4.2 of the Lease Agreement by and between H & S and
Elizabeth.
HONG KNONG & SHANGHAI INVESTMENT CORP.
BY: /s/ Stuart N. Harting
--------------------------------------
Staurt N. Harting, President
ATTEST: /s/ S. Lance Silver
--------------------------------------
ELIZABETH RESTAURANT PARTNERS
by its General Partner: Lizzy Management Corp.
BY: /s/ S. Lance Silver
--------------------------------------
S. Lance Silver, President
ATTEST: /s/ Stuart N. Harting
--------------------------------------
<PAGE>
Lease Agreement
1 - Parties
This agreement, made the sixteenth day of December one thousand nine hundred and
ninety-four (1994), by and between POWERHOUSE ASSOCIATES, a Pennsylvania limited
partnership (hereinafter called Lessor), of the other part, and KATMANDU
INVESTMENT PARTNERS, a Pennsylvania limited partnership (hereinafter called
Lessee) of the other part.
2 - Premises
Witnesseth that: Lessor does hereby demise and let unto Lessee all that certain
piece of property and building located at 226 N. Second Street, the third (3rd)
floor thereof in the County of Philadelphia, state of Pennsylvania, to be used
and occupied as a storage facility and for no other purpose,
3 - Term
for the term of five (5) years beginning the first day of January one thousand
nine-hundred and ninety-five (1995), and ending the thirty-first day of December
one thousand nine-hundred and ninety-nine (1999),
4 - Minimum Rent
for the minimum yearly rental of six thousand and no/100 (Dollars) ($6,000.00)
lawful money of the United States of America payable in monthly installments in
advance during the said term of this lease, or any renewal hereof, in sums of
five hundred and no/100 Dollars ($500.00) on the first (1st) day of each month
to begin from the first day of January, 1995.
5 - Inability to give Possession
If Lessor is unable to give Lessee possession of the demised premises, as herein
provided, by reason of the holding over of a previous occupant, or by reason of
any cause beyond the control of the Lessor, the Lessor shall not be liable in
damages to the Lessee therefor, and during the period that the Lessor is unable
to give possession, all rights and remedies of both parties hereunder shall be
suspended.
6 - Additional Rent
(a) Damages for Default
(a) Lessee agrees to pay as rent in addition to the minimum rental herein
reserved any and all sums which may become due by reason of the failure of
Lessee to comply with all the covenants of this lease and pay any and all
damages, costs and expenses which the Lessor may suffer or incur by reason of
any default of the Lessee or failure on his part to comply with the covenants of
this lease, and each of them, and also any and all damages of the demised
premises caused by any act or neglect of the Lessee.
(b) Taxes
(b) Lessee further agrees to pay as rent in addition to the minimum rental
herein reserved all taxes assessed or imposed upon the demised premises and/or
the building of which the demised premises is a part during the term of this
lease, in excess of and over and above those assessed or imposed at the time of
making this lease. The amount due hereunder on account of such taxes shall be
apportioned for that part of the first and last calendar years covered by the
term hereof. The same shall be paid by Lessee to Lessor on or before the first
day of July of each and every year.
(c) Fire Insurance Premiums
(c) Lessee further agrees to pay to Lessor as additional rent all increase
in the rate of fire insurance premiums upon the demised premises and/or the
building of which the demised premises is a part, due to an increase in the rate
of fire insurance in excess of the rate on the demised premises at the time of
making this lease, if said increase is caused by any act or neglect of the
Lessee or the nature of the Lessee's business.
(d) Water Rent
(d) Lessee further agrees to pay as additional rent, if there is a metered
water connection to the said premises, all charges for water consumed upon the
demised premises in excess of the yearly minimum meter charge and all charges
for repairs to the said meter or meters on the premises, whether such repairs
are made necessary by ordinary wear and tear, freezing, hot water, accident or
other causes, immediately when the same become due.
(e) Sewer Rent
(e) Lessee further agrees to pay as additional rent, if there is a metered
water connection to said premises, all sewer rental or charges for use of
sewers, sewage system, and sewage treatment works servicing the demised premises
in excess of the yearly minimum of such sewer charges, immediately when the same
become due.
7 - Place of Payment
All rents shall be payable without prior notice or demand at the office of
Lessor in Philadelphia, Pa. or at such other place as Lessor may from time to
time designate by notice in writing.
8 - Affirmative Covenants of Lessee
(a) Payment of Rent
Lessee covenants and agrees that he will without demand
(a) Pay the rent and all other charges herein reserved as rent on the days
and times and at the place that the same are made payable, without fail, and if
Lessor shall at any time or times accept said rent or rent charges after the
same shall have become due and payable, such acceptance shall not excuse delay
upon subsequent occasions, or constitute or be construed as a waiver of any of
Lessor's rights. Lessee agrees that any charge or payment herein reserved,
included or agreed to be treated or collected as rent and/or any other charges
or taxes, expenses, or costs herein agreed to be paid by the Lessee may be
proceeded for and recovered by the Lessor by distraint or other process in the
same manner as rent due and in arrears.
(b) Cleaning, Repairing, etc.
(b) Keep the demised premises clean and free from all ashes, dirt and other
refuse matter; replace all glass windows, doors, etc., broken; keep all waste
and drain pipes open; repair all damage to plumbing and to the premises in
general; keep the same in good order and repair as they now are, reasonable wear
and tear and damage by accidental fire or other casualty not occurring through
negligence of Lessee or those employed by or acting for Lessee alone excepted.
The Lessee agrees to surrender the demised premises in the same condition in
which Lessee has herein agreed to keep the same during the continuance of this
lease.
(c) Requirements of Public Authorities
(c) Comply with any requirements of any of the constituted public
authorities, and with the terms of any State or Federal statute or local
ordinance or regulation applicable to Lessee or his use of the demised premises,
and save Lessor harmless from penalties, fines, costs or damages resulting from
failure to do so.
(d) Fire
(d) Use every reasonable precaution against fire.
(e) Rules and Regulations
(e) Comply with rules and regulations of Lessor promulgated as hereinafter
provided.
(f) Surrender of Lease
(f) Peaceably deliver up and surrender possession of the demised premises
to the Lessor at the expiration or sooner termination of this lease, promptly
delivering to Lessor at his office all keys for the demised premises.
(g) Notice of Fire
(g) Give Lessor prompt written notice of any accident, fire, or damage
occurring on or to the demised premises.
(h) Condition of Payment
(h) Lessee shall be responsible for the condition of the pavement, curb,
cellar doors, awnings and other erections in the pavement during the term of
this lease; shall keep the pavement free from snow and ice; and shall be and
hereby agrees that Lessee is solely liable for any accidents, due or alleged to
be due to the defective condition, or to any accumulations of snow and ice.
(i) Agency on Removal
(i) The Lessee agrees that if, with the permission in writing of Lessor,
Lessee shall vacate or decide at any time during the term of this lease, or any
renewal thereof, to vacate the herein demised premises prior to the expiration
of this lease, or any renewal hereof, Lessee will not cause or allow any other
agent to represent Lessee in any sub-letting or reletting of the demised
premises other than an agent approved by the Lessor and that should Lessee do so
or attempt to do so, the Lessor may remove any signs that may be placed on or
about the demised premises by such other agent without any liability to Lessor
or to said agent, the Lessee assuming all responsibility for such action.
9 - Negative Covenants of Lessee
Lessee covenants and agrees that he will do none of the following things
without the consent in writing of Lessor first had and obtained:
(a) Use of Premises
(a) Occupy the demised premises in any other manner or for any other
purpose than as above set forth.
(b) Assignment and Subletting
(b) Assign, mortgage or pledge this lease of under-let or sub-lease the
demised premises, or any part thereof, or permit any other person, firm or
corporation to occupy the demised premises, or any part thereof; nor shall any
assignee or sub-lessee assign, mortgage or pledge this lease or such sub-lease,
without an additional written consent by the Lessor, and without such consent no
such assignment, mortgage or pledge shall be valid. If the Lessee becomes
embarrassed or insolvent, or makes an assignment for the benefit of creditors,
or if a petition in bankruptcy is filed by or against the Lessee or a bill in
equity bill in equity or other proceeding for the appointment of a receiver for
the Lessee is filed, or if the real or personal property of the Lessee shall be
sold or levied upon by any Sheriff, Marshall or Constable, the same shall be a
violation of this covenant.
<PAGE>
(c) Signs
(c) Place or allow to be placed any stand, booth, sign or show case upon
the doorsteps, vestibules or outside walls or pavements of said premises, or
paint, place, erect or cause to be painted, placed or erected any sign,
projection or device on or in any part of the premises. Lessee shall remove any
sign, projection or device painted, placed or erected, if permission has been
granted and restore the walls, etc., to their former conditions, at or prior to
the expiration of this lease. In case of the breach of this covenant (in
addition to all other remedies given to Lessor in case of breach of any
conditions or covenants of this lease) Lessor shall have the privilege of
removing said stand, booth, sign, show case, projection or device, and restoring
said walls, etc., to their former condition, and Lessee, at Lessor's option,
shall be liable to Lessor for any and all expenses so incurred by Lessor.
(d) Alterations, Improvements
(d) Make any alterations, improvements, or additions to the demised
premises. All alterations, improvements, additions or fixtures, whether
installed before or after the execution of this lease, shall remain upon the
premises at the expiration or sooner determination of this lease and become the
property of Lessor, unless Lessor shall, prior to the determination of this
lease, have given written notice to Lessee to remove the same, in which event
Lessee will remove such alterations, improvements and additions and restore the
premises to the same good order and condition in which they now are. Should
Lessee fail to do so, Lessor may do so, collecting, at Lessor's option, the cost
and expense thereof from Lessee as additional rent.
(e) Machinery
(e) Use or operate any machinery that, in Lessor's opinion, is harmful to
the building or disturbing to other tenants occupying other parts thereof.
(f) Weights
(f) Place any weights in any portion of the demised premises beyond the
safe carrying capacity of the structure.
(g) Fire Insurance
(g) Do or suffer to be done, any act, matter or thing objectionable to the
fire insurance companies whereby the fire insurance or any other insurance now
in force or hereafter to be placed on the demised premises, or any part thereof,
or on the building of which the demised premises may be a part, shall become
void or suspended, or whereby the same shall be rated as a more hazardous risk
than at the date of execution of this lease, or employ any person or persons
objectionable to the fire insurance companies or carry or have any benzene or
explosive matter of any kind in and about the demised premises. In case of a
breach of this covenant (in addition to all other remedies given to Lessor in
case of the breach of any of the conditions or covenants of this lease) Lessee
agrees to pay to Lessor as additional rent any and all increase or increases of
premiums on insurance carried by Lessor on the demised premises, or any part
thereof, or on the building of which the demised premises may be a part, caused
in any way by the occupancy of Lessee.
(h) Removal of Goods
(h) Remove, attempt to remove or manifest an intention to remove Lessee's
goods or property from or out of the demised premises otherwise than in the
ordinary and usual course of business, without having first paid and satisfied
Lessor for all rent which may become due during the entire term of this lease.
(i) Vacate Premises
(i) Vacate or desert said premises during the term of this lease, or permit
the same to be empty and unoccupied.
10 - Lessor's Rights
Lessee covenants and agrees that Lessor shall have the right to do the
following things and matters in and about the demised premises:
(a) Inspection of Premises
(a) At all reasonable times by himself or his duly authorized agents to go
upon and inspect the demised premises and every part thereof, and/or at his
option to make repairs, alterations and additions to the demised premises or the
building of which the demised premises is a part.
(b) Rules and Regulations
(b) At any time or times and from time to time to make such rules and
regulations as in his judgment may from time to time be necessary for the
safety, care and cleanliness of the premises, and for the preservation of good
order therein. Such rules and regulations shall, when noticed thereof is given
to Lessee, form a part of this lease.
(c) Sale or Rent Sign. Prospective Purchasers or Tenants
(c) To display a "For Sale" sign at any time, and also, after notice from
either party of intention to determine this lease, or at any time within three
months prior to the expiration of this lease, a "For Rent" sign, or both "For
Rent" and "For Sale" signs; and all of said signs shall be placed upon such part
of the premises as Lessor may elect and may contain such matter as Lessor shall
require. Prospective purchasers or tenants authorized by Lessor may inspect the
premises at reasonable hours at any time.
(d) Discontinue Facilities and Service
(d) The Lessor may discontinue all facilities furnished and services
rendered, or any of them, by Lessor, not expressly covenanted for herein, it
being understood that they constitute no part of the consideration for this
lease.
11 - Responsibility of Lessor
(a) Lessee agrees to be responsible for and to relieve and hereby relieves
the Lessor from all liability by reason of any injury or damage to any person or
property in the demised premises, whether belonging to the Lessee or any other
person, caused by any fire, breakage or leakage in any part or portion of the
demised premises, or any part or portion of the building of which the demised
premises is a part, or from water, rain or snow that may leak into, issue or
flow from any part of the said premises, or of the building of which the demised
premises is a part, or from the drains, pipes, or plumbing work of the same, or
from any place or quarter, whether such breakage, leakage, injury or damage be
caused by or result from the negligence of Lessor or his servants or agents or
any person or persons whatsoever.
(b) Lessee also agrees to be responsible for and to relieve and hereby
relieves Lessor from all liability by reason of any damage or injury to any
person or thing which may arise from or be due to the use, misuse or abuse of
all or any of the elevators, hatches, openings, stairways, hallways, of any kind
whatsoever, which may exist or hereafter be erected or constructed on the said
premises, or from any kind of injury which may arise from any other cause
whatsoever on the said premises or the building of which the demised premises is
a part, whether such damage, injury, use, misuse or abuse be caused by or result
from the negligence of Lessor, his servants or agents or any other person or
persons whatsoever.
12 - Responsibility of Lessor
(a) Total Destruction of Premises
(a) In the event that the demised premises is totally destroyed or so
damaged by fire or other casualty not occurring through fault or negligence of
the Lessee or those employed by or acting for him, that the same cannot be
repaired or restored within a reasonable time, this lease shall absolutely cease
and determine, and the rent shall abate for the balance of the term.
(b) Partial Destruction of Premises
(b) If the damage caused as above be only partial and such that the
premises can be restored to their then condition within a reasonable time, the
Lessor may, at his option, restore the same with reasonable promptness,
reserving the right to enter upon the demised premises for that purpose. The
Lessor also reserves the right to enter upon the demised premises whenever
necessary to repair damage caused by fire or other casualty to the building of
which the demised premises is a part, even though the effect of such entry be to
render the demised premises or a part thereof untenantable. In either event the
rent shall be apportioned and suspended during the time the Lessor is in
possession, taking into account the proportion of the demised premises rendered
untenantable and the duration of the Lessor's possession. If a dispute arises as
to the amount of rent due under this clause, Lessee agrees to pay the full
amount claimed by Lessor. Lessee shall, however, have the right to proceed by
law to recover the excess payment, if any.
(c) Repairs by Lessor
(c) Lessor shall make such election to repair the premises or terminate
this lease by giving notice thereof to Lessee at the leased premises within
thirty days from the day Lessor received notice that the demised premises had
been destroyed or damaged by fire or other casualty.
(d) Damage for Interruption of Use
(d) Lessor shall not be liable for any damage, compensation or claim by
reason of inconvenience or annoyance arising from the necessity of repairing any
portion of the building, the interruption in the use of the premises, or the
termination of this lease by reason of the destruction of the premises.
(e) Representation of Condition of Premises
(e) The Lessor has let the demised premises in their present condition and
without any representations on the part of Lessor, his officers, employees,
servants and/or agents. It is understood and agreed that Lessor is under no duty
to make repairs or alterations at the time of letting or at any time thereafter.
(f) Zoning
(f) It is understood and agreed that the Lessor hereof does not warrant or
undertake that the Lessee shall be able to obtain a permit under any Zoning
Ordinance or Regulation for such use as Lessee intends to make of the said
premises, and nothing in this lease contained shall obligate the Lessor to
assist Lessee in obtaining said permits; the Lessee further agrees that in the
event a permit cannot be obtained by Lessee under any Zoning Ordinance or
Regulation, this lease shall not terminate without Lessor's consent, and the
Lessee shall use the premises only in a manner permitted under such Zoning
Ordinance or Regulation.
13 - Miscellaneous Agreements and Conditions
(a) Effect of Repairs on Rental
(a) No contract entered into or that may be subsequently entered into by
Lessor with Lessee, relative to any alterations, additions, improvements or
repairs, nor the failure of Lessor to make such alterations, additions,
improvements or repairs as required by any such contract, nor the making by
Lessor or his agents or contractors of such alterations, additions, improvements
or repairs shall in any way affect the payment of the rent or said other charges
at the time specified in this lease.
(b) Agency
(b) It is hereby expressly agreed and understood that the said ___________
is acting as agent only and shall not in any event be held liable to the owner
or to Lessee for the fulfillment or non-fulfillment of any of the terms or
conditions of this lease, or for any action or proceedings that may be taken by
the owner against Lessee, or by Lessee against the owner.
(c) Waiver of Custom
(c) It is hereby covenanted and agreed, any law, usage or custom to the
contrary notwithstanding, that Lessor shall have the right at all times to
enforce the covenants and provisions of this lease in strict accordance with the
terms hereof, notwithstanding any conduct or custom on the part of the Lessor in
refraining from so doing at any time or times; and, further, that the failure of
Lessor at any time or times to enforce his rights under said covenants and
provisions strictly in accordance with the same shall not be construed as having
created a custom in any way or manner contrary to the specific terms, provisions
and covenants of this lease or as having in any way or manner modified the same.
(d) Conduct of Lessee
(d) This lease is granted upon the express condition that Lessee and/or the
occupants of the premises herein leased, shall not conduct themselves in a
manner which the Lessor in his sole opinion may deem improper or objectionable,
and that if at any time during the term of this lease or any extension or
continuation thereof, Lessee or any occupier of the said premises shall have
conducted himself, herself or themselves in a manner which Lessor in his sole
opinion deems improper or objectionable, Lessee shall be taken to have broken
the covenants and conditions of this lease, and Lessor will be entitled to all
of the rights and remedies granted and reserved herein for the Lessee's failure
to observe any of the covenants and conditions of this lease.
(e) Failure of Lessee to Repair
(e) In the event of the failure of Lessee promptly to perform the covenants
of Section 8(b) hereof, Lessor may go upon the demised premises and perform such
covenants, the cost thereof, at the sole option of Lessor, to be charged to
Lessee as additional and delinquent rent.
14 - Remedies of Lessor
If the Lessee
(a) Does not pay in full when due any and all installments of rent and/or
any other charge or payment herein reserved, included, or agreed to be treated
or collected as rent and/or any other charge, expense, or cost herein agreed to
be paid by the Lessee, or
(b) Violates or fails to perform or otherwise breaks any covenant or
agreement herein contained; or
(c) Vacates the demised premises or removes or attempts to remove or
manifests an intention to remove any goods or property therefrom otherwise than
in the ordinary and usual course of business without having first paid and
satisfied the Lessor in full for all rent and other charges then due or that may
thereafter become due until the expiration of the then current term, above
mentioned; or
(d) Becomes embarrassed or insolvent, or makes an assignment for the
benefit of creditors, or if a petition in bankruptcy is filed by or against the
Lessee, or a bill in equity or other proceeding for the appointment of a
receiver for the Lessee is filed, or if proceedings for reorganization or for
composition with creditors under any State or Federal law be instituted by or
against Lessee, or if the real or personal property of the Lessee shall be sold
or levied upon by any Sheriff, Marshall or Constable; __________________________
________________________________________________________________________________
then and in any or either of said events, there shall be deemed to be a
breach of this lease, and thereupon ipso facto and without entry or other action
by Lessor;
(1) The rent for the entire unexpired balance of the term of this lease,
as well as all other charges, payments, costs and expenses herein agreed to be
paid by the Lessee, or at the option of Lessor any part thereof, and also all
costs and officers' commissions including watchmen's wages and further including
the five percent chargeable by Act of Assembly to the Lessor, shall, in addition
to any and all installments of rent already due and payable and in arrears
and/or any other charge or payment herein reserved, included or agreed to be
treated or collected as rent, and/or any other charge, expense or cost herein
agreed to be paid by the Lessee which may be due and payable and in arrears, be
taken to be due and payable and in arrears as if by the terms and provisions of
this lease, the whole balance of unpaid rent and other charges, payments, taxes,
costs and expenses were on that date payable in advance; and if this lease or
any part thereof is assigned, or if the premises or any part thereof is sub-let,
Lessee hereby irrevocably constitutes and appoints Lessor Lessee's agent to
collect the rents due by such assignee or sub-lessee and apply the same to the
rent due hereunder without in any way affecting Lessee's obligation to pay any
unpaid balance of rent due hereunder;
<PAGE>
(2) This lease and the term hereby created shall determine and become
absolutely void without any right on the part of the Lessee to save the
forfeiture by payment of any sum due or by other performance of any condition,
term or covenant broken; whereupon, Lessor shall be entitled to recover damages
for such breach in an amount equal to the amount of rent reserved for the
balance of the term of this lease, less the fair rental value of the said
demised premises, for the residue of said term.
15 - Further Remedies of Lessor
In the event of any default as above set forth in Section 14, the Lessor,
or anyone acting on Lessor's behalf, at Lessor's option:
(a) may without notice or demand enter the demised premises, breaking open
locked doors if necessary to effect entrance, without liability to action for
prosecution or damages for such entry or for the manner thereof, for the purpose
of distraining or levying and for any other purposes, and take possession of and
sell all goods and chattels at auction, on three days' notice served in person
on the Lessee or left on the premises, and pay the said Lessor out of the
proceeds, and even if the rent be not due and unpaid, should the Lessee at any
time remove or attempt to remove goods and chattels from the premises without
leaving enough thereon to meet the next periodical payment, Lessee authorizes
the lessor to follow for a period of ninety days after such removal, take
possession of and sell at auction, upon like notice, sufficient of such goods to
meet the proportion of rent accrued at the time of such removal; and the Lessee
hereby releases and discharges the Lessor, and his agents, from all claims,
actions, suits, damages, and penalties, for or by reason or on account of any
entry, distraint, levy, appraisement, or sale; and/or
(b) may enter the premises, and without demand proceed by distress and sale
of the goods there found to levy the rent and/or other charges herein payable as
rent, and all costs and officers' commissions, including watchmen's wages and
sums chargeable to Lessor, and further including a sum equal to 5% of the amount
of the levy as commissions to the constable or other person making the levy,
shall be paid by the Lessee, and in such case all costs, officers' commissions
and charges made after the issue of a warrant of distress shall not be
sufficient to satisfy the claim of the Lessor. Lessee hereby expressly waives in
favor of Lessor the benefit of all laws now made or which may hereafter be made
regarding any limitation as to the goods upon which, or the time within which,
distress is to be made after removal of goods, and further relieves the Lessor
of the obligations of proving or identifying such goods, it being the purpose
and intent of this provision that all goods of Lessee, whether upon the demises
premises or not, shall be liable to distress for rent. Lessee waives in favor of
Lessor all rights under the Act of Assembly of April 6, 1951, P.L. 69, and all
supplements and amendments thereto that have been or may hereafter be passed,
and authorizes the sale of any goods distrained for rent at any time after five
days from said distraint without any appraisement and/or condemnation thereof.
(c) The Lessee further waives the right to issue a Write of Replevin under
the Pennsylvania Rules of Civil Procedure, No. 1071 &c. and Laws of the
Commonwealth of Pennsylvania, or under any other law previously enacted and now
in force, or which may be hereafter enacted, for the recovery of articles,
household goods, furniture, etc., seized under distress for rent or levy upon
execution for rent, damages or otherwise; all waivers any hereinbefore mentioned
are hereby extended to apply to any such action; and/or
(d) may lease said premises or any part or parts thereof to such person or
persons as may in Lessor's discretion seem best and the Lessee shall be liable
for any loss o rent for the balance of the then current term.
16 - Confession of Judgment
If rent and/or any charges hereby reserved as rent shall remain unpaid on
any day when the same ought to be paid, Lessee hereby empowers any Prothonotary,
Clerk of Court, or attorney of any Court of Record to appear for Lessee in any
and all actions which may be brought for rent and/or charges, payments, costs
and expenses reserved as rent, or agreed to be paid by the Lessee and /or to
sign for Lessee an agreement for entering in any competent Court an amicable
action or actions for the recovery of rent or other charges, payments, costs and
expenses, and in said suits or in said amicable action or actions to confess
judgment against Lessee for all or any part of the rent specified in this lease
and then unpaid including, at Lessor's option rent for the entire unexpired
balance of the term of this lease, and/or other charges, payments, costs and
expenses reserved as rent to agree to be paid the Lessee, and for interest and
costs together with any attorney's commission of 5%. Such authority shall not be
exhausted by one exercise thereof, but judgment may be confessed as aforesaid
from time to time as often as any of said rent and/or other charges, payments,
costs and expenses, reserved as rent shall fall due or be in arrears, and such
powers may be exercised as well after the expiration of the original term and/or
during any extension or renewal of this lease.
17 - Ejectment
When this lease shall be determined by condition broken, either during the
original term of this lease or any renewal or extension thereof, and also when
and as soon as the term hereby created or any extension thereof shall have
expired, it shall be lawful for any attorney as attorney for Lessee to file an
agreement for entering in any competent Court an amicable action and judgment in
ejectment against Lessee and all persons claiming under Lessee for the recovery
by Lessor of possession of the herein demised premises, for which this lease
shall be his sufficient warrant, whereupon, if Lessor so desires, a Writ of
Execution or of Possession may issue forthwith, without any prior writ or
proceedings whatsoever, and provided that if for any reason after such action
shall have been commenced the same shall be determined and the possession of the
premises hereby demised remain in or be resorted to Lessee, Lessor shall have
the right upon any subsequent default or defaults, or upon the termination of
this lease as hereinbefore set forth, to bring one or more amicable action or
actions as hereinbefore set forth to recover possession of the said premises.
18 - Affidavit of Default
In any amicable action of ejectment and/or for rent in arrears, Lessor
shall first cause to be filed in such action an affidavit made by him or someone
acting for him setting forth the facts necessary to authorize the entry of
judgment, of which facts such affidavit shall be conclusive evidence and if a
true copy of this lease (and of the truth of the copy such affidavit shall be
sufficient evidence) be filed in such action, it shall not be necessary to file
the original as a warrant of attorney, any rule of Court, custom or practice to
the contrary notwithstanding.
19 - Waivers by Lessee of Errors, Right of Appeal, Stay, Exemption, Inquisition
Lessee expressly agrees that any judgment, order or decree entered against
him by or in any Court or Magistrate by virtue of the powers of attorney
contained in this lease, or otherwise, shall be final, and that he will not take
an appeal, certiorari, writ of error, exception or objection to the same, or
file a motion or rule to strike off or open or to stay execution of same, and
releases to Lessor and to any and all attorneys who may appear for Lessee all
errors in the said proceedings, and all liability therefor. Lessee expressly
waives the benefits of all laws, now or hereafter in force, exempting any goods
on the demised premises, or elsewhere from distraint, levy or sale in any legal
proceedings taken by the Lessor to enforce any rights under this lease. Lessee
further waives the right of inquisition on any real estate that may be levied
upon to collect any amount which may become due under the terms and conditions
of this lease, and does hereby voluntarily condemn the same and authorizes the
Prothonotary or Clerk of Court to issue a Writ of Execution or other process
upon Lessee's voluntary condemnation, and further agrees that the said real
estate may be on a Writ of Execution or other process. If proceedings shall be
commenced by lessor to recover possession under the Acts of Assembly, either at
the end of the term or sooner termination of this lease, or for nonpayment of
rent or any other reason Lessee specifically waived the right to the three
months' notice and/or the fifteen or thirty days' notice required by the Act of
April 6, 1951, P.L. 69, and agrees that five days' notice shall be sufficient in
either or any other case.
20 - Right of Assignee of Lessor
The right to enter judgment against Lessee and to enforce all of the other
provisions of this lease hereinabove provided for may, at the option of assignee
of this lease, be exercised by any assignee of the Lessor's right, title and
interest in this lease in his, her or their own name, notwithstanding the fact
that any or all assignments of the said right, title and interest may not be
executed and/or witnessed in accordance with the Act of Assembly of May 28,
1715, 1 Sm. L. 90, and all supplements and amendments thereof that have been or
may hereafter be passed and Lessee hereby expressly waives the requirements of
said Act of Assembly and any and all laws regulating the manner and/or form in
which such assignments shall be executed and witnessed.
21- Remedies of Cumulative
All of the remedies hereinbefore given to Lessor and all rights and
remedies given to him by law and equity shall be cumulative and concurrent. No
determination of this lease or the taking or recovering of the premises shall
deprive Lessor of any of his remedies or actions against the Lessee for rent due
at the time or which, under the terms hereof, would in the future become due as
if there has been no determination, or for any and all sums due at the time, or
which, under the terms hereof, would in the future become due as if there had
been no determination, nor shall the bringing of any action for rent or breach
of covenant, or the resort to any other remedy herein provided for the recovery
of rent be construed as a waiver of the right to obtain possession of the
premises.
22 - Condemnation
In the event that the premises demised or any part thereof is taken or
condemned for a public or quasi-public use, this lease shall, as to the part so
taken, terminate as of the date title shall vest in the condemnor, and rent
shall abate in proportion to the square feet of leased space taken or condemned
or shall cease if the entire premises be so taken. In either event the Lessee
waives all claims against the Lessor by reason of the complete or partial taking
of the demised premises, and it is agreed that the Lessee shall not be entitled
to any notice whatsoever of the or complete termination of this lease by reason
of the aforesaid
23 - Subordination
This agreement of Lease and all its terms, covenants and provisions are and
each of them is subject and subordinate to any lease or other arrangements or
right to possession, under which the Lessor is in control of the demised
premises, to the rights of the owner or owner's of the demised premises and the
land or buildings of which the demised premises are a part, to all rights of the
Lessor's landlord and to any and all mortgages and other encumbrances now or
hereafter placed upon the demised premises or upon the land and/or the buildings
containing the same; and Lessee expressly agrees that if Lessor tenancy or
control, or right to possession shall terminate either by expiration, forfeiture
or otherwise, then this lease shall thereupon immediately terminate and the
Lessee shall, thereupon, give immediate possession; and Lessee hereby waives any
and all claims for damages or otherwise by reason of such termination as
aforesaid.
24 - Termination of Lease
It is hereby mutually agreed that either party hereto may terminate this
lease at the end of said term by giving the other party written notice thereto
at lease 120 days prior thereto, but in default of such notice, this lease shall
continue upon the same terms and conditions in force immediately prior to the
expiration of the term hereof as are herein contained for a further period of
one year and so on from year to year unless or until terminated by either party
hereto, giving the other 120 days written notice for removal previous to
expiration of the then current term; PROVIDED, however, that should this lease
be continued for a further period under the terms hereinabove mentioned, any
allowances given Lessee on the rent during the original term shall not extend
beyond such original term, and further provided, however, that if Lessor shall
have given such written notice prior to the expiration of any term hereby
created, of his intention to change the terms and conditions of this lease, and
Lessee shall not within ________ days from such notice notify Lessor of Lessee's
intention to vacate the demised premises at the end of the then current term,
Lessee shall be considered as Lessee under the terms and conditions mentioned
such notice for a further term as above provided, or for such further term as
may be stated in such notice. In the event that Lessee shall give notice, as
stipulated in this lease, of intention to vacate the demised premises at the end
of the present term, or any renewal or extension thereof, and shall fail or
refuse so to vacate the same on the date designated by such notice, then it is
expressly agreed that Lessor shall have the option either (a) to disregard the
notice so given as having no effect, in which case all the terms and conditions
of this lease shall continue thereafter with full force precisely as if such
notice had not been given, or (b) Lessor may, at any time within thirty days
after the present term or any renewal or extension thereof, as aforesaid, give
the said Lessee ten days' written notice of his intention to terminate the said
lease; whereupon the Lessee expressly agrees to vacate said premises at the
expiration of the said period of ten days specified in said notice. All powers
granted to Lessor by this lease may be exercised and all obligations imposed
upon Lessee by this lease shall be performed by Lessee as well during any
extension of the original term of this lease as during the original term itself.
25 - Notices
All notices required to be given by Lessor to Lessee shall be sufficiently
given by leaving the same upon the demised premises, but notices given by Lessee
to Lessor must be given by registered mail, and as against Lessor the only
admissible evidence that notice has been given by Lessee shall be registered
return receipt signed by Lessor or his Agent.
26 - Lease Contains All Agreements
It is expressly understood and agreed by and between the parties hereto
that this lease and the riders attached hereto and forming a part hereof set
forth all the promises, agreements, conditions and understandings between Lessor
or his Agents and Lessee relative to the demised premises, and that the re are
no promises, agreements, conditions or understandings, either oral or written,
between them other than are herein set forth. It is further understood and
agreed that, except as herein otherwise provided, no subsequent alteration,
amendment, change or addition to this lease shall be binding upon Lessee or
Lessee unless reduced to writing and signed by them.
<PAGE>
27 - Heirs and Assignees
All rights liabilities herein given to, or imposed upon, the respective
parties hereto shall extend to and bind the several and respective heirs,
executors, administrators, successor and assigns of said parties; and if there
shall be more than one Lessee, they shall all be bound jointly and severally by
the terms, covenants and agreements herein, and the word "Lessee" shall be
deemed and taken to mean each and every person or party mentioned as a Lessee
herein, be the same one or more; and if there shall be more than one Lessee, any
notice required or permitted by the terms of this lease may be given by or to
any one thereof, and shall have the same force and effect as if given by or to
all thereof. The words "his" and "him" wherever stated herein shall be deemed to
refer to the "Lessor" and "Lessee" whether such Lessor or Lessee be singular or
plural and irrespective of gender. No rights, however, shall inure to the
benefit of any assignee of Lessee unless the assignment to such assignee has
been approved by Lessor in writing as aforesaid.
28 - Security Deposit
Lessee shall, upon execution hereof, deposit with Lessor as security for
the performance of all the terms, covenants, and conditions of this lease sum of
________________________________________________________________________________
____________________________________. This deposit is to be retained by Lessor
until the expiration of this lease and shall be returnable to Lessee provided
that (1) premises have been vacated; (2) Lessor shall have inspected the
premises after such vacation; and (3) Lessee shall have complied with all the
terms, covenants and conditions of this lease, in which event the deposit so
paid hereunder shall be returned to Lessee; otherwise, said sum deposited
hereunder or any part thereof may be retained by Lessor at his option, as
liquidated damages, or may be applied by Lessor against any actual loss, damage
or injury chargeable to Lessee hereunder or otherwise, if Lessor determines that
such loss, damage or injury exceeds said sum deposited. Lessor's determination
of the amount, if any, to be returned to Lessee shall be final. It is understood
that the said deposit is not to be considered as the last rental due under the
lease.
29 - Headings No Part of Lease
Any headings preceding the text of the several paragraphs and
sub-paragraphs hereof are inserted solely for convenience of reference and shall
constitute a part of this lease, nor shall they affect its meaning, construction
or effect.
IN WITNESS WHEREOF, the parties hereto have executed these presents
the day and year first above written, and intend to be legally bound thereby.
SEALED AND DELIVERED IN THE PRESENCE OF
/s/ James Bergman /s/ Stuart N. Harting
- --------------------------------------- -------------------------------(SEAL)
LESSOR - Powerhouse Associates
- -------------------------------------- --------------------------------- SEAL
/s/ James Bergman /s/ S. Lance Silver for CCCHC GP
- -------------------------------------- --------------------------------- SEAL
LESSEE - Katmandu Investment Partners
CCCHC Gen. Partner
- -------------------------------------- --------------------------------- SEAL
S. Lance Silver, President
================================================================================
LEASE
POWERHOUSE ASSOCIATES
LESSOR
TO
KATMANDU INVESTMENT PARTNERS
LESSEE
Premises: 226 N. Second Street _ 3rd Fl.
Philadelphia, PA 19106
Rent: $6,000.00 per year
Commence January 1, 1995
Expires: December 31, 1999
FOR VALUE RECEIVED __________________ hereby assign, transfer and set over unto
_______________________________________________________________________________
Executors, Administrators, Successors and Assigns, all __________ right, title
and interest in the within
__________________________________________________________________ and all
benefit and advantages to be derived therefore.
Witnes ____ hand and seal this _______ day of __________________ A.D. 19__
SEALED AND DELIVERED
IN PRESENCE OF
<PAGE>
ROOF LEASE
Date: July 15, 1996
POWERHOUSE ASSOCIATES as Lessor, hereby leases to KATMANDU ENTERTAINMENT CORP.,
Lessee, the premises described as:
Location: 226-30 North Second Street, Philadelphia, PA
Leased area: East face of an existing double faced
14' X 18' illuminated roof sign
for the term of One (1) year(s), beginning October 1, 1996 at the yearly rental
of Twelve Thousand and no/100 Dollars ($12,000.00) payable in monthly
installments of One thousand Dollars ($1,000.00).
This lease shall continue from year to year beyond the expiration of the
original term herein created upon the same terms and conditions, until either
party shall notify the other in writing of intention to change at least sixty
(60) days prior to the expiration of the then contract year.
Lessee shall have the sole and exclusive use and possession of the Premises
hereby leased and shall use and occupy said Premises for the erection and
maintenance of painted , posted, illuminated or other types of advertising
signs, fixtures, structures, devises and equipment of every design and nature,
including the installation of suitable electric wiring and metering equipment
where directed by the electric company. Cost of electricity is to be paid by
Lessee.
The Lessee shall, so long as it shall maintain any structures on said roof, but
no longer, make all necessary repairs to said roof at its expense, provided that
the Lessee shall not be held responsible for damages hereunder unless it shall
fail to make such repairs within a reasonable time after having been notified by
the Lessor by registered mail of the necessity of such repairs and, in any
event, the Lessee's liability hereunder shall be limited to the reasonable costs
of making such repairs. By "repairs to said roof" is meant repairs to the tin,
gravel, slate, or other materials composing the exterior upper covering of the
building and not to the chimney, skylights, downspouts, gutters, or other
exterior or interior appurtenances, it being expressly understood that "repairs"
shall in no event mean repairs necessitated by the acts of persons other than
the agents or employees of the Lessee or replacements which may become necessary
by reason of normal wear and tear or the action of the elements.
For mutual protection, the Lessee is to maintain insurance and will provide
Lessor with a certificate naming Lessor as additional insured for the above
Premises, so endorsing Lessee's policy and indicating these limits: Public
Liability, $300,000 to $500,000; Property Damage, $100,000. Name Lessor in
certificate.
Lessor represents and warrants to Lessee that it has authority to make this
lease and covenants that no part of the Premises above described or any
adjoining Premises owned or controlled by Lessor will be used for advertising
purposes by anyone other than Lessee, without written permission, and that
Lessor will not permit Lessee's sign to be obstructed.
The Lessee shall at all times, during the term of this lease or any renewal
thereof, have free access to said Premises, for the purpose of erecting any of
its structures, and of maintaining, painting and posting the same.
This lease, or any extension or renewal thereof, may be terminated by Lessee
upon sixty (60) days prior written notice to Lessor if (a) the Premises hereby
leased in any way becomes obscured, destroyed, unsafe or unable to support
Lessee's structure(s); or (b) if Lessee is unable to obtain permits to build and
maintain such sign(s) as it contemplates, or if such permits are revoked or not
renewed, or (c ) if traffic shall be permanently diverted from the street (s)
adjacent to or leading to or past the premises, or because of a change in
direction of said traffic. Should Lessee terminate this lease under any of the
above provisions, Lessor will thereupon return any rent which Lessee may have
paid in advance for the unexpired term.
<PAGE>
Lessee is authorized to trim, cut and remove from the Premises, or from adjacent
Premises owned or controlled by the Lessor, any trees, brush, vegetation or
other materials which it deems necessary for an unobstructed view of advertising
which it may display on the Premises.
Should the electrical service to the structure(s) covered under this agreement
be reduced by the request or order of any duly constituted governmental agency,
or by the electric company, the rental payable during such period(s) shall be
reduced by 25%; or 50% if electricity must be eliminated; or at Lessee's option
the rental shall be abated, provided that paid advertising shall not appear
during the existence of such condition.
The whole of the parties' agreement is embodied herein and no stipulation,
representation or agreement not contained herein shall bind either party. No
modification of this agreement after its execution shall be effective unless
reduced to writing, signed by the parties and attached hereto as an addendum.
The lease shall inure to the benefit of and be binding upon the personal
representatives, heirs, successors and assigns of the parties.
IN WITNESS WHEREOF, the parties have set their hands and seals on the day and
year first above written, intending thereby to be legally bound.
Lessee: Lessor:
KATMANDU ENTERTAINMENT CORP. POWERHOUSE ASSOCIATES, L.P.
415 N. COLUMBUS BOULEVARD 226-230 N. SECOND STREET
PHILADELPHIA, PA 19123 PHILADELPHIA, PA
By: BY:
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Witnesses:
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<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
Registration Statement No. 333-9009.
Arthur Andersen, LLP
New York, New York
September 16, 1996
